Update

Indian logistics SPs are realizing the value of IT enabled operations

The Indian logistics industry is not the most technology savvy industry out there and it continues to be bedeviled by the proliferation of non-standard practices and processes. Vineet Malhotra, Global Head, Marketing, Kale Consultants talked to Rajendra Chaudhary on how IT has emerged as a key enabler in that business

When we look at logistics as a vertical, what is the disparity that currently exists in IT adoption?

It is quite significant. As a matter of fact, we recently conducted an extensive survey on the state of technology adoption in the logistics industry and found that the adoption levels are extremely out of whack. For the purpose of the survey we broadly classified this vertical in to two categories viz. asset based LSPs (read logistics service providers) and non-asset based LSPs. The non-asset based LSPs are pure play freight forwarders, whereas asset based LSPs are typically the shipping lines, airlines, railways, terminals, warehouses and container freight stations (CFS)/ Inland container depots (ICDs).

Many larger LSPs today have got considerable assets, which they know they have to utilize optimally in order to further strengthen their business. What we have seen is that if you are an asset based player, your average IT adoption levels are higher than that of a non-asset based player.

In fact, our estimates suggest that the IT adoption index of the top 25% asset based players is nearly two times the industry average. This is so because there is increased awareness among the larger players about the benefits of IT such as higher staff productivity, greater operational efficiency and visibility in the system etc. Typical staff productivity at IT savvy LSPs appear to be nearly 3.5 times more as compared to the LSPs with less IT automation. Although one can argue that greater staff productivity can also be a result of superior working environment and employee motivation policies but it doesn't mean that IT automation doesn't have anything to do with it. There is a clear correlation between the level of automation and quality of service rendered.

Are there any common grounds for both classes of organizations?

Yes, there are. As part of the survey one of the things we also looked at was the IT spend levels. Unfortunately when it comes to spending on IT, the results indicated that the overall annual spend on IT is well below 1% of revenues across all categories of LSPs, i.e. asset based as well as non-asset based LSPs. The propensity to spend on IT is almost equally low across all classes of LSPs.

Secondly, although the LSPs acknowledge the criticality of IT, they score equally poorly in terms of dependence on IT. We asked the participants a simple question that in case their IT operations were disrupted, how long would they be able to continue their operations? Typically in any other industry of similar size the responses tend to be not more that 2-4 hours but here we saw that even a 24 hours disruption was OK. This clearly meant that the LSP's dependence on IT is rather low in the country. This essentially means that either the Indian shippers are not sufficiently demanding or the service providers have not realized the full value of 24/7 connectivity.

What kind of technologies are adopted by LSPs?

Most LSPs, however big or small have some software running beyond the financial accounting piece which takes care of sales and marketing related packages or a CRM type of a system. Similarly a mid-market LSP offering multiple services would probably look at automating one or two key parts of its business. Secondly, instead of looking at automation in pieces they are now talking about an integrated approach to IT automation so that they'd have increased visibility. If you look at the logistics business, the biggest pain point for them and their customers is visibility.

Overall, if we look at the industry, one thing that comes across quite clearly is that most players have now started to look at their operations and have begun thinking about automating core operations. In the last couple of years, we have seen more LSPs implement basic IT facilities by the way of shrink wrapped products and in-house developed systems. What's more heartening is that the understanding and LSP's interest in IT has really gone up in the recent times and that's the most encouraging sign.

— Rajendra Chaudhary