Deck of 4_MWR
- 1. Mahindra Logistics E-COMMERCE MARKET ENTRY AND GROWTH STRATEGY TEAM: DECK OF FOUR XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR Member Names Institute ID Email ID Academic Year ARSH KHOSLA UM1419 2 um14192@stu.ximb.ac.in 2nd Year NISHAN GANTAYAT UM1420 9 um14209@stu.ximb.ac.in 2nd Year SAIKAT MUKHERJEE UM1421 8 um14218@stu.ximb.ac.in 2nd Year AAKRITI SHARMA UM1500 1 um15001@stu.ximb.ac.in 1st Year
- 3. RESEARCH METHODOLOGY • Personal interviews with: • Mr. Chandan Dash (Business Head- Orissa, Blue Dart) • Mr. Govinda Agarwal (Program Manager, Amazon India) • Mr. Stalin Mohapatra (Manager Operations Risk, Amazon India) • Mr. Divya Kumar Gupta (Head- Operations Products, Jabong) • Questionnaire survey to understand e-commerce buying preferences of consumers • Visit to Transport Corporation Of India (TCI) Primary research • Databases: India Stat, Census • Published Reports: Industry Reports by PWC, KPMG, Deloitte, High Jump Software, Motilal Oswal • Logistics Websites: Supply Chain 24X7, Armstrong & Associates Secondary research
- 4. VISION, MISSION AND OBJECTIVES Vision Of To be India’s leading, most preferred, integrated logistics service provider VISION To be a true end-to-end 3PL solutions provider MISSION 1. Co-create solutions with our key customers 2. Strive to deliver quality services through innovation 3. Understand customer needs and provide unmatched value OBJECTIVES 1. Develop capabilities to ensure high responsiveness and innovation 2. Ensure sustained growth in capacity and revenue 3. Invest in human resources through quality training to build employee confidence 4. Create operational linkages with key customers THE BIG, HAIRY, AUDACIOUS GOAL – TO BE AMONG THE TOP 10 MOST ADMIRED LOGISTICS COMPANIES IN THE WORLD BY 2030 Vision, Mission And Objectives for E-Commerce Business
- 5. CLASSIFYING 3PL COMPANIES Problem Solving Ability High Relatively High Customer Adaptation Relatively High High Service Developer Customer Developer Standard 3PL provider Customer Adapter Supply standard services for customers such as warehousing, distribution, pick and pack Advanced value added package will be offered to the customer. Focus is to create more economies of scale and scope for the customers 3PL will take over customers’ existing activities such as warehouse or distribution and make an improvement on efficiency of controlling Most advanced and difficult form for 3PL. Provides range of skills such as know-how, methods, knowledge development and design of supply chain Target to become customer adapter by 2020 Targettobecomeacustomer developerby2028 Mahindra Logistics
- 6. 672.01 349.06 99.39 89.55 61.84 42.6 38.86 26.83 19.79 19.02 42% 14% 15% 14% 12% 11% 11% 17% 17% 9% 0 100 200 300 400 500 600 700 800 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Top 10 e commerce countries based on projected web sales Projected Online Sales (2015) ($Billion) Year-on-Year Growth India presently Does not feature In the top 10 E-Commerce markets globally based on total sales 2430.68 672.08 199.9 172.4 108.9 86.18 71.78 65.48 58.82 43.38 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 Projected Sales in 2020 ($Billion) Projected Sales ($Billion) By 2020, India will be no.6 E-COMMERCE MARKET E-Commerce industry in India set to be valued at more than $100 billion in the next 8-10 years. This represents a great opportunity for Mahindra Logistics to expand its market share in E-Commerce logistics in pursuit of its Big Hairy Audacious Goal (BHAG) towards 2030.
- 7. 751 790 832 876 922 963 1007 1052 1099 1149 1201 1255 1311 1370 1432 1496 1563 0 200 400 600 800 1000 1200 1400 1600 1800 Y2014 Y2015 Y2016 Y2017 Y2018 Y2019 Y2020 Y2021 Y2022 Y2023 Y2024 Y2025 Y2026 Y2027 Y2028 Y2029 Y2030 Global Industry Size (in USD Billion) 18694 22620 27370 33118 40073 48488 58670 70405 84485 101383 121659 145991 175189 210227 252272 302727 363272 0 50000 100000 150000 200000 250000 300000 350000 400000 Y2014 Y2015 Y2016 Y2017 Y2018 Y2019 Y2020 Y2021 Y2022 Y2023 Y2024 Y2025 Y2026 Y2027 Y2028 Y2029 Y2030 India Industry Size (in INR crore) 3PL MARKET ANALYSIS Gati 6% TCI 12% DIESL 5% TVSL 7% Allcargo 26% Mahindra Logistics 9% Others 35% Market Share -2014 Current size of Global 3PL Industry = $750 Billion Global 3PL Industry in 2030 = $1.56 Trillion Current size of Indian 3PL Industry = $2.8 Billion Indian 3PL Industry in 2030 = $55.88 Billion Mahindra Logistics’ Current Market Share = 9% Source: PWC Transportation & Logistics 2030 Emerging Markets Reports
- 8. 3PL MARKET ANALYSIS Developed countries on an average spend 8-9% of GDP on logistics Online Retail $34 Billion market by 2020 $ 263 Billion market by 2030 Addition of 7.5 – 15 million sq. ft. in fulfillment centres i.e. addition of 6-12% space in organised warehousing KEY TAKEAWAY – Indian companies will have to make significant investments in IT capabilities and infrastructure development in the logistics industrty India has a long way to go in logistics service level compared to its regional peers Source: Motilal Oswal report on Logistics Companies India Currently Spends 13% of its GDP on logistics 42% CAGR 22% CAGR
- 9. KEY PLAYERS IN E-COMMERCE LOGISTICS LOGISTICS COMPANIES CAPTIVE LOGISTICS COMPANIES • The established logistics players such as FedEx and Blue Dart account for more than 70% of the market share. • Among the logistics companies, E-commerce currently accounts for a small proportion of their total revenue. • Bluedart: 10-12% • Gati: 3% • Leading e-tailers have their own in-house last mile delivery companies such as eKart for Flipkart and Go Javas for Jabong 35% 34% 5% 2% 24% FedEx Bluedart Gati DotZot Others Market Share in E-Commerce Logistics
- 10. GLOBAL E-COMMERCE INDEX Product Category Global Average United States United Kingdom Germany Japan India Brazil Russia China South Africa Electronics 77% 83% 84% 90% 53% 79% 86% 71% 96% 60% Home Appliances 59% 46% 65% 58% 41% 67% 70% 62% 83% 41% Home Furnishings 53% 56% 65% 66% 53% 59% 48% 43% 65% 34% Fashion & Apparel 76% 87% 85% 88% 66% 84% 75% 64% 97% 47% Sports & Outdoor 52% 56% 53% 66% 36% 52% 49% 51% 78% 35% Beauty Products 57% 50% 56% 62% 48% 68% 59% 53% 85% 41% Household Items 45% 36% 48% 40% 41% 60% 35% 36% 84% 31% Groceries 45% 26% 60% 36% 68% 52% 29% 31% 90% 31% Tickets 64% 74% 69% 63% 43% 79% 65% 51% 71% 69% Music & Games 62% 75% 75% 66% 46% 65% 62% 43% 69% 64% Books 73% 82% 82% 80% 65% 70% 75% 52% 89% 64% % of respondents who made online purchases in the 1st Quarter of 2015 >75% have purchased the category online 50%-75% purchased the category online <50% purchased the category online Source: AT Kearney Connected Consumer Study
- 11. ORDER ACCURACY Of customers will never buy from an e- commerce merchant if they receive one incorrect order 29% FAST DELIVERY 42% Of customers will have abandoned a shopping cart when they realized delivery time will be too slow SCHEDULED DELIVERY 60% Of consumers expect to be given a delivery date when they shop online ORDER TRACKING 75% Of consumers feel that every e-commerce merchant should offer a way to track orders online FINDINGS FROM RESEARCH : WHAT DO THE E-COMMERCE CONSUMERS EXPECT
- 12. KEY FINDINGS FROM PRIMARY RESEARCH 76% 40% 54% 52% Customers demand delivery within 24-72 hours Customers are dissatisfied with their delivery . Customers Suffer from defective or tampered- damaged products Customers are interested in flexible delivery options like collecting from a nearby store/depot. Delivery CSFs Delivery Speed Use of Mobile App to track delivery Secure Delivery Call/Message before Delivery Debit/Credit card swipe facility for payment Responsiveness of delivery personnel Ease of Return
- 13. KEY GROWTH DRIVER FOR LOGISTICS IN INDIA : IMPLEMENTATION OF GST • Distance from Mumbai to Kolkata = 2,103 km • Distance from Los Angeles to Chicago = 2,015 km • Time taken to transport goods = 108 hours • Time take to transport goods = 48 hours • A vehicle would encounter 21 tolls and 12 RTO and sales tax check posts • Much less as compared to those in India INDIA VS UNITED STATES – A CASE STUDY THE CURRENT SCENARIO • 30-40% reduction in logistics cost and freight time by cutting delays due to roadblocks, tolls etc. • Goods and Services Tax (GST) system will replace 15 State and Central tariffs for a single tax at the point of sale. • Shipments and returns will take place with more efficiency and lesser paper work. • Proper pricing and margins of goods can be computed. IMPACT OF IMPLEMENTING GST Key Takeway: With GST set to be implemented in 2016, this will be a key growth driver for E-Commerce logistics and improve efficiencies for logistics providers Global performance: India is ranked 46th among 155 countries in logistics performance Index • Multiple Tax: Goods in India pass through multiple taxation. Delays in Transit: An average of 5-7 hours is taken at each check point.
- 14. IMPACT OF IMPLEMENTATION OF GST Several Distributed Warehouses Fewer consolidated warehousing clusters Implementation of GST
- 15. WarehousingResearch Findings and Market Analysis Inbound Logistics Last Mile Delivery Brand Architecture Financials
- 16. Electronic Data Interchange Cold Storage Reverse Logistics • Seamless data exchange for better collaboration • Information symmetry • Real time replenishment • Online Grocery -200% CAGR by 2020. • Seasonal Demand results in spoilage and waste • Seasonal Production REturn-REfurbish-Remarket • Comman Price premium • Faster Returns Management • Co-Creation of Value Competitive Edge WAREHOUSING 2012 2017 11 28 140 220 Cold Chain in India Organised Unorganised *INR billion CAGR of 15-20% Mahindra Logistics can create strategic partnership with Mahindra EPC to create solutions in solar energy to cut operating costs of warehouses like cold storage Rs.90/ cub ft Rs.40/ cub ft 30% 10% Power Expenses India Developed Countries Overall Expenses
- 17. INNOVATION IN WAREHOUSING : RFID (Radio Frequency Identification) Hardware: tags, readers, and transponders, as well as any relevant capital equipment Intangibles: business process analysis, training and implementation, research and development Integration to existing supply chain applications: purchasing middleware, upgrading enterprise systems Reduce labor cost Reduce unsaleable and out-of-stock items Increase inventory accuracy Reduce inventory stock levels Elimination of In- Scan & Out-Scan at warehouses Instant Information Sharing Real time-’Continuous’ tracking which is not possible currently. Cloud Based Logistic Services makes real time data availability high
- 18. FactorsImpactingEfficiency Inventory Management • Highly disorganized physical storage at distribution centers • Improper Space Utilization • Inventory Inaccuracy Order Fulfillment: • Pick accuracy is high due to manual activity. • Redundant process of In-scan & Out-Scan at every touchpoint. Labor Productivity • Lack of automation. • Bad Ergonomics. The picking, carrying, receiving operations seen to be stressful and labor intensive. Current State Storage management Inventory Control Billing Order Management Desired State Automatic Order Picking Monitoring Space Utilization Automated Warehouse tracking Transportation Management WAREHOUSE MANAGEMENT SYSTEM Simplify Processes Reduce Touches Reduce Costs Pick to Light & Put to Light will ease the movement within the warehouses as well as reduce human errors. The system would be lean. Automated Guided Vehicles that will be integrated with real time customer orders. The transition would be aligned to increase in demand. Picking costs constitutes 55% of operational cost of warehouses. Increased labour productivity and better accuracy. Semi-Automatic Automatic Problem Area The Solution Impact of Solutions
- 19. INNOVATION IN WAREHOUSING: 3D PRINTING High Low Suitabilityfor3DPrinting Low HighCost of Transportation as a Percent of Total Product Cost Aircraft Parts Glass Food Paper Apparel Furniture Toys Footwear Leather Products Art & Antique Reproductions Arms & Ammunitions • In the late 1990s Amazon introduced the concept of print on demand for the books which sold less in volume by employing high tech printers in its warehouses which gave the same quality of print as one in the printing press. • This helped them do away with holding cost for slow moving items and ensuring they were able to sell when a customer ordered that particular book Where does 3D Printing Come In? • Picking up on the idea of what Amazon did with books, today with 3D printing technology, many other products can be made available • As per the matrix in the figure, products such as apparels, footwear and furniture are more suited to 3D printing. • These products also do make up chunk of E- Commerce purchases in India BENEFITS CHALLENGES • No waste • Point of sale production • Cuts CO2 emissions • Customized • Competitive • No mass production • Intellectual property issues • Product liability issues
- 20. A Traditional Supply Chain Long lead time High Transportation Cost Manufactured goods are “pushed out” and distributed through warehouse networks to customers Products are mass- produced like in China IMPACT OF 3D PRINTING ON SUPPLY CHAINS 3D Printing Supply Chain Locally printed and distributed Low carbon footprint Low transportation cost Customized Production “Pulled” by customer demand Short lead time 3D printing technology will help reduce inventory costs and provide products without actually stocking it. This would reduce cost to the end consumer
- 21. WAREHOUSING: EMPLOYEE TURNOVER Occupational Variable • Experience – experienced employees reduces turnover Organizational Variables • Part time vs Full Time – More number of full-time employees have higher turnover • Space – Larger space has higher employee turnover • Friendly Atmosphere –Family-friendly atmosphere for employee reduces turnover Individual Variables • Referral Bonus – Referral bonus for employee recruitment reduces turnover • Job Security – prioritization of job security reduces turnover. FACTORS IMPACTING EMPLOYEE TURNOVER AT WAREHOUSES • Job Security is the most important factor impacting the employee turnover in warehouses. • As per the empirical research, monetary incentives were not the primary cause of employee turnover. Source :Examining sources of warehouse employee turnover; by Hokey Min; 2007 International Journal of Physical Distribution and Logistics Management • warehouse employee turnover can be reduced by increasing chances for active employee involvement and enhancing a sense of community among employees by installing “bottom-up” management attitudes and emphasizing on the employee-management relationship. • Regular training programs to hone the skills of the employee gives them a sense of security and belongingness to organization.
- 22. Warehousing Research Findings and Market Analysis Inbound Logistics Last Mile Delivery Brand Architecture Financials
- 23. • High Maintenance cost. • Safety Concerns are high particularly in monsoons. • Average time taken to cover 2000kms is 108 hours. Driver fatigue, numerous tolls, highway breakdowns key reasons. • Damage rate is high. • Reliability high for short haul routes. • Cost saving up to 45% • Improve white goods handling and also reduce damage. • Cost per volume is the least. • Provides capability to handle B2B e- commerce. INBOUND LOGISTICS : MULTIMODAL TRANSPORTATION SYSTEM * Distance a ton of good can travel per gallon of fuel. CURRENT CHALLENGES BENEFITS OF CONTAINERIZATION Asset-Side Swaps where in a company swaps capacity in a container or truck to efficiently utilize space & bring down the transportation cost 1 Container = 1.6 HCV
- 24. Cost benefits can be passed to customers by e-commerce companies to deliver attractive PRICE PROPOSITION. Reduces carbon emission and can help achieve sustainability targets. 1. Digital India: • Wi-Fi enabled stations to fuel the cloud based logistic strategy. Introduction of “Paarichalan” to monitor freight movement with help of mobile app. 2. Indian Railways Initiatives: • Dedicated high speed freight corridors along golden quadrilateral. • Rs. 280bn investment towards improving connectivity in North-East. • 100% FDI in railway infrastructure project • Automatic Freight Rebate in Traditional Empty Flow Direction. Multimodal System Multimodal System would help Mahindra Logistics reduce risks involved in long haul. Additionally, would enable to operate in organized manner and mitigate problems related to ad-hoc demand INBOUND LOGISTICS : MULTIMODAL TRANSPORTATION SYSTEM KEY DRIVERS
- 25. Warehousing Research Findings and Market Analysis Inbound Logistics Last Mile Delivery Brand Architecture Financials
- 26. INNOVATION IN LAST MILE DELIVERY: DRONE DELIVERY REGULATIORY FRAMEWORK • The Directorate General of Civil Aviation (DGCA) is making guidelines for civil use of drones • The International Civil Aviation Organization (ICAO) has not issued any recommendation or standards for the use of drones for civil purposes • Use of drones currently restricted only to film-making and recreational activities TESTING/USE OF DRONES • In 2014, a restaurant in Mumbai tested Pizza delivery with a customized drone. • Total time of delivery and the drone coming back was shorter than what a delivery boy takes • In China, Alibaba started trials of drones in February 2015 in Shanghai, Beijing and Guangzhou Order Staging Weight Limitation- Drones can only supports orders below a certain weight Distance Limitation- Drones can travel only for a limited distance Shipping Big-Ticket Items- Big threat of theft. Big ticket items are risky to be delivered through this medium Weather Restrictions- Not ideal in rain, hail, snows and storms KEY CHALLENGES INVOLVED IN DRONE DELIVERY Key Takeaway: In spite of the challenges, Taking up last mile delivery using drones will certainly disrupt the market. Customers today are willing to shell out extra money for quick delivery. For Mahindra Logistics, this would be a key differentiator and value proposition it can provide to the E- Commerce companies.
- 27. Partners Customers The Mobile App Clients • The unorganized SCV owners, two- wheeler owners who can leverage the volume traffic available with MLL . • The app would allocated parcel through an algorithm synchronizing volume, carrying capacity , distance to be travelled. • Customers would be able to track the parcel movement because of RFID. • Customers given an option to collect from nearby LOCKERS/Pick Centers. • Companies such as Deliv have already implemented this model • Some of the value added services being used by a company like Zipments can be implemented along with this model Partners • Opportunity to optimize capacity and earn. • Have to register with MLL through the app and on verification will be inducted into the pool. Customers • Tracking facility • Click & Collect feature. • Option of change in delivery address. • Photo of the delivery person will be sent to the customer for easy recognition and to avoid fraud CROWDSOURCING MODEL FOR LAST MILE DELIVERY
- 28. LAST MILE DELIVERY: LEVERAGE INDIA POST OR NOT Slow Delivery: India Post delivery men on bicycle hardly match courier boys on motorbikes Heavy Items: Lack of motorbikes increases difficulty in handling mobile phones, apparel etc GMV: Slow mode of sending parcels upsets sales targets of e- commerce companies which leads to lower GMV Integrity: Sometimes postmen seek money from customers for deliveries to remote areas KEY CHALLENGES WITH INDIA POST DELIVERY BENEFITS OF INDIA POST Unbeatable Network: Amazon services over 19000 pin codes through 140,000 post offices. Rural Depth: Rural depth of the network gives it an edge. More than 70% of orders on Snapdeal are from non-metro areas Advantage India Post: It handles more than 1.5 lakh e-commerce deliveries per day. The department handled Rs. 500 crore of Cash on Delivery in 2014-15 KEY TAKEWAY: Last mile delivery through capabilities of India Post certainly has its advantages in rural areas. However, this does come with the challenges of limited infrastructure of India Post in terms of delivery vehicles and trained personnel
- 29. Warehousing Research Findings and Market Analysis Inbound Logistics Last Mile Delivery Brand Architecture Financials
- 30. 1750 2275 2958 3845 4998 6498 8447 10559 13198 16498 20622 25778 30934 37120 44544 53453 64144 37 142 175 256 440 576 930 1181 1492 1879 2397 3407 4137 5024 6108 7380 89312.09% 6.25% 5.91% 6.65% 8.81% 8.87% 11.02% 11.18% 11.31% 11.39% 11.62% 13.22% 13.37% 13.53% 13.71% 13.81% 13.92% 0 10000 20000 30000 40000 50000 60000 70000 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% Mahindra Logistics - Revenue and Profit Projection Revenues PAT Profit Margin (%) (Figures in INR Crore) FINANCIALS – REVENUE AND PROFIT PROJECTION Industry Set for Peers Line Items Industry Average Operational expenses 68.08% of revenues Personnel Expenses 11% of revenues Other Expenses 11.81% of revenues Debt-Equity Ration 0.48 Industry Beta 0.98 WACC 10.83% *Risk-free rate (Rf) = 7.5% *Market Risk Premium = 6%
- 31. FINANCIALS – REVENUE AND PROFIT PROJECTION FOR ONLINE RETAIL BUSINESS (Figures in INR Crore)Current E-tail Industry (INR Cr.) 39,000 Average shipment value (INR) 2,000 No of Shipments per year (in Crore) 19.5 Avg. Delivery charges (INR) 100 Revenue Opportunity for 3PL (in INR Cr.) 975 Assumption : 50% of shipments are delivered through 3PL CAGR – 160% CAGR – 52% CAGR – 30% (Figures in INR Crore) 19.5 58.5 175.5 351.0 579.2 955.6 1433.4 2150.1 3225.1 4837.7 7256.6 9433.5 12263.6 15942.7 20725.5 26943.1 2.00% 4.00% 8.00% 10.67% 11.73% 12.91% 14.89% 17.18% 19.83% 22.88% 26.40% 27.45% 28.55% 29.69% 30.88% 32.12% 0.0 5000.0 10000.0 15000.0 20000.0 25000.0 30000.0 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% Revenue Projection from E-tail market Mahindra Logistics' revenue from E-tail Market share of Mahindra Logistics Mahindra Logistics will become the market leader in 3PL in the online retail segment
- 32. RFID COST-BENEFIT ANALYSIS 19% Audit cost reduction 21% Rework cost reduction 19% Scrap cost reduction 18% Management cost reduction 19% Customer service cost reduction 20% Total cost reduction % Cost Reduction 1 2 3 4 5 6 With RFID Operating cost for 5 Mn Sq. Feet=124.87 Cr Without RFID Operating cost for 5 Mn Sq Feet 155.14 Cr NPV Calculation for RFID Implementation Project NPV (Net Present Value) = Rs. 388.80 Cr. MIRR (Modified Internal Rate of Return) = 21.7% Annual Savings/Million Sq. Ft. = Rs. 6.05 Cr. KEY TAKEAWAY Cost elements No RFID($) With RFID($) % Cost Reduction RFID ($/Sq. ft.) No RFID ($/Sq. ft.) Audit 107,820 87,334 19 0.66 0.82 Rework 547,200 432,288 21 3.27 4.15 Scrap 1,376,208 1,114,728 19 8.44 10.43 Management 20,748 17,013 18 0.13 0.16 Customer Service 48,417 39,218 19 0.30 0.37 Total cost 2,100,393 1,690,582 20 12.81 15.91 Given these metrics, implementing RFID technology on a priority basis would be beneficial for the company
- 33. Warehousing Research Findings and Market Analysis Inbound Logistics Last Mile Delivery Brand ArchitectureFinancials
- 34. BRAND ARCHITECTURE Brand Stack Brand Park Brand Tower Brand Silos Current Future Customer Adapter Customer Developer Physique Self-Image CultureRelationship Personality Kapferer Brand Prism Personality • Image of competent, sincere, smart • Build a “True End-To- To “ 3PL • Build associations through endorsement and testimonials Self Image • Category Specific image crucial for brand success. • E-commerce boasts of innovation, MLL must supplement this through services & product experience. Culture • Pertinent towards making MLL among the most admired brand Brand Tower- Mother Brand-MLL - Need to showcase the strength and deliver results to build credibility Sub-Brand MLL-Ecommerce - Create competitive edge in E-commerce which will in turn build new equity for parent brand - Attach “Innovator, Young, Smart” tag from the category. Brand Silos - The product brands from here on would provide focus - Individual brands will help in developing & co- creating solutions * Offer Risk * Scale Risk * Resource & Enterprise Risk Eliminate Reflected Consumer Source Reciever 2015-2016 2016-2022 2016-2022
- 35. 2015 2020 2025 2030 1) RFID Implementation 2) Warehouse expansion @18% till 2020 1) Expansion of carrying capacity by road & rail 2) Implementation of asset-side swap for optimum utilization of capacity THE PATH TO THE BHAG Revenue expected to grow by 30% CAGR Revenue expected to grow by 25% CAGR 1) WMS upgradation to support RFID 2) Transitioning to cloud based IT capabilities 3) Handheld trackers for warehouses 1) App development for crowdsourcing 2) Implementation of crowdsourcing last mile delivery (pilot and complete implementation 1) Training and counseling sessions for employees 2) Build up cold storage capability Begin with pilot testing of express and premium delivery services through drones. Once successful, full scale operations for the same shall be launched Phase-wise implementation of 3D printing technology at the warehouses Implement AGV (Automated Guide Vehicle towards complete automation of warehousing activities Target to cross Rs. 8,000 crore in revenues Target to become the market leader in India in terms of revenue To become among the top 10 most admired logistics companies in the world in terms of size and capability 2016 2016-18 2016 - RFID 2016 2017 2022 - Drones 2025 – 3D Printing Revenue expected to grow by 20% CAGR
- 36. SOLTUTIONS SNAPSHOT ISSUES ADDRESSED High manpower turnover Poor efficiency Consistency WAREHOUSING KEY SOLUTIONS Focus on Job Security through employee engagement and training RFID technology for operational efficiency Strict quality checks on processes for standardization ✔ INBOUND LOGISTICS KEY SOLUTIONS RFID tracking on wi-fi enabled vehicles and containers Asset – side swap for better utilization of idle capacity Extensive coverage of the country through multi-modal transport system ISSUES ADDRESSED Real time visibility of vehicles Transportation for ad-hoc demand PAN India service ✔ LAST-MILE DELIVERY KEY SOLUTIONS Crowdsourcing of delivery creates partners not employees Mobile app tracking supported by RFID technology Superior delivery experience through drones and “click and collect” model ISSUES ADDRESSED High manpower turnover Real time delivery status Handle volume fluctuations Superior customer experience ✔
- 37. SNAPSHOT - 2030 YEAR 2030 Market Size Rs. 22,620 Crore Rs. 3,63,272 Crore 2015 2030 Online Retail – 3PL Rs. 975 Crore Rs. 83,893 Crore 2015 2030 Forecasted Revenue (Mahindra Logistics) = Rs. 64,144 Crore (2030) Mahindra’s Market Share = 2% Revenue = Rs. 20Cr. Mahindra’s Market Share = 32.12% Revenue = Rs. 26,943Cr. Mahindra’s Market Share = 9% Revenue = Rs. 1,750 Cr. Mahindra’s Market Share = 15.89% Revenue = Rs. 57,729 Cr. * Assumed 90% of total revenue from India operations, balance 10% from overseas operations 34.5% CAGR 21% CAGR
- 39. APPENDIX
- 40. RFID Cost Benefits Cost elements No RFID($) RFID($) % Cost Reduction Audit 107820 87334 19 Rework 547200 432288 21 Scrap 1376208 111472 8 19 Management 20748 17013 18 Customer Service 48417 39218 19 Total cost 2100393 169058 2 20 Total Annual cost with no RFID Cost elements No RFID Audit 107820 Rework 547200 Scrap 1376208 Management 20748 Customer Service 48417 Total Cost 2100393 RFID total investment Cost Elements for Year1 $ Tags 1500 Readers 82500 Software 25000 Implementation 63360 Total cost 172360 Total Annual Cost Comparison Maintenance Cost Elements $ Tag Replacement 1500 Labour 1334 Total Cost 2834 Annual Maintenance Cost 107820 547200 1376208 20748 48417 2100393 87334 432288 1114728 17013 39218 1690582 A UDIT RE W ORK S C RA P MA NA GE ME NTC US T OME R S E RVIC ET OT A L C OS T RFID COST BENEFIT No RFID($) RFID($)
- 41. Industry Set for Peers Typeof expense/Company Gati TCI BlueDart AllCargo Average Operational expense 60.56 78.44 66.16 67.16 68.08 Personnel Expense 9.78 5.3 13.92 15 11.00 Other expense 22.5 8.7 8.0 8.04 11.81 Total Expense 92.9 92.4 88.1 90.2 90.89 D&A 2.5 2.0 1.5 3.5 2.38 Int& FinanceCharges 2.0 1.5 1.3 1.58 Last5 Years' average(as %of sales) Calculation of WACC for Mahindra Logistics Tax (assumed) 30% Risk Freerate(assumed) 7.50% MarketRisk Premium 6% Costof Equity 13.36% Costof Debt 7.96% TargetD/V 0.324 WACC* 10.83% Beta for Mahindra Logistics is taken as 0.98 (industry average)
- 42. Warehouse operational cost Area 12500 Rent 200000 Security 30000 Employees 400000 Electricity and other costs 170000 Cost Per month in INR 800000 Income for Blue Dart from E-tail products For Air Cargo consignment is chanrged based on weight or volume (length*bredth*width) for Prepaid consinment up to 10 kg 275 COD up to 10 kg 275+75 >10 kg, per kilo, 20-25 rs extra For very small apex products such as mobile same rate as above, surely not less than 150 Minimume price for different type of consignment Gold (same day delivery) 200 Premium 150 Normal 100 For surface East-East 8 West-East 12 Simplified cost structure of a logistics company: Operational cost:50% Admin:30% *Margin:20% (minimum kept the logistics company) For companies like Blue Dart this margin can be higher Franchise Payment (RSP): Rs.32 per consignment up to 10 kilos. Rs.6 is added for every additional kilo. Return is Rs.16 up to 10 kilo. Security deposit=3*moneytary value of handled products per day Cost to operate a COD center (Nayapalli) 2,50,000 to 3,00,00 per month. 1 delivery boy can deliver up to 50 consignments in a day. Salary= 300/day=9000/month. For Ad-hoc requirement (part time)= 500/day= 15000/month PRIMARY RESEARCH DATA
- 43. WAREHOUSING: EMPLOYEE TURNOVER Demographic Variables: Gender Age Educational Level Occupational Variables: Skill Level Experience Tenure Organizational Variables: Firm Size Industry Job Content Working Environment Individual Variables: Pay Scale Job Security Reward Advancement Opportunity Job Involvement Work Ethic Job Alternatives Job Satisfaction Turnover
- 44. MARKET ANALYSIS: WAREHOUSING Parameters India China USA Market maturity Unorganized, fragmented warehousing industry • Highly fragmented • Top 20 companies contribute to 7% of total revenue • 20 largest companies control less than 30% of the market Warehousing Infrastructure • Size • Centralization of warehouses • Infrastructure • Godowns have a size of <10,000 sq. ft. • Multiple warehouses. One in every state • Poor Infrastructure • High pilferage risks • Market is fragmented in terms of operator’s geographical presence • Infrastructure is very average in quality • Warehousing companies operate a single facility of 200,000 sq.ft. • Excellent infrastructure Value Added Services Poor Neutral Good Level of Outsourcing Poor Poor Good Skilled Labour • Labour available but with poor training • Labour available but with poor training • Highly skilled labour Technology Used Poor Neutral Good Comparative Analysis of Key Variables in Warehousing Space
- 45. IN-HOUSE VS. 3PL Parameters In-House Logistics Third-Party Managed Logistics Capital Expenditure ✗ ✔ Last mile access ✗ ✔ Expertise in Operations ✗ ✔ Agility to respond to dynamic market ✗ ✔ Operational risk & requirement of management ✗ ✔ Delivery Cost ? ? In-house logistics requires heavy upfront investment Logistic network of third parties reach farthest corners of the country Experience and expertise of specialist third-parties is hard to copy Easy to modify logistic strategy and switch partner with third-party logistics Financial & management resources needed to run in- house teams; additional operating risk Managed services are generally costlier, may change with industry growth KEY TAKEAWAY: E-Commerce companies would benefit more from employing services of 3PL companies such as Mahindra Logistics. The above matrix provides the customer value proposition offered by 3PL companies rather than going for a captive logistics option