Costs challenge

USER PERSPECTIVE: K K Kaul, senior general manager for corporate logistics & commercial at LG Electronics India, outlines problems.

What are the problems in logistics you face?

Transportation is often an issue owing to requirement of many trucks at multiple manufacturing points, besides shortage of warehouse space due to high demand.

Due to volatility in demand and gap between forecast and sale at SKU level, inventory management issues in terms of inventory aging and days of inventory pose a big challenge. Transit damage was at present a small percentage of total volume, but the absolute numbers were higher than target.

This happens despite high logistics cost and pressure on freight cost due to rising fuel and warehousing cost caused by high demand and manpower cost.

Manpower attrition was also a concern as presently there was huge demand for supply chain professionals.

How do you combat these logistics problems?

For better transportation, LG has developed dedicated transporters with long-term commitment. Trucks with higher capacities were being placed for higher volume lifting while higher rotation of trucks benefited transporters in terms of higher ROI while LG shipped higher volume.

LG also practiced long-term commitment with warehouses and tied up with Central Warehousing Corporation (CWC ) for warehouse infrastructure.

To improve forecast accuracy, LG implemented GSCP for production based on demand from branch warehouses, thus reducing inaccuracy in forecasting. To reduce transit damage, closed-body containers, checklist and labour training was being done.

To cut logistics costs, activities like direct-to trade, high cubic-feet utilisation and optimum inventory management were being done to prevent pressure on freight and logistics costs.

To tackle manpower attrition, HR initiatives included organisation-wide initiative of 3Q "� Transactional Quality, Process Quality & Environmental Quality - to make LG a place where employees' long-term objectives are aligned with organisational goals.

How much is the cost of logistics in operations?

Logistics cost was 2.90 per cent of net sales in 2006.

What is the average time for supply from factories to consumers?

Average lead-time from factory to supply-points or warehouses is four days and from supply-points to customers or retail outlets is two days. End-users or customers purchase products from the retail outlets.

What is the average time for stock holding in godowns/ warehouses?

Our average days of inventory at godowns / warehouses is around 20 days, across 52 warehouses almost all major cities or locations in India.