Warehouse automation and digitalization in the Indian consumer packaged goods industry

How should consumer packaged goods companies in developing countries such as India digitalize and automate their supply chains to stay competitive?

ITC Limited [1] is an Indian conglomerate, with one of the largest consumer packaged goods businesses in the country. At a market-cap of $47Bn [2] and (FY17) Revenue of $9.5Bn [3] it competes head-on with Unilever, P&G and PMI across the CPG, personal-care and tobacco sub-sectors.

ITC has a highly-integrated supply chain with ~100 factories (MF) and 60 major FG warehouses (WH) around India. Packaged product meant for retail flows from factories to large regional warehouses, that hold roughly 2-4 weeks of stock. These warehouses serve two functions, inventory storage and order fulfillment to wholesale distributors (WD). Each warehouse touches between 80-120 WDs. Like other warehouses [11] in India, ITC’s warehouses run a largely manual, paper based operation. And while it could have been more operationally efficient for ITC to operate fewer warehouses, and assign more WDs to each, the indirect taxation structure [4] in India (until before 2017) makes it expensive for them to do so.

The company’s CPG business is among the fastest growing in India. The company is constantly adding new product categories and expanding existing product lines. These developments put a huge operational and financial strain on the organization’s logistics.

  1. Rising real-estate costs: Manual-picking and paper-accounting based warehouses means products are stored in short-stacks (6ft) at ground level. Unlike warehouses in Europe which are 80-160ft tall, ITC’s facilities are 10ft tall. Thus, floor space productivity is low.
  2. Low product margins: ITC sells perishables that with low gross margins. Thus, warehousing and logistics have tight cost bounds.
  3. Large SKU assortment: With over 3000 SKUs, a long tail and regional/seasonal variants the SKU assortment multiply the operational complexity of warehouse operations.
  4. Poor inventory management: Warehouses store/fulfill orders based on paper based accounting systems, often leading to pilferage, delays and errors.
  5. Lack of skilled productive labor and escalating labor costs: Minimum wage is growing fast and skilled labor is hard to find.
  6. Lack of consolidation: With 60 warehouses around India, ITC’s customer base is fragmented, order SKU/volume variation is high and downstream logistics is sub-optimal.

ITC’s direct costs are near/better than the industry benchmarks given the high levels of automation in its manufacturing facilities and general focus on process excellence/optimization. Logistics – warehousing and transportation – constitute the largest indirect cost. Management realizes it is imperative to revolutionize warehousing [7] if they had to keep ITC competitive going forward.

The company instituted a two-phase plan comprised of digitization, automation and operational best-practices to revolutionize warehouse operations.

Phase 1

  1. Warehouse management system (WMS): Implemented a WMS that tracks inventory at SKU levels and generates order picking waves based on Customer-Orders.
  2. WMS integration with ERP systems (WH, MF, WD): WMS system speaks with a fully integrated ERP system to pull master data, track inventory in transit and identify inventory levels downstream.
  3. Systematizing order flow: Setup an auto-replenishment system to pull inventory downstream, especially for fast moving SKUs, when inventory levels fall below a threshold.

Phase 2

  1. Migration to 40ft racked warehouses: Migration from traditional ground level warehouses to 6-8 level (3ft tall window) pallet storage rack warehouses. Effective inventory stored per unit area grows 4x.
  2. Basic automation with pallet trucks: Pallet trucks (PT) to convey pallets around the warehouse, and Height-reach trucks (HRT) to place/pick pallets in to rack-storage locations.
  3. WMS driven, hand-held terminal (HHT), Barcode assisted operations: WMS generated optimum storage tasks (instructions to PTs & HRTs to move pallets between locations), optimum case-picking routes for manual order picking, HHTs for pick validation/integrity.

Enabler: In 2017, the hallmark GST-bill goes into effect altering the indirect taxation structure [5][6]. Organizations can now fully offset tax paid on cross-border sales against tax liabilities in manufacturing region. ITC can now consolidate warehouses to improve efficiency. Thus, the CEO has set up a task force to establish phase 3.

Phase 3

  1. Consolidation – mega warehouses cum factories: ITC has formulated a NPV-positive automation model and plan to build mega warehouses, co-hosted with factories, in a phased manner to meet 2025’s logistics requirements.
  2. 80-100ft tall highly automated warehouse schema: Each warehouse is expected to store and fulfill about 8-10x the current product volume handled by a large warehouse.
  3. Migrate to a more advanced WMS cum Equipment Control System (ECS): The organization is investing in a plethora of IT Hardware and advanced WMS/ECS software [9] to instruct automated storage systems, conveyors, sorters, palletizers and other equipment.
  4. Pilot new technologies and operational efficiency projects at “Phase 2” warehouses

While ITC is making strides on the automation front I’d recommend the organization to build flexibility into the warehousing system and continue to drive operational improvements. A few ideas are

  1. Dynamic ABC-classification and storage reorganizations
  2. Truck load optimization
  3. Case-load/Tote-load storage systems to augment pallet-load systems
  4. Space planning/flexibility [10] for refrigerated storage setups

(795 words)

Open questions

  1. How should ITC manage risk of IT failures and equipment breakdown at the warehouse?
  2. What other assistive technologies/digitization initiatives can the organization adopt?


[1] ITC Limited, “Business FMCG,” http://www.itcportal.com/businesses/fmcg/index.aspx, accessed November 2017.

[2] Yahoo Finance, “ITC stock ticker,” https://finance.yahoo.com/quote/ITC.NS?p=ITC.NS, accessed November 2017.

[3] ITC Limited. 2017 Annual Report. [URL: http://www.itcportal.com/about-itc/shareholder-value/investor-relations.aspx], accessed November 2017.

[4] “Skill gaps in the Indian Logistics Sector: A white paper,” KPMG Logistics 2007 http://www.in.kpmg.com/pdf/logistics.pdf, accessed November 2017.

[5] Anirban Chowdhury, “GST to help drive new-age warehouses for India Inc’s ambitions,” Economic Times May 16, 2017 [URL: https://economictimes.indiatimes.com/industry/transportation/shipping-/-transport/gst-to-help-drive-new-age-warehouses-for-india-incs-ambitions/articleshow/58605148.cms], accessed November 2017.

[6] “India’s Warehouse Automation Is At Its Peak As Industries Gear Up To Meet Fulfillment Demand,” Analytics India Magazine [URL: https://analyticsindiamag.com/indias-warehouse-automation-peak-industries-gear-meet-fulfilment-demand/], accessed November 2017.

[7] Alicke, K., D. Rexhausen, and A. Seyfert, “Supply chain 4.0 in consumer goods,” McKinsey & Company [URL: https://analyticsindiamag.com/indias-warehouse-automation-peak-industries-gear-meet-fulfilment-demand/], accessed November 2017.

[8] Expert opinions from former and current employees deeply ensconced in ITC’s warehouse automation efforts, accessed November 2017.

[9] “Redefine retail warehousing with automation,” Industry white paper: GreyOrange Robotics [URL: http://rai.net.in/E-Mailers/ReTechCon-Reports/Unveiling-of-white-paper-Redefine-Retail-Warehousing-With-Automation.pdf], accessed November 2017.

[10] “Flexible fulfillment from store strategies to optimize cost an destress supply chain,” Industry white paper: Infosys [URL: https://www.infosys.com/consulting/insights/Documents/flexible-fulfilment-store.pdf], accessed November 2017.

[11] C. Thaller et al, “Analysis of the logistics research in India,” [URL: http://web.iitd.ac.in/~ravi1/4a_White%20Paper%20Logistics%20Research%20in%20India%20%282%29.pdf ], accessed November 2017.

[12] Image [URL: http://blog.mordorintelligence.com/wp-content/uploads/sites/4/2015/07/Automation.jpg]


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