Cold Chain : Building Infrastructure, Service Capability & Profiting from it

Vishal Sharma VP Operations RK Foodland Pvt Ltd

Preview
Overview of Food Supply Chain Macroeconomic Situation

Cold Chain Industry challenges Is Infra a barrier ? Growth drivers & Way forward
Outsourcing & How Service Capability drives Profits?

Introduction
India -- one of the biggest emerging markets, over 1.2 billion population & 300 million strong middle class. India --land area 2.97 mn sq. km., 180 mn hectares of arable land (one tenth of the world), 56 mn hectares irrigated . India -- second largest food producer in the world and having potential to become first.

India is the front ranking producer of many perishable commodities

Milk Largest Producer 100 Mn T

Cattle / buffaloes Largest in the world 283 million

F&V #2 in the world 151 Mn T Fisheries Marine: 2.7 Mn T Inland : 3.1 Mn T Food Grains #2 in the world (220 Mn T) Sugarcane # 2 in the world (245 Mn T)

Tea Largest Producer (0.85 Mn T) Goat & Sheep 182 million

Macroeconomic drivers in India

Drivers GDP Population Per Capita Income Growth (2012 2020) 7% to 9% 1.2% >15% growth (disposable income) Womens participation 70%

Entry level criterion

Entry player does not require large scale capital outlay and setting up of small, single and independent store is possible 2.5% urbanization Education and awareness, health consciousness, increase in packaged food Growth of beverages segment and on premise consumption gives opportunity to tap existing customers. Convenience of walk-in, facilitates quick chat/meeting over food. Changing and busy lifestyle, fast emerging middle class population and surging disposable income, the industry will continue to grow Projected contribution 30% of total trade by 2020, currently at 10% Currently Low but rising gradually

Lifestyle changes Growth indicators in other segments

Rapid Urbanization

Growing Modern Trade

Low labour cost

Distribution Network & Cold Chain in India

India wastes more fruit /vegetables than are consumed in whole of UK Cumulative waste is more than $6.7 billion, equivalent to 40% of total production of fruits and vegetables. Reason
Poor infrastructure - fragile produce being easily damaged / loss Untrained / Unskilled handling and subtropical temperature variation.

Food contributes to 70% of retail trade - largely unorganized. Critical absence distribution network and cold chain. Growing urbanization will overload processed food industry, growth of QSR with shifting consumer practices.
From traditional to ..modernized traditional (Thali system at restaurants) From globalize to Indianise (from hamburger to McAloo Tikki Burger) From value for money tovalue for time & convenience (home delivery of branded products) From conventional to..experimental (traditional to Chinese and Thai food)

Continued.

Cold Chain Landscape in india

5300 cold storages Cold chain capacity 60000 MT grossly inadquate. Greater than 90% for potatoes Indian food mkt to grow from $182 bn to $344 Bn by 2025. Key Industries requiring cold chainFFV,Ice cream,processed meat/poultry,marine products & pharma . Lack of trained manpower/expertise for robust/process driven cold chain service deliveries.

Industry Challenges/Entry Barriers

High real estate costs. High energy costs(30% Vs 10% in west) with 17-18% peak power deficit & thus associated captive power costs. Low Capacity utilization Average 50-60% Uneven distribution of capacity/regional approach(UP,MS,gujrat,WB,Punjab),traditionally catering single commodities Lack of logistics supportlow cash strength to invest to cover entire value chain. FDI restrictions in retail. Low private investors interest(prominent deals through PE/M&A2009-2,2010-3,2011-1)

Opportunities/Growth Drivers
Increasing spends on health foods

Govt Initiatives

Increasing Nuclear Families and Working Womenrising disposable incomes

Cold Chain Demand Drivers

Rise of Pharma-vaccine mkt 1000 cr ,YOY 2530% growth Organised Retail and Private Label Penetration

Demand for Functional Foods

Presently, the Indian cold chain industry is between Rs 10,000-15,000 crore, and is growing at 20-25 per cent and is expected to touch Rs 40,000 crore by 2015. 9

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Key Govt Initiatives to Promote Cold chain

Cold chain given Infrastructure status in 2011-12 budget. Exemption of excise duty for AC equipment,refrigeration panels & conveyor belts. 5% concessional import duty with full exemption of service tax. Duty free import of reefer units for vehicles. Tax benefits on investments. Access to external commercial borrowings. 100% FDI & 25% subsidy in project costs.

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Way Forward

Measures by Govt--(Land,FDI in retail,GST). Flow of investments. Willingness of customers to pay a premium for higher quality food products & Thus, Helping in a equitable distribution of cost of a strong cold chain infrastructure.

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Outsourcing & How Service Capability drives Profits?

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SCM Generates Value

Invest in efficient,effective & realiable supply chains while keeping a reasonable service level
customer satisfaction/quality/on time delivery, etc.

This is how SCM contributes to the bottom line

SCM is not strictly a cost reduction paradigm but an INVESTMENT !

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A picture is better than 1000 words! How many words would be better than 3 pictures?
- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer

Upstream

Downstream

- aims to Match Supply and Demand, profitably for products and services SUPPLY SIDE - achieves DEMAND SIDE

The right

Product
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+ + + + +
The right The right The right The right

The right

Price

Store

Quantity

Customer

Time

Higher

Profits
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Scope of activities as Supply Chain Partners

Strategies Requiring Logistics Support SCM / Menu Operations IT Marketing
Simplification Lean Responsive Supply Chain Competitive Standardization Quality assured Sustainable ` predictable supply Logistics Business Driven Pricing efficiencies Model

End-to-End Supply Chain Management ( Plan

Source

Make

Deliver)

Creating a lean, responsive logistics network that enables restaurant simplification

Plan
Demand Planning
Supply Planning (Upstream / Supplier) Supply Planning (Replenishment) Supply Chain network Design

Deliver
Inbound Freight
Transport Optimization Warehouse Optimization DC Procurement Risk Management

Simplify
Inventory management Receiving & delivery LP managed inventory Reverse Logistics

Quality Assurance, Social Accountability Organization, Governance, Skills & Capabilities Information Management Systems
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Asset and Capital Management

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Value Enabling

Value Creating
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Direction Setting

Focus on ones core competency and outsource non-core activities, and develop a positioning in the supply chain

High

The uniqueness of the capability

M&A

Develop with outside consultant

Selfestablished

Outsourcing
Low

Can consider outsourcing

Low

High

The enterprises capability

Drivers of Supply Chain Capability/Performance

Competitive Strategy

Supply Chain Strategy

Efficiency

Responsiveness

Supply Chain Structure

Inventory

Transportation

Facilities

Information

Drivers

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Considerations for Supply Chain Drivers

Driver Efficiency Responsiveness

Inventory

Cost of holding

Availability

Transportation

Consolidation

Speed

Facilities

Consolidation/Dedicated

Proximity/Flexibility

Information

What information is best suited for each objective

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Supply Chain Champions: Service vs. Costs

Source: McKinney & Institute for supply chain management

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Supply Chain Champions: Service Capabilty will drive Profits

Source: McKinney & Institute for supply chain management

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Total Cost of Ownership

Impact on Profitability if a service provider fails to deliver
ON TIME
Loss of sale for material not reaching on time Additional overtime of crew waiting to unloading the material
Stock out at stores Loss of sale and drop in foot fall Loss of opportunity to delight customer and impact on brand image Drop in yield of the product; more wastages at stores Chances of stock getting HOLD at stores leading to loss of sale Drop in gross margin at store and loss of incentive for teams Could delay time bound promotions planned at stores Opportunity loss to generate high sales during festivals Loss of sale and impact due to inventory carrying costs 21
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IN FULL

Quality of product

Promotions

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Thank You