{"id":23937,"date":"2017-11-15T16:12:17","date_gmt":"2017-11-15T21:12:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/warehouse-automation-and-digitalization-in-the-indian-consumer-packaged-goods-industry\/"},"modified":"2017-11-15T16:12:18","modified_gmt":"2017-11-15T21:12:18","slug":"warehouse-automation-and-digitalization-in-the-indian-consumer-packaged-goods-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/warehouse-automation-and-digitalization-in-the-indian-consumer-packaged-goods-industry\/","title":{"rendered":"Warehouse automation and digitalization in the Indian consumer packaged goods industry"},"content":{"rendered":"

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

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]<\/sup><\/strong> in India, ITC\u2019s 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]<\/sup><\/strong> in India (until before 2017) makes it expensive for them to do so.<\/p>\n

The company\u2019s 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\u2019s logistics.<\/p>\n

    \n
  1. Rising real-estate costs:<\/strong> 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\u2019s facilities are 10ft tall. Thus, floor space productivity is low.<\/li>\n
  2. Low product margins:<\/strong> ITC sells perishables that with low gross margins. Thus, warehousing and logistics have tight cost bounds.<\/li>\n
  3. Large SKU assortment:<\/strong> With over 3000 SKUs, a long tail and regional\/seasonal variants the SKU assortment multiply the operational complexity of warehouse operations.<\/li>\n
  4. Poor inventory management:<\/strong> Warehouses store\/fulfill orders based on paper based accounting systems, often leading to pilferage, delays and errors.<\/li>\n
  5. Lack of skilled productive labor and escalating labor costs:<\/strong> Minimum wage is growing fast and skilled labor is hard to find.<\/li>\n
  6. Lack of consolidation:<\/strong> With 60 warehouses around India, ITC\u2019s customer base is fragmented, order SKU\/volume variation is high and downstream logistics is sub-optimal.<\/li>\n<\/ol>\n

    ITC\u2019s 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 \u2013 warehousing and transportation \u2013 constitute the largest indirect cost. Management realizes it is imperative to revolutionize warehousing [7]<\/sup><\/strong> if they had to keep ITC competitive going forward.<\/p>\n

    The company instituted a two-phase plan comprised of digitization, automation and operational best-practices to revolutionize warehouse operations.<\/p>\n

    Phase 1<\/strong><\/h3>\n
      \n
    1. Warehouse management system (WMS):<\/strong> Implemented a WMS that tracks inventory at SKU levels and generates order picking waves based on Customer-Orders.<\/li>\n
    2. WMS integration with ERP systems (WH, MF, WD):<\/strong> WMS system speaks with a fully integrated ERP system to pull master data, track inventory in transit and identify inventory levels downstream.<\/li>\n
    3. Systematizing order flow:<\/strong> Setup an auto-replenishment system to pull inventory downstream, especially for fast moving SKUs, when inventory levels fall below a threshold.<\/li>\n<\/ol>\n

      Phase 2<\/strong><\/h3>\n
        \n
      1. Migration to 40ft racked warehouses:<\/strong> 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.<\/li>\n
      2. Basic automation with pallet trucks:<\/strong> Pallet trucks (PT) to convey pallets around the warehouse, and Height-reach trucks (HRT) to place\/pick pallets in to rack-storage locations.<\/li>\n
      3. WMS driven, hand-held terminal (HHT), Barcode assisted operations:<\/strong> 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.<\/li>\n<\/ol>\n

        Enabler:<\/strong> In 2017, the hallmark GST-bill goes into effect altering the indirect taxation structure [5][6]<\/sup><\/strong>. 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.<\/p>\n

        Phase 3<\/strong><\/h3>\n
          \n
        1. Consolidation \u2013 mega warehouses cum factories:<\/strong> 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\u2019s logistics requirements.<\/li>\n
        2. 80-100ft tall highly automated warehouse schema:<\/strong> Each warehouse is expected to store and fulfill about 8-10x the current product volume handled by a large warehouse.<\/li>\n
        3. Migrate to a more advanced WMS cum Equipment Control System (ECS):<\/strong> The organization is investing in a plethora of IT Hardware and advanced WMS\/ECS software [9]<\/sup><\/strong> to instruct automated storage systems, conveyors, sorters, palletizers and other equipment.<\/li>\n
        4. Pilot new technologies and operational efficiency projects<\/strong> at \u201cPhase 2\u201d warehouses<\/li>\n<\/ol>\n

          While ITC is making strides on the automation front I\u2019d recommend the organization to build flexibility into the warehousing system and continue to drive operational improvements. A few ideas are<\/p>\n

            \n
          1. Dynamic ABC-classification and storage reorganizations<\/li>\n
          2. Truck load optimization<\/li>\n
          3. Case-load\/Tote-load storage systems to augment pallet-load systems<\/li>\n
          4. Space planning\/flexibility [10] <\/sup><\/strong>for refrigerated storage setups<\/li>\n<\/ol>\n

            (795 words)<\/strong><\/p>\n

            <\/h3>\n

            Open questions<\/strong><\/h2>\n
              \n
            1. How should ITC manage risk of IT failures and equipment breakdown at the warehouse?<\/li>\n
            2. What other assistive technologies\/digitization initiatives can the organization adopt?<\/li>\n<\/ol>\n

              <\/h3>\n

              References<\/strong><\/h2>\n

              [1] ITC Limited, \u201cBusiness FMCG,\u201d http:\/\/www.itcportal.com\/businesses\/fmcg\/index.aspx<\/a>, accessed November 2017.<\/p>\n

              [2] Yahoo Finance, \u201cITC stock ticker,\u201d https:\/\/finance.yahoo.com\/quote\/ITC.NS?p=ITC.NS<\/a>, accessed November 2017.<\/p>\n

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

              [4] \u201cSkill gaps in the Indian Logistics Sector: A white paper,\u201d KPMG Logistics 2007 http:\/\/www.in.kpmg.com\/pdf\/logistics.pdf<\/a>, accessed November 2017.<\/p>\n

              [5] Anirban Chowdhury, \u201cGST to help drive new-age warehouses for India Inc’s ambitions,\u201d 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<\/a>], accessed November 2017.<\/p>\n

              [6] \u201cIndia\u2019s Warehouse Automation Is At Its Peak As Industries Gear Up To Meet Fulfillment Demand,\u201d Analytics India Magazine [URL: https:\/\/analyticsindiamag.com\/indias-warehouse-automation-peak-industries-gear-meet-fulfilment-demand\/<\/a>], accessed November 2017.<\/p>\n

              [7] Alicke, K., D. Rexhausen, and A. Seyfert, \u201cSupply chain 4.0 in consumer goods,\u201d McKinsey & Company [URL: https:\/\/analyticsindiamag.com\/indias-warehouse-automation-peak-industries-gear-meet-fulfilment-demand\/<\/a>], accessed November 2017.<\/p>\n

              [8] Expert opinions from former and current employees deeply ensconced in ITC\u2019s warehouse automation efforts, accessed November 2017.<\/p>\n

              [9] \u201cRedefine retail warehousing with automation,\u201d Industry white paper: GreyOrange Robotics [URL: http:\/\/rai.net.in\/E-Mailers\/ReTechCon-Reports\/Unveiling-of-white-paper-Redefine-Retail-Warehousing-With-Automation.pdf<\/a>], accessed November 2017.<\/p>\n

              [10] \u201cFlexible fulfillment from store strategies to optimize cost an destress supply chain,\u201d Industry white paper: Infosys [URL: https:\/\/www.infosys.com\/consulting\/insights\/Documents\/flexible-fulfilment-store.pdf<\/a>], accessed November 2017.<\/p>\n

              [11] C. Thaller et al, \u201cAnalysis of the logistics research in India,\u201d [URL: http:\/\/web.iitd.ac.in\/~ravi1\/4a_White%20Paper%20Logistics%20Research%20in%20India%20%282%29.pdf<\/a> ], accessed November 2017.<\/p>\n

              [12] Image [URL: http:\/\/blog.mordorintelligence.com\/wp-content\/uploads\/sites\/4\/2015\/07\/Automation.jpg<\/a>]<\/p>\n","protected":false},"excerpt":{"rendered":"

              How should consumer packaged goods companies in developing countries such as India digitalize and automate their supply chains to stay competitive?<\/p>\n","protected":false},"author":9672,"featured_media":23938,"comment_status":"open","ping_status":"closed","template":"","categories":[2123],"class_list":["post-23937","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digitalization","hck-taxonomy-organization-itc","hck-taxonomy-industry-consumer-products","hck-taxonomy-country-india"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nWarehouse automation and digitalization in the Indian consumer packaged goods industry - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/warehouse-automation-and-digitalization-in-the-indian-consumer-packaged-goods-industry\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Warehouse automation and digitalization in the Indian consumer packaged goods industry - 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