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Kunal Bajaj

RMIC - Volume 6, Issue 19 (2013), pp. 1-6

Full Article Available Online at: Intellectbase and EBSCOhost RMIC is indexed with Cabells, JournalSeek, etc.

REVIEW OF MANAGEMENT INNOVATION & CREATIVITY


Journal Homepage: www.intellectbase.org/journals 2013 Published by Intellectbase International Consortium, USA

A PERISHABLE FOOD CHAIN INDUSTRY FACING ENERGY AND


DISTRIBUTION CHALLENGES
Kunal Bajaj

Indian Institute of Technology Kanpur, India

ABSTRACT

here have multiple warehouses (Distribution Centers) located in India and there
exist common suppliers for each product. Also, these suppliers are located across
the country. Warehouses order as per their requirement. Since the per trip loads
are not enough to send a dedicated truck from supplier to each warehouse, receiving on-time
deliveries and food safety of the products was a challenge. This had affected inventory
holding in warehouses leading to higher inventory carrying cost, high inventory days, threat of
stock-out situation and in-transit damages, safety of food items in transit and higher inbound
cost. Moreover, Retail Stores were delivered Frozen, Chilled and Dry goods in separate
vehicles. This resulted in higher transportation cost, more manpower in loading / unloading /
delivery and inconvenience to stores which were receiving, multiple deliveries and multiple
documents. Once Orders were placed, the status was available on the order w.r.t. the date and
time when the delivery will reach and the fill rate / quantity received, was known only when
the delivery reached the customer. This affected further commitments from Distributors to the
retailers and impacted subsequent orders. Since the retail purchase of the products, is driven
by impulse, absence of product in the shelf means loss of sales. Higher energy costs primarily,
electricity contributes major operational cost of running the high capacity warehouse, which
leads to scope of high use of Technology i.e. Puff Insulated panel on floor, roof and walls,
highly efficient and durable heat exchangers, compressors, Wind mill depending upon the
climate of location. Technological designed and strategically located warehouse is proposed
saving cost in electricity, transportation, ensuring consolidated delivery of all items at single
time leading to one invoice, optimization of inventory and truck load per trip.
Keywords: Fill Rate, Inventory holding/carrying, and Truck Load

INTRODUCTION
Indias $250-billion food and agri-sector is expected to double in the next 10 year where
transportation of food products plays a critical role in the value chain .India struggles with an
annual wastage of over $12 billion. Retailers would want to whittle down these losses by using
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A Perishable Food Chain Industry Facing Energy And Distribution Challenges

cold chains extensively. Financial investors are excited about this opportunity. This is a capitalintensive industry, traditionally the gestation has been varying between four-six years but if a
new facility were to be established at current property prices, the gestation could stretch
beyond 10 years
.
In perishables, the revenue charges per square feet are higher. But the storage need in most
cases is very short, so it becomes a volume-driven business with high margins. But cold
infrastructure for perishables also guzzles capital. Other products like electronics, phones and
consumables of computer hardware may not need much space, but requires careful handling
and a dust-free environment. Some of these can turn into low-capital, but profitable niches
where small entrepreneurs can hold their own.

CURRENT POLITICAL, ECONOMICAL, SOCIAL AND TECHNICAL


SCENARIO
The recent announcement in the Union Budget contains an important item. Capital expenses
(other than land) made for the development of cold chain infrastructure will be expensed in the
year after they are incurred instead of being depreciated over many years. Essentially this
creates a tax benefit and is widely expected to jumpstart the development of critical
infrastructure in this neglected field. With the government permitting 51 per cent Foreign Direct
Investment (FDI) in Retail, and Credit linked back-ended subsidy @ 40% of the total project
cost had positive impact on developing back-end infrastructure such as cold storages has
become a hot topic of discussion The actual no of modern facilities are less than 30 in total,
with one company Snowmans (a subsidiary of Gateway Distriparks) accounting for majority of
them. The Cold chain industry is highly fragmented with most cold storages being family
owned which offer conventional warehousing whereas the organized players extend more
modern warehousing facilities. 85 % of cold store facilities in India are used for storing
potatoes. Many factors explain the reasons why this is so.
India is not like other markets. The low level of land holdings (below 1.5 hectares) means that
that the average farmer needs to recycle his produce to cash in a short cycle. As a general rule
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Kunal Bajaj

RMIC - Volume 6,Issue 19(2013), pp. 1-6

of thumb l Indians consume vegetables from within a 150 kms radius making the need for
storage and transport of vegetables in cold chains un-necessary. Indians like to touch and feel
their vegetables and consider frozen as not fresh quite to the contrary. Modern retailing will
change that perception but that will take years. Even in the USA fresh fruits and vegetables
appeared almost 4 decades after the first supermarkets appeared in the country. In China and
Mexico it took 5 years. In India they appeared right at the start but consumer acceptance has
been low.
The transport of fruits is different although very few fruits are truly national in their distribution
apples from Himachal and Oranges from Nagpur come to mind but little else. Scale matters in
many industries and not least farming. Large scale production demands storage and
distribution capabilities which are only just beginning to develop. Considering that less than
10% of retail in India is modern, there hasnt been an incentive to develop the infrastructure.
The product is anyway sold on the streets, so who should bear the cost of a modern supply
chain. It is telling that Reliance, Aditya Birla, Tatas and Walmart are all investing in the
development of cold chain, warehousing and distribution along with modern retail. Modern
Retailing will have important consequences for development of cold chains. Retailers have
spent millions of dollars on expensive temperature control and display units at their stores. But
when produce are received at 35-40 deg temperature, it is extremely difficult to bring down the
temperature at the retail unit. The expensive machinery has not been able to handle the loads
and has suffered breakdowns and write-offs. The entire chain needs to be cool which includes
investment in refrigerated trucks. The micro size of land holdings means that small storage
units of 5-7 tons need to be developed which can be used by local farmers to keep produce at
much below ambient temperature. Someone needs to pay for this and consumer habits have
to and are changing alongside.
Latest insulation technique being used in cold storages and most of the cold storages thinking
of installing them is Structural insulated panel called Puf insulated panel or the sandwich
panel consisting of an insulating layer of rigid polymer foam (expanded POLYURETHANE
FOAM) sandwiched between two layers of structural board made of Galvanized steel. High
thermal efficiency ensures low heat transfer means low refrigeration load which reduces
operational cost. Major cost for any cold chain operation is electricity. Lower the refrigeration
load, lower the electricity consumption. . Use of skewed door arrangements, proper insulation
and required circulation of cool air inside the storage area would make operations economical
and improve profitability.

SOLUTION STRATEGY/METHODOLOGY
Optimization of full truck load and Inventory handling/Carrying cost.
The need to transport products in a cost effective manner and ensure on-time availability
without compromising on the integrity of the food products, was identified. It is recommended
to ensure consolidation of stock at the nearest warehouse and move full truck loads.
Movement of full truck load (consolidated load from multiple warehouses) from supplier to the
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A Perishable Food Chain Industry Facing Energy And Distribution Challenges

nearest warehouse. Flexibility of consolidated movement viz. Freezer / Dry, Chiller / Dry, etc in
multi-temperature trucks. Movement of stocks directly from vendor to the consumption
warehouse in case of high volume / fast moving products. Planned pickup and delivery from
vendors at least 15 days in advance to ensure capacity utilization. Fixed schedule of
movement from consolidation warehouse to the respective warehouses on Full Truck Load
(FTL) basis. Inventory days and safety stock maintained in line with the scheduled movement.

Optimization of fill Rate and reduction of stock out losses


Due to lower fill rates, Distributors cannot give commitments to the retailers which impacted
subsequent orders leading to loss of sales. They needed a system wherein the status of order
with respect to delivery and SKU level quantity is tracked. The need was felt for information
travel, faster than the product travel. It is proposed that ordering and delivery scheduled on
selected days of the week for a distributor based on Distributor sales volume and trend.
Immediately after taking order, Order Taker will check the stocks and get back to the
Distributor confirming what is available and what is not. If Distributor wants to take a substitute
against what is not available, the order is revised with the substitute products. An order status
report was published every day at 8.00 am and 8.00 pm, giving details on time and quantity of
order placed/picked/dispatched/delivered. Every order placed during the day would be
captured in this report along with the status. Every time an order is dispatched, an SMS with
the truck number and time of dispatch is sent to the Distributor. Every evening at 7.00 pm, SKU
level fill rate report is published to all the Distributors, which informed them in advance, what is
not coming, and what can substitute. While the emphasis for a better fill rate was by managing
inventory better, the need for the above steps were felt.

Strategic Location and Operating Cost


Cold chains are difficult to develop. Where it matters land is expensive, cooling units are not
mobile assets so getting the location right is key. While the trade-off between distance and
land is usually in favor of land the high cost of operating cold storages in India is a dampener.
In Uttar Pradesh, where the maximum conventional cold storages are located, load shedding
during summer months can be as high as 10 hours a day. If the facility has to rely on
expensive backup power it throws the economics out of gear. In the west and in china, cost of
industrial electricity is less 30-50% less than in India. This is one reason where the
development of cold storages has started out as company owned initiatives such as the Adani
Fresh and Healthy cold stores in Himachal and Rajasthan. The company is saving costs in the
value chain through reduced wastage and will be able to absorb the high operating costs. For
3rd Party initiatives to prosper, customers of the 3rd party providers in this the retailers and
manufacturers will need to share the savings with suppliers. It is proposed to take a systematic
approach towards the project by first conducting detailed discussion to understand the retail
business model. This can be followed by collecting critical information on SKU profile, order
profile, inventory norms, delivery model, proposed ERP system, future expansion plans etc.
This critical information could then use to design warehouse space requirements, storage and

Kunal Bajaj

RMIC - Volume 6,Issue 19(2013), pp. 1-6

handling systems, docking systems and material handling systems. The warehouse design
concept could then further be refined to suit site constraints locally.

Insulation techniques showing reduction in energy consumption


Conventional Brick structure
WALL -,EPS 100mm,
CEILING- EPS 100mm
FLOOR- EPS 75mm,
Thermal conductivity K of EPS 0.036 W / mK
K = (Q* L))/(A*(T1-T2) )
For ambient temperature of 40 C and operation at 6C,
thermal transmission values:
Q values ceiling and wall = 12.24 W/m^2
Q value floor = 16.32 W/m^2
For total area of wall, ceiling and floor are 2944m^2,2116
m^2, 2116 m^2 respectively

PUF Panel
WALL PUF Panel 80mm
CEILING PUF Panel 100mm
FLOOR As in case of conventional system
Thermal conductivity K of PUF 0.023 W / mK.
K = (Q* L))/(A*(T1-T2) )
For ambient temperature of 40 C and operation at 6C,
thermal transmission values:
Q value wall: 9.7 W/m^2
Q value ceiling: 7.8 W/m^2
Q value floor: 10.42 W/m^2
For total area of wall, ceiling and floor are 2944m^2,2116
m^2, 2116 m^2 respectively

Q (Total) = 36 + 26 + 34 = 96

Q (Total) = 28 + 16 + 22= 66

Saving by putting modern PUF technology is 96- 66 = 30 KW at 100% efficiency. If plant runs
for 24 hours, units saved will be 30 *24 =720 Units. Cost of a unit of electricity is Rs 6.00,
saving per day = 720 x6=Rs 4320, saving in month = 4320*30= Rs 1, 29,600, Saving in a year
= Rs 1,29,600*12 = Rs 15,55,200

CONCLUSION
Since price points for food in India are relatively low at the wholesale end, there is tremendous
pricing pressure on facilities. Most unorganized players resort to shutting off cooling units in the
dead of the night as the temperature drops to save on electricity. The change will come from
greater consumer awareness. Consumers will have to accept to pay a little more for quality
while the farmers and retailers will get more value through less wastage. Sadly in India things
will not be that simple and only a major tragedy with respect to food and water contamination
will drive change. Only then will US Food and Drug Administration (FDA) style rules be
enforced.
While India takes its time to change, around the world consumers are used to convenience of
all year round vegetables and fruits which augurs well for our Exports. India is a natural supply
area for the Middle East and South East area. The trade-off between distance and cost means
that shipping distances of 3-5 days are the most that these products can bear but the market is
huge. The middle-east has a young and growing population and a large Indian Diaspora as
well. The Nasik grapes are a stunning success story. From humble beginnings in the mid-90s
of less than 500 Tons, now the trade exports more than 50,000 Tons per season to Europe Its
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A Perishable Food Chain Industry Facing Energy And Distribution Challenges

an example of fine co-operation between APEDA, farmers and the shipping lines. The
development of the dairy industry is another success. India is the top milk producer and the
advent of multinationals in the segment is accelerating the development of infrastructure. Like
many items in the Budget, the significance of the new regulation will have a profound impact
in this case on food production and distribution in India.

ACKNOWLEDGEMENTS
Finally the publication of this work has been possible by the generous funds available to the
author through the Dean of Academic Affairs, Dean of Resource Planning and Generation,
Dean of Research and Development and Head of the Department of Electrical Engineering, at
the Indian Institute of Technology Kanpur, India.

REFERENCES
http://business.outlookindia.com/print.aspx?articleid=576&editionid=20&catgid=1&subcatgid=2
44
http://www.fnbnews.com/article/detnews.asp?articleid=32630&sectionid=11
http://www.fcaoi.org/cold_storage_patrika.html
http://forbesindia.com/printcontent/32162]
http://nhb.gov.in/schemes/capital-investment-subsidy.html
http://www.nabard.org/pdf/circular-Cold%20storage.pdf
http://www.nhb.gov.in/doc/CISS.pdf
http://www.nhb.gov.in/doc/Publice%20Notice%20for%20IQF.pdf

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