Trucking

TRUCKING BUSINESS
MANAGEMENT
Cases and Concepts
TRUCKING BUSINESS
MANAGEMENT
Cases and Concepts
Debjit Roy, G. Raghuram, Rekha Jain,

Sanjeev Tripathi, Kirti Sharda
IIM Ahmedabad
McGraw Hill Education (India) Private Limited

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Trucking Business Management: Cases and Concepts
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About the Authors
Debjit Roy
Debjit Roy is a faculty in the Production and Quantitative Methods Area since March 2012.
Professor Roy holds a PhD in Industrial Engineering (with a major in Decision Sciences/
Operations Research and a minor in Computer Science) and an MS in Manufacturing Systems
Engineering from the University of Wisconsin-Madison, USA besides an M.Sc. (Engineering)
from the Indian Institute of Science, Bangalore, India. He is also a Visiting Professor at the
Rotterdam School of Management, Erasmus University where he is associated with the SmartPort
and Material Handling Forum initiative. His research focuses on estimating the performance of
Logistical and Service Systems such as Container Terminals, Automated Distribution Centres,
Vehicle Rental, and Restaurant Systems. He has received several research awards including the
IIE Transactions best conference paper award in Facility Logistics (2011) and honorable mention
designation in the IIE Transactions best applications paper award competition (2016). He has
published in several leading INFORMS journals such as Transportation Science and Interfaces.
He coordinates the Management Development Program (MDP) for the youth transporters. He
offers operations and fleet management modules in this MDP for youth transporters.
G. Raghuram
G. Raghuram is a faculty in the Public System Group since October 1985. Professor Raghuram
has a PhD from Northwestern University and a PGDM from IIM, Ahmedabad. He was Dean
(Faculty) from September 2013 to December 2015 and the Vice Chancellor of the Indian
Maritime University from July 2012 to March 2013. He was the Indian Railways Chair Professor
from January 2008 to August 2010. Specializing in Infrastructure and Transport Systems and
Logistics and Supply Chain Management, Professor Raghuram conducts research and consults on
the Railway, Port, Shipping, Aviation and Road sectors. This is his sixth coauthored book. He
was awarded (i) ‘Academician of the Year’ by the Chartered Institute of Logistics and Transport
in 2012, and (ii) ‘Lifetime Achievement Award’ for contribution to logistics and infrastructure
by EXIM News in 2014. He is on the Board of several companies related to infrastructure and
vi About the Authors
logistics. He offers sessions on logistics and challenges affecting the trucking ecosystem in this
MDP for youth transporters.
Rekha Jain
Rekha Jain is a faculty in the Information Systems Area since June 1985 and is the Executive
Chair of the IIMA-IDEA Telecom Centre of Excellence. Professor Jain holds a PhD from the
Indian Institute of Technology, Department of Computer Science & Engineering, New Delhi,
MPhil from Department of Computer Science, JNU, New Delhi, and M.Sc. (Physics) from Delhi
University. She was awarded senior Fulbright Fellowship on Telecom Regulation in 1997–98.
During 2011, she was associated with the Fundacio Dom Cabral (FDC), Brazil. Professor Jain
was consultant to several national and international organizations in the area of ICT Strategy
and Telecom Policy. Her research and teaching interests include ICT Strategy and Management,
Information System Implementation, and Impact Assessment in the ICT domain. With several
publications in national and international journals, she is on editorial board of Journal of Global
Information Management (JGIM) and Board Member of several professional organizations that
include International Telecommunications Society and Telecommunications Consultants India
Ltd. She is a member of several national level committees in the telecom and IT sectors and also
offers sessions on information technology and design of management information systems in
this MDP for youth transporters.
Sanjeev Tripathi
Sanjeev Tripathi is a faculty in the Marketing Area since May 2012. Professor Tripathi is a
Fellow of IIM, Ahmedabad. Prior to this, he worked with Indian Railways where he handled
roles in operations, logistics, production, procurement, etc. and later in the corporate sector
where he was a consultant to Proctor and Gamble on their innovation processes, new product
development, market size assessment and optimal marketing mix. His research interests include
Consumer Behaviour, Pricing, and Sports Marketing. He offers strategic marketing module in
this MDP for youth transporters.
Kirti Sharda
Kirti Sharda is a faculty in the Organizational Behaviour Area since March 2009. Professor
Sharda is a Fellow of IIM, Calcutta and has been awarded Gold Medals at both graduation
(Psychology, Honours) and post-graduation (Industrial Psychology) levels. Her doctoral thesis
on “Configurations of Business Process Outsourcing Firms” was chosen as “Highly Commended
Award Winner” by 2009 Emerald/EFMD Outstanding Doctoral Research Awards. Her primary
teaching and research interests are in the areas of Leadership, Team Dynamics, Management of Self
in Organizations and Entrepreneurship. She has worked on a variety of consulting, research and
management development programs with both private and public sector organizations. She offers
organizational leadership and human resource management in this MDP for youth transporters.
Foreword
It is heartening to note the significant initiatives taken by Indian Institute of Management (IIM)
Ahmedabad and Mahindra Truck and Bus Division to engage with the Indian Road Transport
ecosystem. The Management Development Program and the War Room that they have jointly
conceptualized and implemented for the nextgen youth transporters are indeed driving a positive
change in the transport community.
I am also glad that IIM Ahmedabad, with support from Mahindra Truck and Bus Division, is
putting together the first ever academic book on the Trucking sector that will bring into focus
the challenges of the sector and provoke thoughts on how to address these challenges. This
initiative endeavors to highlight real life stories of transformation and excellence and will surely
help professionalize the Indian transport business, engage with the youth, usher in fresh blood in
the industry and more importantly, provide a formal academic platform to spotlight the sector.
I would like to congratulate IIM Ahmedabad and Mahindra Truck and Bus Division for their
impact making and empowering efforts. My best wishes for the success of the book, Trucking
Business Management: Cases and Concepts and would recommend that practitioners, policy makers,
academicians, and students make use of the wealth of knowledge that has been assimilated in it.
(Vijay Chhibber)
Foreword
It gives me great pleasure to set the context for this book based on trucking business Case Studies
being put together by IIM Ahmedabad and being published by McGraw-Hill.
As newcomers in the HCV Industry, we realised that the fragmented nature of the industry had
resulted in many shortcomings, and was a big impediment in the progress of the stake holders
- the unsung heroes of the Indian Economy. It was also dissuading the nextgen of transporters
from joining their family business. This is a disturbing trend which made us sit up and take
notice because as most of you know, the Road Transport Sector, especially the Trucking Segment,
is the back bone of the Indian Economy contributing 4.5% to the GDP, employing lakhs of
people and transporting over 60% of the goods being transported in the country.
We at Mahindra kick-started several initiatives to make the transport ecosystem more
professional, outward looking, and vibrant. Among them, I would like to particularly mention
two initiatives: the Management Development Program and the War Room targeted towards the
next gen youth transporters. These initiatives are co-created with IIM Ahmedabad, our knowledge
partners and were named as MPOWER initiatives, to signify youth transporter empowerment.
I thank IIM Ahmedabad faculty for agreeing to co-create and drive this path-breaking initiative,
which has just recently completed its eighth edition. The program was specially designed for
the nextgen Fleet Owners to appreciate the contemporary management techniques and their
relevance for better managing the daily challenges they face in their business.
The War Room is the next initiative in the total chain, which has given a chance to the youth
transporters who attended the MDP to go back to the institute and share with their peers, their
success stories, in implementation of their learning. We have just concluded the second War
Room with a lot of enthusiasm and competitive spirit displayed in presenting Case Studies to
the Jury comprising of the IIM Ahmedabad Faculty and Industry Experts.
This book is an attempt to share with the Student Community in the Logistics and Transport
discipline, some of the nuances of the Road Transport Sector, the challenges involved and how
x Foreword
the industry is evolving. Many of the cases in the book are based on War Room stories that
highlight how the nextgen transporters are changing the way they manage drivers and seeing
tangible performance improvement as a result; using information technology differently, not
just about installing GPS, but focusing on the analysis of the data and taking suitable decisions
and action based on it; by bringing in more professionalism in the business; focusing on strategy
and new business by delegating day to day operations to their teams; by focusing on business
expansion, through new services, entering new segments, or expanding the geographical reach.
I hope that this book will also prompt more youngsters to participate in this Youth Transport
Program at IIM Ahmedabad and also contribute case studies for the overall improvement of
the sector besides being an excellent source of knowledge for student and teaching community
linked to transport and logistics.
Best Regards,
Pawan Goenka
Executive Director – Mahindra & Mahindra Ltd.
& Group President (Auto & Farm Sector)
Preface
The trucking business in India deserves special attention. It is estimated that about 8 million
goods vehicles ply on Indian roads, out of which about 25 per cent are heavy commercial vehicles
(with a load capacity of 7.5 tonnes and above). More than 75 per cent of the trucks are owned
by fleet operators with a fleet size of five or less. Fleet operators are mostly family-run businesses
and hence they evolve with the ideologies and business principles of the family. Such evolution
has led to varying business practices and levels of technology adoption. Decisions were not taken
in line with modern business practices. Another trend was the relative reluctance of the next
generation of these families to join their family business due to the perception that the trucking
business was less appealing vis-à-vis the other options that they had after higher education.
To fill this widening business-practice gap and in an attempt to impart a professional approach
towards enabling the trucking business to grow, the Mahindra Truck and Bus Division (MTBD)
partnered with the Indian Institute of Management (IIM) Ahmedabad to impart management
education to the next generation transporters in trucking business. This youth transport
Management Development Program (MDP) was called MPOWER, signifying youth transporter
empowerment. Typically, a second-generation transport entrepreneur (son and daughter of a
transporter/truck fleet owner) in the age group 21 to 40 years was targeted to be a participant
for the MDP. Most of the participants were well educated (many of them had obtained degrees
from foreign universities), ambitious and progressive, keen to be the change agents in the road
transport ecosystem, innovative, and technology savvy. They shared a common vision, which
was to professionalize their family business and take it to the next level.
Till now, IIM Ahmedabad has offered eight batches of the MDP with participation from 221
transport entrepreneurs (including seven lady entrepreneurs) having a combined truck fleet
ownership of 49,900 and a turnover of Rs.18,500 crore (cr). Together, they employed about
51,000 individuals (excluding the drivers). The average fleet size across the eight batches varied
between 100 and 550. Likewise, the average trucking business experience of the batches was
between 5 and 10 years. Further, the average turnover across the batches varied between Rs. 50
and 150 cr.
xii Preface
Based on the research during the development of the MDP, we recognized key decision areas
such as choice of market segment, branding strategy, route structuring, fleet sizing, maintenance
strategy, design of management information systems, and cash management. (A more detailed
set of decisions is given as ‘Case Positioning Matrix’ in the start of the main text of the book.)
We understood the key business challenges that transporters encountered in their operations.
These were primarily: volatile business volumes, driver attrition and management, unorganized
data, lack of IT systems and data-driven decisions, workshop inefficiencies, insufficient focus
on customer service, lack of attention to brand image, manual cash transactions, infrastructure
issues, border delays etc.
The sessions in the MDP were designed and delivered with an attempt to address some of these
challenges. In the MDP, case-based pedagogy was primarily used to discuss the decisions faced
by the transporters.
After completing three batches of the MDP, the program faculty and the leadership team at
MTBD felt that it was important to assess the impact of the program on actual practice. Towards
this objective, a ‘War Room’ was launched, where the participants were invited to present the
initiatives/new practices deployed in their business after attending the MDP. The War Room
not only allowed the faculty to gauge the effectiveness of the MDP, but also gave the participants
an opportunity to reflect upon what they had learnt at IIM Ahmedabad. It also helped faculty
enhance their understanding of the nuances of the trucking business and identify the typical
areas within the trucking business with potential for improvement. Also, the War Room offered
the faculty several opportunities for case writing. These cases were used in the later batches of
the MDP. The generation of these cases has led to the evolution of this book.
In this book, we include teaching cases based on real-life transport business situations that
highlight some of the above-mentioned issues. Through these cases, the reader would be able to
appreciate the decisions in the transport business, the challenges that are faced, and use appropriate
decision tools to develop solutions. We include a collection of two chapters and 12 cases. The
first chapter discusses the significance and structure of the trucking business. The second chapter
highlights the HR practices in the trucking business particularly related to driver management.
The 12 cases have been developed with close cooperation from several transport companies
such as Agarwal Packers and Movers Limited, Navigators Logistics Company Private Limited,
Shreeji Transport Services Private Limited, KM Trans Logistics, and Instant Transport Solution
Private Limited. There are other companies whose names have been disguised to protect their
identity. Apart from the new cases, we have consciously decided to include a few cases of earlier
vintage, since the issues raised and the analytical approach adopted continue to be valid.
The first case, “Agarwal Packers and Movers: The Road Ahead”, highlights issues in strategic
management with a focus on choice of market segment and branding. The second case,
“Navigators Logistics Company Private Limited”, discusses the volatility aspects in the transport
Preface xiii
business and the strategies to manage such situations including the appropriate customer mix.
The third case “Agarwal Packers and Movers Limited” draws attention to the importance of
understanding customer needs and how customer feedback can be utilized for developing
innovative business practices, organization structure and increasing the market share. The
fourth case “Shreeji Transport Services Private Limited”, discusses how route profitability can
be improved through route structuring and pricing, using data from well-designed Management
Information Systems.
Both the fifth and the sixth cases “KM Trans Logistics: Workshop Operations” and “Spare
Parts Procurement Planning at KM Trans Logistics” highlight the issues in managing truck
maintenance operations at a workshop. While the former case highlights the labour and workshop
infrastructure related decisions, the latter revolves around optimizing inventory levels for spare
parts. The seventh case “Novire Technologies: Automatic Vehicle Location” focuses on route
structuring and fleet sizing, and brings out the importance of automated vehicle tracking with
respect to three aspects: technology feasibility, flexibility, and scalability. The eighth case “Instant
Transport Solution Private Limited” highlights the data elements that need to be captured in
the IT system for better decision making towards improving operations.
The ninth case “Ispaat Parivahan Limited: Additional Fleet Acquisition” analyses the business
viability of acquiring additional fleet to take advantage of return load market, while at the same
time maintaining its alignment with the customer’s delivery expectations. The tenth case “XYZ
Trucking Company: Misappropriation of Company Funds” discusses the issues related to cash
management and related professional practices in the trucking business. The eleventh and twelfth
cases show how logistics decisions of the customers of the trucking sector affect the trucking
business. While the former case “FarmAid Tractors Limited” specifically shows the role of primary
versus secondary road transport cost structures in developing the customers’ supply chain network
design, the latter case “Laxmi Transformers” highlights the modal options competing with the
trucking business and how multiple modes can be used synergistically to minimize logistics costs.
This book would have been a distant dream without the support of numerous people from
industry and academia. We first thank Mr Vijay Chibber (Former Secretary, Ministry of Road
Transport and Highways), and Dr Pawan Goenka (Executive Director, Mahindra & Mahindra
Ltd. and Group President – Automotive and Farm Sectors) for supporting this book with their
forewords. We take this opportunity to acknowledge the Mahindra Truck and Bus Division
leadership team namely Mr Rajan Wadhera (Chief Executive and President, Powertrain and
Truck Division, Head - Mahindra Research Valley and Member of the Group Executive Board);
Mr Nalin Mehta (Chief Executive Officer, MTBD), who has not only envisioned but also
mentored the idea of this MDP right from inception; Mr Rajesh Mangal (Senior Vice President
- Sales & Marketing, MTBD), and Mr Rajeev Malik (Senior General Manager – Marketing at
MTBD) for supporting the trucking business ecosystem with such knowledge initiatives and
giving IIM Ahmedabad this tremendous learning opportunity. In particular, we are grateful to
xiv Preface
receive the support from Mr Rajeev Malik in developing and sustaining the knowledge initiative,
and also supporting all phases of this book writing project: from its conceptualization till delivery.
We would like to make a special mention of the team from Anantara Solutions Private Limited
who helped us with ideas during the design of the MDP.
We would like to thank IIM Ahmedabad faculty members, Professor Sobhesh Kumar
Agarwalla, Professor Parvinder Gupta, Professor Dheeraj Sharma, Professor Sunil Sharma, and
Professor Neharika Vohra, who, in addition to the five authors, have contributed to the youth
transporter MDP through delivering content. We are grateful to Professor Dheeraj Sharma for his
role in coordinating the first three offerings of the MDP. Several guest speakers from the industry
also contributed to the MDP with their expertise in a particular domain. They are Mr Ashutosh
Atray, Mr Vijay Batra, Mr Tushar Dave, Mr J. P. Gupta, Mr S. K. Krishnan, Mr Srinivas Iyer,
Mr Rajat Proothi, Mr R. Raghavan, Mr Rajeev Rajadhyaksha, Mr Gopinath Ramakrishnan,
Mr T. N. Seetharaman, Dr M. Sekar, Mr K. Shanker, and Mr Kaushik Somanathan.
At IIM Ahmedabad, we would like to thank our former director Professor Samir Barua and the
present director Professor Ashish Nanda for their encouragement and support towards this MDP
and War Room. We would also like to thank the team from the MDP office, who helped us in
successfully delivering all the programmes. The IIM Ahmedabad faculty appreciates the support
from Mr Shashank Patwa and Mr Vineet Nagotkar of MTBD in the execution of the MDPs.
Several research associates at IIM Ahmedabad helped in shaping the book contents. In particular,
Ms Pooja Shrivastava helped all faculty members in case editing, coordinating the case collection,
and providing the publisher with timely inputs. Mr Prashanth D Udayakumar, also helped in
background research and case editing. We would also like to thank all co-authors of the cases,
Mr Arindam Bandyopadhyay, Mr Souhardhya Chakraborty, Mr Aditya Goyal, and Mr Dilip
Mathew, for their contribution. We thank the transport companies, who participated in
developing the cases. We appreciate the support from Ms Jayashree Rammohan, who helped to
edit the book contents and provide the authors with timely inputs. We acknowledge Interface
Communications for the cover concept and image. Last but not the least, we would like to thank
the publishing team at McGraw-Hill Education, for their efforts in copyediting and contributing
to this book.
We hope this book will serve as a casebook for learning in courses related to trucking, transport
and logistics management, both in graduate and executive education programs. We also believe
that this book would be useful for managers in the industry to learn about good practices and
for researchers to further knowledge in this important sector.
Authors
Table of Contents
About the Authors v

Foreword by Vijay Chhibber vii
Foreword by Pawan Goenka ix
Preface xi
Case Positioning Matrix xvii
Prologue xix
Chapter 1 An Overview of the Trucking Sector in India:

Significance and Structure 1
Chapter 2 Driver Management Practices in Trucking Industry 14
Case 1 Agarwal Packers and Movers Ltd.: The Road Ahead 26

Case 2 Navigators Logistics Company Private Limited 50
Case 3 Agarwal Packers and Movers Limited 68
Case 4 Shreeji Transport Services Private Limited 92
Case 5 KM Trans Logistics: Workshop Operations 118
Case 6 Spare Parts Procurement Planning at KM Trans Logistics 138
Case 7 Novire Technologies: Automatic Vehicle Location 166
Case 8 Instant Transport Solution Private Limited 186
Case 9 Ispaat Parivahan Limited: Additional Fleet Acquisition 202
Case 10 XYZ Trucking Company: Misappropriation of Company Funds 232
Case 11 FarmAid Tractors Limited 260
Case 12 Laxmi Transformers 282
Case Positioning Matrix
Laxmi Trans-
Novire Tech-
Procurement
Movers: The
Road Ahead
of Company
Packers and
XYZ Truck-
ing Compa-
and Movers
Spare Parts
Acquisition
Planning at
propriation
Operations
Navigators
Additional
ny: Misap-
Automatic
Workshop
Parivahan
Transport
Transport
KM Trans
KM Trans
Company
Logistics:
Cases
FarmAid
nologies:
Location
Logistics
Logistics
Limited:
Agarwal
Agarwal
Solution
Tractors
Services
Limited
Limited
Limited
Limited
Limited
formers
Packers
Vehicle
Private
Private
Private
Instant
Shreeji
Decision Areas
Funds
Ispaat
Fleet
Strategic Management
What Business to be in? ✓ ✓ ✓
Choice of Market Segments ✓ ✓ ✓ ✓
Branding Strategy ✓
Pricing ✓ ✓ ✓ ✓
Service Level Agreements ✓ ✓ ✓ ✓ ✓ ✓ ✓
Route Structuring ✓ ✓ ✓
Fleet Sizing ✓ ✓ ✓
Acquire or Hire Assets ✓ ✓
Operations Management
Resource Planning ✓ ✓ ✓
Resource Scheduling ✓ ✓
Systems and Procedures ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Maintenance Strategy ✓ ✓
Service Recovery ✓ ✓ ✓ ✓ ✓ ✓
Inventory Planning of Spares ✓ ✓
Human Resource Management (Driver and Support Staff)
Organization Structure ✓
Number ✓ ✓
Experience ✓ ✓
Incentives ✓ ✓ ✓ ✓ ✓
Training ✓ ✓ ✓
Information Systems Management
Design of MIS ✓ ✓ ✓ ✓ ✓ ✓
Extent of Integration of Systems ✓ ✓ ✓ ✓
Choice of Information ✓ ✓ ✓ ✓
Technology
Financial Management
Debt: Equity Structure  ✓
Cost Management ✓ ✓
Cash Management ✓ ✓ ✓
Risk Management
Customer Mix ✓
Insurance ✓
Decision Areas of Customers
Design of Procurement Network ✓
Design of Distribution Network ✓ ✓ ✓ ✓
Location of Warehouse ✓ ✓
Inventory Planning ✓ ✓ ✓
Transport Mode Choice ✓ ✓
Shipment/Order Size ✓ ✓ ✓
Prologue
Importance of the commercIal VehIcle (cV) Industry In

economIc Growth of IndIa
The Automotive Industry in general and the CV Industry in particular can be broadly described
as the barometer of the economy. It is considered as a major contributor to economic growth,
playing a vital role in the transportation of goods and people in a more flexible and efficient
manner compared to other modes of transportation. Road vehicles can penetrate into wider and
deeper areas which other modes cannot do easily, and hence help in integrating backward areas
into the mainstream. The development of the automotive industry has also resulted in growth
in employment, skills and entrepreneurship as is evident from the establishment of thousands
of ancillary units spread across the country.
India ranks in the top seven markets in the CV industry globally, and is the fourth largest in
the heavy commercial vehicle (HCV) segment after China, USA and Europe. The India market,
with its fast growing middle class, related consumption and economic growth has attracted global
OEMs (original equipment manufacturers) to the country in recent years, with investments in
excess of over 100 billion in the CV industry.
The railways which has a huge network across the country today mainly carries bulk goods and
handles only around 40 per cent, whereas road transportation accounts for over 60 per cent of
the total goods transported. In the past sixty years the contribution of the railways to goods
transportation has gone down from over 65 per cent to less than 40 per cent. A major reason
has been the rapid growth in demand and the need to reach every nook and corner of India,
which has over 8000 townships and over 600,000 villages. The urbanization of the rural areas,
Prepared by:
1. Mr Nalin Mehta, CEO, Mahindra Truck and Bus Division; MD, Mahindra Truck and Bus Ltd.
2. Mr Rajeev Rajadhyaksha, Advisor, Mahindra Truck and Bus Division; formerly MD, DHL Lemuir Logistics.
xx Prologue
the advent of TV and the mobile network expansion have transformed the rural economy with
most organizations wanting to market products to these unexplored territories.
The road transport industry contributes to 4.5 per cent of the GDP compared to the railways
which contributes to 1 per cent of the GDP, according to the Planning Commission Working
Group on Road Transport for the Eleventh Five Year Plan. This shows the heavy dependence
on road transportation, which is likely to grow, given the fast pace of economic growth and
the urbanization of rural areas. India has the second largest network of roads in the world. The
estimated figures for CVs on the road will be in excess of 8 million, with over 45 per cent being
LCVs and the rest being medium and heavy commercial vehicles (M&HCVs).
phased Growth of the cV Industry In IndIa
The CV industry, which is nearly 87 year-old in India, has been through four phases, closely
linked to the political, industrial and regulatory changes in the country.
Phase 1 – (Pre-Independence period) 1928 to 1947

Though the first motor cars came to India in 1898, the first manufacturing of CKD cars and
trucks commenced in 1928 by General Motors, followed by Ford Motors and five others including
Hindustan Motors and Standard Motors.
Phase 2 – 1947 to 1968

During this period, the government was keen to have a long-term Policy and commitments
from OEMs to have a domestic manufacturing program to reduce reliance on CKD imports.
The three Tariff Commissions appointed between 1953 and 1968 recommended that only
companies with a manufacturing program should be allowed to continue, and this led to the
exit of Ford and General Motors and later some others, who found the demand too low to have
a manufacturing program in India.
This led Mahindra and Mahindra and Tata Motors, along with Ashok Leyland and Bajaj Auto,
to establish multi-location units to manufacture LCVs. The Government resorted to huge
concessions like ten-year protection to the automotive OEMs as well as component manufacturers.
The import duties on components were progressively increased as their indigenous production
commenced. The policy supported limiting the number of models, to control the import of
components and loss of foreign exchange.
The foreign exchange crunch post-1957 prompted the government to discontinue the import of
larger trucks and encourage LCV manufacturers to collaborate and start manufacturing of 7.5-ton
and 9-ton trucks, which commenced between 1964 and 1966. Simultaneously, the government
policies supported the supply of components and parts by independent manufacturers.
Prologue xxi
Through this period the Industrial Development Regulation Act and other regulations ensured
that a license was required with regulated capacities and a growth of 10 per cent per annum
permitted in the normal course. There were restrictions on new manufacturing equipment being
installed which controlled expansions both in existing and new geographies.
Phase 3 – 1968 to 1996

MRTP/ FERA and related regulations coupled with changes in the Industrial Policy from
time-to-time resulted in restricting the growth of the CV industry as large business houses
directed their attention to other sectors. The restriction of 40 per cent on foreign participation
too was a constraint. In the early 1980s the rules started relaxing, and the applicability of the
MRTP Act to two- /three- and four-wheelers was removed in 1985. This was followed in 1986
by the government announcing a minimum economical scale of 25000 p.a. of capacity for CV
manufacturers, simultaneously de-licensing the ancillary sector for non-MRTP and non-FERA
companies for items not reserved for the small scale and not located in the urban and municipal
limits of cities. The government also allowed the broad banding of four wheelers, thus permitting
the capacities to be interchanged across cars, jeeps, LCVs and HCVs, trying to optimize the
capacity utilization based on the demand from the market.
The era of 1980s also witnessed the effort in bringing in technology, by allowing four new
players in LCV manufacturing. This encouraged the existing players to modernize. The process
was further assisted by the relaxation in import-export norms – allowing the import of capital
goods, technology, components and raw materials.
The industry started with 6-ton payload vehicles which ran on petrol, and had to be started
with manual cranking. The shift from petrol to diesel also saw a change in the payload to higher
capacities, namely, 9 tons. Interestingly, the engine heads moved from cast iron to steel; however,
during the winter, fuel lines had to be heated externally to warm up and start the engine. This
also resulted in additives being added to the fuel depending on the geography, to overcome
the problem with starting the vehicle. The industry has come a long way from engine and
axle development to electronic start, inline fuel injection, and multi/dummy axles to improve
loadability. Tyres have also evolved from rubber to nylon and from crossply to radials, which
resulted in greater vehicle efficiencies on the road. While the roads had improved significantly,
unfortunately the weight permitted per axle had not gone up substantially.
The period of the late 1970s and early 1980s also witnessed a major shift from petrol-driven
LCVs to diesel-driven LCVs. Whereas in 1970 almost 100 per cent of the LCVs ran using petrol,
by 1975 the percentage of LCVs using petrol had gone down to 23 per cent and by 1985 there
was a total shift to diesel. The increase in international prices of fuel and the differential duties
on petrol and diesel in India played a significant role in this shift.
xxii Prologue
Phase 4 – 1996 to 2015

This is the period in which the CV industry has benefitted from the liberalization of the Indian
economy starting in 1991 and culminating in the Automotive Policy of 1993, followed by the
New Automotive Policy 2002, and Automotive Mission Plan 2006.
The government has successfully aimed at creating a major automotive manufacturing hub in
India. The Automotive Policy and the Automotive Mission Plan have allowed new entrants
to bring in technology, establish new capacities, and import CKD/SKD units to quick start
assembly lines, with requirements to export components and finished goods to offset the initial
outflow of foreign exchange.
This prompted the entry of Volvo, Daimler Benz and Navistar to set up JVs for manufacturing
facilities in the CV sector, and a number of other players entered India in the passenger vehicle
segment. The insistence on export obligations from these new entrants prompted most OEMs
to bring their ancillary component manufactures to set up units/joint ventures with existing
Indian suppliers to replace the CKD/SKD units being imported, within the agreed timeframe.
This has resulted in a huge growth in automotive component exports from India from around
13,000 crore in 2006 to over 68,000 crore today.
The CV industry today can broadly be classified into buses, LCV and M&HCV Trucks. The
LCVs now have multiple gross vehicle weight (GVW) capacity vehicles as low as 1 ton going
up to 7 tons. The higher capacity trucks have resulted in the traditional HCVs which were up
to 9 tons being pushed into an intermediate category now referred to as MCVs. The MCVs
have a GVW capacity of 9 tons and 11 tons. The HCV segment has HCVs which are multi
axle, tippers and tractor trailers.
The new modern trucks from some of these new entrants, as well as the launch of upgraded
vehicles by the existing OEMs, has brought a wide range of products, features and applications
to the Indian CV market. In fact this period has seen the introduction of higher GVW vehicles
starting with 16 tons and now having multiple capacities like 25 tons, 31 tons, 37 tons, 40 tons
and 49 tons. There is also a slow but steady shift to containerization of cargo, and car carriers of
up to 22.5 meter lengths. The truck-on-truck concept too is catching up and will spur demand
for the same. There has been an upgradation in driver cabins from rigid seat cabins to adjustable
seats and multi-level sleeper cabins with air conditioning.
The industry has thus seen restricted growth in the period between 1947 and 1995, controlled
by various legislations and policies which was the need of the hour then. The uncertainties in
policies also resulted in the limited entry of international players in the HCV segments leading to
low GVW vehicles with basic features with inefficient output being manufactured in the country.
The high investments needed for the modernization of the HCV industry, varying models and
capacities to match the requirements of applications in specific industries has happened post-
1996, and is a continually evolving process today.
Prologue xxiii
The improvement in infrastructure by introducing four and six lanes in the National Highways
and the completion of the Golden Quadrilateral has further led to the demand for higher capacity
vehicles going up. The 24–18 feet vehicles which were the norm during the 1980s have now
given way to 32-/40-/50- feet long trailers. The need for time-bound deliveries from customers
has resulted in truckers using the new highways and incurring toll taxes on these highways. The
customers have started including these toll charges in their costing while fixing the transport
charges, which is a very positive development.
customers drIVInG chanGe
There is a distinct change in the composition and expectations of HCV buyers. Whereas till
about 10 years ago, fleet owners constituted around 10 per cent of the truck ownership, the
economic growth post liberalization has resulted in many younger players aspiring to be fleet
owners and who have invested heavily in assets of their own. The new players not only have a
higher risk-taking ability, but are also willing to serve customers in the new emerging industry
sectors. The delivery of cars to dealers through drivers driving the same has been replaced by
car carriers. The import/export business outside of India is mainly through containers and this
is slowly converting the transportation of cargo by containers to the port. The car carrier is an
excellent example of the same, and so is the EXIM sector where trailers carrying containers over
long distances are a regular feature on the highways.
The fleet owners of today are more technology orientated, have invested in technology like GPS to
track their assets, have no hesitation in investing in company-built cabins offering driver comfort
and also have software to support measuring of efficiencies on various parameters.
Many seasoned players of yesterday have fast learnt from global best practices and have brought
in efficiencies through establishing their own service centers for preventive maintenance, usage of
OEM spare parts and own staff to repair the vehicles. This has helped them to achieve a faster
turnaround of vehicles, higher asset utilization and managing of maintenance costs at reasonable
levels. As against 6,000–7,000 km per month of average running, the fleet owners of today are
able to run their vehicles for 10,000 plus km per month, and also have two drivers in some cases
to achieve shorter transit times.
Fleet owners have also resorted to medium- and long-term growth strategies, helping them to
grow and at the same time insulating their business from uncertainties. Some of the large fleet
owners have grown to offer third party logistics (3PL) services adding value to their customers.
They offer modern warehousing with racking, material handling equipment and warehouse
management systems to integrate with those of their customers. Others have also expanded their
operations into International Freight Forwarding and Customs Brokerage, thus making them an
Integrated Logistic Service Provider.
xxiv Prologue
As 3PL Service Providers, the fleet owners offer milk runs, consolidation services at their own
warehouses, long hauls and JIT delivery to manufacturing units of their customers. The expansion
in these areas also results in the fleet owners having a mixed fleet of LCVs and HCVs with
varying capacities.
The end-customers of today have enhanced expectations from the fleet owners. The fleet
owners are required to commit to time-bound deliveries across geographies without delays and
breakdowns. The tracking of vehicles en-route is the norm, which has also made the fleet drivers
accept GPS technology as a necessity. Even small fleet owners have installed GPS as it makes
them easily acceptable as attached vehicle suppliers for very large fleet owners. The customers
have resorted to reverse bidding for fixing long-term contracts with fleet owners which too drives
efficiencies and demand for quality service. The customer orientation among the fleet owners
has undergone a transformation in the past five years or so. The availability of a large number
of fleet owners, the readiness of new entrants to be measured on Key Performance Indicators
(KPIs), and the insistence in certain sectors like hazardous chemicals on safety-related regulations
is fast creating a new breed of transporters.
the technoloGIcal chanGes by oems to offer safety
Multi-Axle vehicles, Automatic Transmission, OEM built cabins, higher power engines with
210 and 260 HP to climb gradients, electronic engines to replace mechanical engines, power
steering and power brakes are changes in the technology witnessed in the industry. The BS IV
emission norms will also force improvements.
The CV OEMs have introduced many safety factors in keeping with both the government
regulations as well as the demand from certain discerning end users in the hazardous goods
manufacturing sector. These include safety belts for drivers, ABS systems, side mirrors, rear and
side under-run protection devices (RUPD/SUPD), etc.
GoVernment thrust on safety
Road users in India are heterogeneous in nature, ranging from pedestrians, animal-driven carts
and cycles, to multi-axle commercial vehicles, etc. Higher exposure to road accident risk may be
mitigated by behavioral standards (adherence to road safety regulations) and policy intervention
(enforcement). Accidents carry high economic and social costs, which are not easy to measure.
The cost of road accidents is estimated in the range 1 to 3 per cent of GDP according to various
studies.
The Road Transport and Safety Bill, 2014 envisions providing a framework for a safer, faster,
cost-effective and inclusive movement of passengers and freight in India, thus enabling the mission
Prologue xxv
of ‘Make in India’. It is currently in the draft stage and is being prepared by the Ministry of
Road Transport & Highways, Government of India, which will extend to the whole of India if
enacted.
reGulatIons for the cV Industry
Two key laws governing the CV industry and related to road freight are the Motor Vehicles
Act, 1988; and the Carriage by Road Act, 2007. The impact of these has necessitated changes
in CV design and usage across OEMs.
o Motor Vehicles Act, 1988 – This Act deals with the basic roadworthiness of the vehicle,
the framework for vehicle ownership and governance during transport. It also covers
aspects like the speed of vehicle, weight/overloading, etc. An Amendment to the Act was
passed in 2012, which provided for quicker enforcement through the right authorities,
especially pertaining to the overloading of vehicles.
o Carriage by Road Act, 2007 – This Act was notified in September 2007, repealing the
earlier Carriage Act, 1865. This Act helps regulate transport intermediaries/common
carriers/logistics firms and determines the liability for loss/damage to such goods.
There are other laws and rules which govern the movement of goods across the country which
affect the type of vehicle/its specifications at a broad level. The National Permit scheme introduced
in 2010 by MoRTH (Ministry of Road Transport and Highways) has also helped in the smooth
movement of CVs across states.
chanGes In the manufacturInG of cVs
The demand for different capacities and variants has forced OEMs to change their sourcing
strategies. Earlier, OEMs had to deal with 400–500 suppliers and these were being sourced
from across the country, leading to larger inventory holding at the plants. In the last 10 years,
OEMs have started having Tier-1, Tier-2 and Tier-3 suppliers, with Tier-1 suppliers buying
from the other tiers and manufacturing aggregates for supply to the OEMs. The OEMs have
supplier parks in the new plants with suppliers either manufacturing or storing the parts and
supplying JIT to the line.
The earlier practice of OEMs employing a large workforce, who did all the work, has been
replaced by outsourcing some of the supply chain related activities to professional 3PL companies,
who have tyre assembly units close to the plant. These initiatives have resulted in the de-cluttering
of production lines and lesser workforce in the plants.
xxvi Prologue
challenGes faced by the cV Industry
The major challenges faced by the CV industry in India are as follows:

1. In India, there is no legislation related to scrapping of vehicles after a certain number of
years. This leads to the asset being flogged to death and being used for short hauls/intra city
transportation, etc. The older trucks are fuel guzzlers, badly maintained and also add to the
overall pollution in cities.
2. The implementation of emission norms has not kept pace with global norms and contributes
to substantial pollution through running of old trucks.
3. Freight rates have remained low compared to the increase in the cost of fuel, tyres, and
maintenance and road taxes. The overloading of trucks helps in keeping the cost per ton/
km low. The end users push the truck owners to offer low rates; and with the fragmented
market in India, there is no push from truck owner associations for higher returns. This
also has a negative impact in terms of the salary and allowances paid to the drivers. The
geographical imbalance in industrial growth also leads to the lack of back haul on routes
and related inefficiencies.
4. The low salaries and allowances paid to the drivers results in making this profession less
attractive to the next generation. The overall shortage of drivers in the industry is stated to
be around 15 per cent and this is leading to idling of assets at the fleet owner end.
5. Lack of professional drivers who are well trained to drive the modern vehicles also affects
the inclination to invest in expensive assets.
6. The insurance terms by many end users lay down a 100 per cent responsibility on the trucker,
without any recourse, and this leads to stress on both the trucker and the driver.
7. OEMs have attempted to bring out fully built cabins, which have a much lower acceptance
in India than abroad.
8. The modern powerful trucks capable of a faster climb on gradients, can lead to faster transit
times across hilly terrains. However, negating factors like waiting for loading and unloading
of goods for two to three days at the end user’s location, results in no special advantage to
the trucker.
9. The ill treatment to drivers by the end user, by the border check posts and the police and the
social stigma attached to driving as a profession, are deterrents for new entrants to the industry.
10. Lack of training facilities for CV drivers is a huge issue, and the low skill sets and lack of
proper education adds to the lack of trust the employers have for the driver. The trust deficit
is the biggest challenge for most fleet owners leading to multiple compensation practices
which do not necessarily satisfy the drivers.
11. Complex documentation requirements for transportation of goods across state borders and
long waits for document and goods clearance at state border check posts leads to inefficiencies
for all the stakeholders.
Prologue xxvii
The Transport Ecosystem comprising various stakeholders like CV financiers, drivers, mechanics,
emergency services and dhabas (roadside eateries on the highways) play a critical role in the smooth
running of CVs on Indian roads.
future prospects for the cV Industry
The Indian economy is expected to be one of the fastest growing in the world, and the GST
introduction in the near future will further assist in its growing in double digits at least for some
years. The CV industry is expected to register positive growth with the following developments
in the offing:
1. The stricter emission norms are likely to phase out old trucks and lead to the demand for
new modern trucks.
2. The GST regime will lead to easier cross-border trade and improve transit times for fleet
operators.
3. The consolidation of warehouses by end users will lead to higher-sized consignments being
transported from point to point, whether they are manufacturing or trading hubs. This will
lead to the demand for higher capacity trucks.
4. The modern retail proliferation and the e-commerce revolution will lead to more demand
for LCVs to support intra-city deliveries.
5. The improvement in infrastructure and further broadening of highways will lead to bigger
trucks transiting more easily on highways.
6. The younger generation of drivers will demand more comfort and better conditions leading
to higher acceptance of OEM-built cabins/air conditioned cabins leading to higher usage of
assets and resultant revenues for the asset owners.
7. The government initiatives in the housing, road building and infrastructure sectors will
increase the demand for CVs, especially tippers.
8. Consolidation in the transport industry will lead to more large fleet owners, an improvement
in delivery of service and a wider range of options for end users.
There needs to be further improvements in the demand for the vehicles and more modernization
in manufacturing processes and systems, and keeping pace with international standards, which
will make India a major exporter of CVs. Recent investments in this sector have created large
capacities as well as brought in technological improvements. These can be positively leveraged
to increase the pace of overall growth in the economy while adding to the exports of CVs across
the spectrum from India to new emerging markets like Africa.
An overview of the Chapter
Trucking Sector in
India: Significance and
Structure
1
T he objective of this chapter is to provide an overview of the trucking sector.
While discussing the significance of road transport and the structure of the
trucking industry, it also explores the causes and consequences of the industry
structure.
SignificAnce of roAd trAnSPort

In this section, we will discuss the significance of road transport in India.
1. Road vis-à-vis other Modes

Amongst all the modes, rail and road transport are the most significant. The modal share between these
two has changed over the years, from the 80 per cent rail share in 1950–51, to the road share becoming
65 per cent in 2011–12. Road-share overtook rail in the early 1990s (Figure 1.1). This shift was observed
because the Indian Railways were unable to provide the required capacity or respond with expected customer
service; while road transport could provide door to door service. Further, during the last two decades,
road infrastructure expanded rapidly on account of focused policies and investments.
However, it is important to note that apart from rail and road, there are four other modes that have a
share of the freight transport of the country. Measured in billion tonne kilometers (btkm), rail and road
account for 86 per cent of the freight transport while the other modes account for 14 per cent (Table 1.1).
Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad.

The author acknowledges the research and editing support from Ms Deepmala Pokhriyal, Ms Pooja Shrivastava and
Ms Geetika Sarda.
2 Trucking Business Management
Table 1.1 Modal Share of Freight Traffic

Mode 2007–08 (RITES)
btkm % Share
Road* 706.0 50.11
Rail* 508.0 36.06
Pipelines 105.0 7.45
Coastal Shipping 86.0 6.10
Inland Water Transport (IWT) 3.5 0.25
Airways 0.3 0.02
Total 1408.8 100.00
Source: Total Transport System Study (TTSS) by RITES Limited, as reported in NTDPC 2013
*Excluding intra-regional traffic
1,600
Traffic Carried by Road
1,400
Traffic Carried by Rail
1,200
Billion Tonne Kms
1,000
800
600
400
200
0
1950–51 1970–71 1980–81 1990–91 1999–2000 2004–05 2011–12
100
Percentage Share by Road
90
Percentage Share by Rail
80
70
Per cent
60
50
40
30
20
10
0
1950–51 1970–71 1980–81 1990–91 1999–2000 2004–05 2011–12
Figure 1.1 Freight traffic: Roads overtake rail
Source: Trends in Growth and Development of Transport, NTDPC 2014, Planning Commission; accessed from http://
planningcommission.nic.in/sectors/NTDPC/volume2_p1/trends_v2_p1.pdf on December 14, 2015
An Overview of the Trucking Sector in India: Significance and Structure 3
One of the major concerns of transport infrastructure planning is the non-availability of authentic data,
especially in the road domain. The last attempt at a scientific sample survey based study for freight transport
was conducted in 2007–08 at the behest of the then Planning Commission by RITES.
It is time that we put into practice a mechanism for a scientific and periodic collection of road data. It
should be noted that this information is electronically available with a large number of trucking companies
and the shippers.
The National Transport Development Policy Committee (NTDPC) has tried to estimate the overall freight
traffic until 2031-32, using a growth rate of 1.2 times the GDP growth rate. Based on this multiplier of
1.2, the expected freight traffic would be as shown in Table 1.2.
Table 1.2 Projection of Freight Traffic

Year GDP growth (%) (btkm) Rail : Road share
2011–12 -- 2053 —
2016–17 6.9 3056 35:65
2021–22 8.0 4834 39:61
2026–27 8.5 7856 45:55
2031–32 9.0 13118 50:50
Source: NTDPC. (2014). India Transport Report. Routledge. Retrieved December 15, 2015, from http://
planningcommission.nic.in/reports/genrep/NTDPC_Vol_01.pdf
The NTDPC projects an increasing share of rail transport, from 35 per cent to 50 per cent based on policy
measures towards savings in carbon impact. It is also expected that water (coastal shipping and IWT)
would increase its modal share, with pipelines sustaining their share, bringing these environment friendly
modes to at least 20 per cent. This would bring road share down to 30 per cent. This would imply that
the road freight (in terms of btkm) would go up from over 1000 in 2011–12 to nearly 4000 in 2031–32.
2. GDP Share
The contribution of the transport sector to India’s GDP has increased from 6 per cent in 2001–02 to
6.7 per cent in 2012–13 (Table 1.3). Within this, road transport has increased from 3.9 per cent to
4.9 per cent, being the primary driver of the increase in the transport share.
Table 1.3 Share of Different Modes of Transport in GDP (All values in %)

Sector 2001–02 2008–09 2009–10 2010–11 2011–12 2012–13
Transport 6.0 6.6 6.6 6.5 6.6 6.7
Segmental Breakup
Railways 1.2 1.0 1.0 1.0 1.0 0.9
Road Transport 3.9 4.7 4.7 4.6 4.8 4.9
Water Transport 0.2 0.2 0.2 0.2 0.2 0.2
Air Transport 0.2 0.2 0.2 0.3 0.3 0.3
Services Incidental to Transport 0.5 0.4 0.4 0.4 0.4 0.4
Source: Indian Railways: Lifeline of the Nation, Ministry of Railways, Government of India, February 2015, accessed from
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/finance_budget/Budget_2015-16/White_Paper-_
English.pdf; last accessed on July 3, 2015; “Revenue from Road Transport in India,” Harendra Mohan Singh, April 2015.
3. Classification of Roads
Roads are the primary infrastructure required for the trucking sector. As per the 2013 estimates, the total
road length in India was 4.7 million kilometres, making the Indian road network the second largest in
the world after the United States.
Indian roads are classified according to their primary source of financing. The Central Government finances
the National Highways; the State Government the State Highways and the State and local governments
finance the rest of the roads (Table 1.4). In the 2004–14, a lot of rural roads have been financed by
the Central Government under the Pradhan Mantri Gram Sadak Yojana project. Under ‘other’ roads,
there are categories like urban roads, project roads and border roads, which are financed by municipal
administrations, major projects and the defence ministry, respectively.
Table 1.4 Classification of Roads

Type of Road Length (km) %
National Highways 93,051 2.19
State Highways 154,522 3.63
District, Rural and Other Roads 4,010,973 94.18
Total Length 4,258,546 100.00
Source: NHAI. (2014). Annual Report 2013-14. Retrieved December 16, 2015, from http://www.nhai.org/Audit.htm
The national highways carry about 40 per cent of the total road traffic, though constituting only about 1.7
per cent of the road network.1 The National Highways Authority of India (NHAI) has been investing in a
multi-phase National Highways Development Project to improve the capacity and quality of the national
highways, significantly using the Public Private Partnership (PPP) model. Many state governments have
followed the same for state highways, concessioning out on a PPP model often through a state public
sector in the form of a Road Development Corporation.
4. Vehicles
The total number of registered vehicles in India was 173 million, as of March 31, 2013. Of this, goods
vehicles accounted for 8.1 million. The largest share was held by two-wheelers at 125.7 million, followed
by four wheelers at 23.5 million. A 60-year profile of registered motor vehicle categories is given in
Figure 1.2. This shows the significant growth in the share of two-wheelers.
The truck population in India grew at a rate of 7 per cent per annum between 2011 and 2013. Around
75 per cent of the trucks on Indian roads are two-axle trucks with a capacity of nine tonnes. Two- and
three-axle rigid trucks constitute the bulk of trucks in India. The share of three-axle trucks and light
commercial vehicles is on the rise.
About 40 per cent of Indian trucks are less than six years old, while 34 per cent are older than
10 years. In India, the average truck is operational for about 20 years, after which it is scrapped.2 There
is an attempt by the government to cap the life at a reduced level, from the pollution perspective.
80
71.8
70
70.1
66.4
60
52
50
46.6 48.6 Two Wheelers
40 Cars, Jeeps & Taxis

36.6
Buses
30 30.9
26.8 Goods Vehicles
25.3
21.5
20
18.4
11.1 13.2 13.8 12.8 13.6
10 10.3
8.8 8.6
5 6.3 5.4 5
3 1.5 1.2
0 1.1
1951 1961 1971 1981 1991 2001 2011
Figure 1.2 Profile of registered motor vehicle categories
Source: Road Transport Year Book 2011–12 accessed from http://morth.nic.in/index2.asp?slid=291&sublinkid=137&lang=1
on December 15, 2015.
Structure of the trucking induStry

In this section, we will discuss the structure of the trucking industry.
Customers move their goods almost entirely through third party players, rather than through their own
fleet. This makes the trucking industry commercially highly dynamic. The trucking industry has multiple
actors (Figure 1.3). The core actors directly serving the customers are the trucking company and the
Customers
Core
Trucking Companies Brokers/Agents
Actors
Pure Truck Owners
Tangible Elements Manufactures Truck Body Builders Drivers Fuel Suppliers
Financing, Insurance, Maintenance and Repair, Food and Stay, IT Services,

Support Services
Associations and Training
Government and RTO, Tax Administrators, Traffic Police, Road Development Authorities, Centre
Regulatory Bodies (MORTH) and States
Figure 1.3 Structure of the Trucking Industry

Source: Developed by the author
brokers/agents. They are supported by the pure truck owners. This core set of actors is supported by four
entities providing the tangible elements for trucking: manufacturers, truck body builders, drivers and
fuel suppliers. The core set of actors has an ecosystem constituting support services, and government and
regulatory bodies.
1. Core Actors in the Trucking Industry
(i) Trucking Companies

Being the primary solicitors of freight, trucking companies are either based on ruling market prices or tender
based bids. These companies are responsible for delivery of goods from the customers’ loading location to
the unloading location. They are also accountable for cargo loss and damage claims, and perform various
other customer care services. Most trucking companies own some fleet. However, to fulfil market needs,
they often source a larger part of their requirement through brokers or directly as ‘attached’ fleet.
(ii) Brokers/Agents
Brokers/Agents are the primary intermediary acting on behalf of pure truck owners; supporting customers
directly (like a trucking company) or providing fleet to the trucking companies. They play an important
role in the Indian trucking ecosystem as these brokers/agents are the means of giving continuous business
to these companies. Since the trucking companies have limited means of assessing an owner’s performance,
the brokers help in determining the trustworthiness of the truck owner.
(iii) Pure Truck Owners

These entities account for the largest share of the truck fleet in India, owning, say, less than five trucks.
The trucks are driven by a set of family members or hired loyal drivers. The drivers are usually assisted by
a helper and virtually live in the truck. They largely depend on brokers for getting business, either directly
from customers or through trucking companies. Some of them ‘attach’ themselves to specific trucking
companies (shown as a dotted line in Figure 1.3). The rates they get are as per the market, which reflects
the supply-demand situation on specific origin–destination segments.
2. Tangible Elements
(i) Manufacturers
The Indian truck manufacturing sector is characterized by the large organized sector primarily making
the chassis, with the trucking companies or the pure truck owners then having bodies built on the chassis
as per their market needs. There is a growing, though not yet significant, body built trucks supply direct
from the manufacturers. The annual truck sales have fallen in recent years, both due to a sluggish economy
and an increasing utilization of trucks. The manufacturing segment is characterized by two market leaders
who have had a long innings in an earlier regulated market favourable to them. Over the past two decades,
after liberalization, there have been many new entrants with a growing market share and offering a wide
range of vehicle types. The manufacturing industry, also known as the commercial vehicle (CV) industry,
is described in greater detail in the Prologue.
(ii) Truck Body Builders

The Indian truck building industry is understandably huge, but operates largely in the unorganized sector.
The advantages of this sector are the low cost and the customization that they bring to the table. However,
there are concerns related to safety and quality. Further, some of the customized body building violate the
Motor Vehicles Act in the interest of higher revenues.
(iii) Drivers
Truck drivers are the most critical players, forming the human backbone of this industry. The role of
a truck driver is challenging, given the unpredictable nature and schedule, long distance travels, long
periods of separations from family members, perceived harassment by the police while en route and the
job insecurity involved. Poor design and maintenance of the Indian roads add to problems of health and
safety. In spite of this, they are paid poorly and not surprisingly there is a growing shortage of drivers.
There is both a status and a skill gap among drivers. Many actors in this sector have begun to realize this.
There is an increasing focus on bridging the skill gap and providing appropriate en route facilities for
drivers. These efforts are fragmented and need more focused attention. The National Skill Development
Council (NSDL) has identified formally trained drivers as an important skill gap.
(iv) Fuel Suppliers

This sector is supported by large organized players, with a larger share in the public sector. The penetration
of fuel retail outlets is deep. Many of the outlets have started providing extra roadside facilities for trucking.
One issue of contention is that fuel prices tend to vary more often than the ability of trucking companies
to pass through the variations to customers.
3. Support Services
(i) Financing
The financing of vehicles largely occurs through non-banking financial services, commercial vehicle
manufacturers and sometimes by the unorganized sector including money lenders. Trucking also qualifies
under priority sector lending of banks but is targeted at the small fleet owners.
(ii) Insurance
While insurance for the commercial vehicle is organized, it is not so for the goods carried. It is not always
that customers insure their goods during transit, since the Carriage by Road Act passes the responsibility
to the carrier. Any accident and/or goods lost situation becomes a complex and ‘uncivilized’ process of a
blame game. This is one of the high-risk areas for trucking companies and truck fleet owners.
(iii) Maintenance and Repair

Traditionally, this has been carried out in the unorganized road side sector. Increasingly, trucking companies
are going in for Annual Maintenance Contracts (AMC) offered by manufacturers at least in the early
years of the use of the truck. Some large fleet owners have their own workshops, which makes sense if the
revenue-generating routes are largely invariant.
(iv) Food and Stay

The ubiquitous dhabas (a commonly used word from Hindi, referring to a roadside food stall) dotted
across the roads of the country play a critical role in supporting the trucking sector. Drivers select dhabas
mostly on a relationship basis. Some of the dhabas also become nodal for other support services including
maintenance and repair.
(v) IT Services
The most important IT service today is GPS which enables visibility of trucks to the fleet owner/trucking
company/customer. IT systems are also used for office automation, starting with Accounting followed
by Enterprise Resource Planning (ERP) and then Management Information Systems (MIS). Sensors that
can communicate the condition of the vehicle and attempt to optimize performance are technologically
feasible and are expected to be brought into practice in the future. Some entrepreneurs are trying to create
a market mechanism using IT based platforms, to replace the role of brokers. While this would lead to
higher truck utilization, it is not clear whether the ecosystem is ready to replace the services that a broker
brings to the table.
(vi) Associations
Associations of trucking companies and truck owners primarily provide support to both for lobbying.
Leveraging the scale that their membership offers; there is an opportunity to enable sharing of best practices,
set standards and provide roadside facilities.
(vii) Training
There are many driver training schools that provide courses to enable obtaining a license or as a refresher.
There is an overall dearth of such institutions, since most drivers learn through apprenticeship and
observation. Large customers, large trucking companies, manufacturers, fuel suppliers and associations,
apart from government, are involved in setting up such institutions.
4. Government and Regulatory Bodies
(i) RTO
The Regional Transport Office (RTO) functions under the Transport Commissioner in every state. It is
responsible for licensing drivers and vehicles, keeping in view safety and environmental considerations.
While playing a key ‘gate keeper’ role, it is often perceived as a source of ‘harassment’. The need for such
a ‘gate keeper’ under the government has often been questioned especially if certified agencies can be
assigned the responsibility of achieving the same objectives with better quality. The government is in the
process of implementing a project to computerize and network all the RTOs and have a single database
to track license holders and prevent abuse.
(ii) Tax Administrators

Due to specific inter-state taxes and tax variations, there are check posts at inter-state borders for inspections
by tax administrators. This leads to trucks being significantly delayed. Apart from causing movement
inefficiencies, there are harassment and environmental concerns. The government is attempting to bring
the Goods and Services Tax to rationalize taxation and consequently remove such check points.
(iii) Traffic Police

Their role is to ensure traffic discipline. The inherent violations by the trucking companies and truck
owners cause difficulties, making the relationship with the traffic police a difficult one.
(iv) Road Development Authorities

The road network is governed by various authorities, starting from the NHAI, the Public Works Department
(PWD) and local authorities, as outlined in the earlier section. Depending upon the institutional structure
and concessioning, the construction, and operation and maintenance could be with different authorities.
(v) Centre (MORTH) and States

The role of the government (Centre and States) is to evolve and implement policy and regulation in public
interest. The Ministry of Road Transport and Highways (MORTH) at the Centre and the PWD and
Transport Commissioners at the state level are responsible for this.
5. Causes and Consequences of Industry Structure

(i) Competition and Corruption
The sector is characterized by cut-throat competition given the large number of truck owners. Market
rates tend to get deflated, which creates the incentive to drive and earn more. This leads to practices
such as overloading, overspeeding, not taking the required breaks, violating the eventually regulatory
provisions, etc. This leads to corruption, as these operators pay bribes to avoid being caught for plying
overloaded trucks, exceeding speed limits and violating other traffic and commercial rules. Various studies
have documented the bribes that truckers have to pay on a daily basis. These could exceed a few lakhs of
rupees per year per truck. As a result, the industry is highly disaggregated, since large truck fleet owning
players will have difficulty in accounting for such bribes. Further, the driving hours often violate the
Motor Transport Workers Act (1961), making it tenable only if there is no significant employer–employee
relationship between the owner and driver. Thus, small fleet owners prefer to operate their fleet through
family and friends.
This is a phenomenon where, in spite of laws and regulations, the norm of violation supports and is
supported by the small truck owner. Figure 1.4 describes this phenomenon as the ‘Unholy Equilibrium
in the Road Transportation Sector’.
Government Policy
• Large number of check points Front Line Regulatory Functionaries
(inter-state, octroi, etc) • Compromise on policy
• Motor Transport Workers Act implementation and incentives
(duty hours, rest requirements, etc) for status quo
• Financing incentives for small sized
truck owners
• Motor Vehicles Act (driver licensing,
over loading, emission norms, etc)
Core Attributes
Industry Structure • Price based competition Induced Externalities
• Disaggregated • Poor logistics service • Safety
ownership structure quality • Pollution
• Separation between • Low transportation cost • Damage to roads
ownership (truck • No commercial entry
owner) and marketing barrier
(trucking company)
Truck Owner Trucking Company Shipper

• Overloading of vehicles • Hire on lowest rates • Focus on direct
• Poor truck maintenance • No monitoring of supply transportation cost only
• Side payments side service quality • Reduced expectation from
service provider
Figure 1.4 Unholy equilibrium in the trucking sector

Source: Roadmap for Logistics Excellence: Need to Break the Unholy Equilibrium by G Raghuram and Janat Shah.
(ii) Financing
Banks provide financial aid to the small road operators under priority sector lending. This is in
accordance with the RBI initiative where it has identified certain sectors to be the priority sectors for the
purpose of granting low-interest loans. The objective of this is to make financial assistance available to
low-income groups and weaker sections of society, and also to provide self-employment opportunities to
the educated unemployed. Since loans are available at cheaper rates, the truck owners have the incentive
to stay small.
(iii) Ownership Pattern

As a consequence of the above ‘equilibrium’, highly fragmented truck ownership is sustained. 75 per cent of
the fleet is with those who own up to five trucks. 15 per cent of the fleet is with those who own between six
to 20 trucks. Only about 10 per cent of the fleet is with those who own more than 20 trucks (Figure 1.5). It
is important to note that this profile is a ‘guesstimate’. The last known field study was done by the Central
Institute of Road Transport in 1998 wherein this profile was estimated. It appears that different reports are
quoting the same profile.
Ownership of trucks in India
10%
1 to 5
15%
6 to 20
More than 20
75%
Figure 1.5 Truck ownership profile pattern in India

Source: Crisil (2010) as reported in The Impacts of India’s Diesel Price Reforms on the Trucking Industry, June 2013
accessed from https://www.iisd.org/gsi/sites/default/files/ffs_india_irade_trucking.pdf on December 15, 2015.
However, the author recalls that in the 1980s, the often quoted profile was that 95 per cent of the fleet
was owned by truck owners with less than five trucks. If this was indeed true, the profile has changed
towards larger fleet owners.
(iv) Service Quality

Given the structure of the industry, most of the trucking companies/owners (being small) do not focus
much on service quality. Competition is cost based rather than service based.
As described in Figure 1.4, this structure introduces a vicious cycle leading to a detrimental situation. As
an initiative to break the cycle, certain customers insist that trucking companies should follow regulations.
They are willing to pay higher freight rates. They expect better service, including that the same (approved)
trucks return for subsequent loading. Case 9 on Ispaat Parivahan Limited illustrates this.
Another way to break out of the cycle is that associations also insist on their members to follow regulations.
Similarly, manufacturers can also insist on the same, since they have leverage through AMCs. Of course,
if the unorganized maintenance sector gears up, the commercial vehicle manufacturers risk losing their
AMCs.
ConCLuSIon
To conclude, we draw upon a ‘five S’ framework which helps focus on the key priorities of
any transport system, including the trucking sector. The transport system should be driven
by speed with sustainability, safety, security and stresslessness.
Speed: The primary need of the trucking sector is speed. While vehicle technologies are
moving in this direction, infrastructural and regulatory bottlenecks remain. There was a push
on infrastructure in the last decade, which has slowed down. Attempts are being made to
re-energize this. On the regulatory side, a lot needs to be done to enable streamlined
movement of trucks across the country. Apart from removing inter-state check posts,
electronic tolling needs immediate attention. The average speed of trucks needs to move
significantly upwards from the current 300 plus kilometres per day.
Sustainability: Rail and Coastal transport are threats to the trucking sector due to
their better environmental impact. The sustainability issue can be combated by better
technologies, maintenance and driving practices. There are efforts to limit the age of the
vehicles and use improved fuel.
Safety: Safety on the Indian roads is a big concern. Indian roads kill the maximum number
of people globally, on a country-wise comparison. Road engineering, signages, driver training
and licensing, driving practices and vehicle maintenance need significant attention. Post-
accident support is also critical to minimize loss of life and limb. This would be addressed
by better roadside support for emergency assistance.
While the government is trying to arm itself with a new Transport and Safety Bill, a lot can
be made to happen even without it by focused action at the grassroots. Truck-based video
cameras and a ‘black box’ should be considered for better analysis of the causes of accidents.
While there is sensitivity on these issues, implementation could be better. The recent
initiative to have tree plantations on the land adjacent to highways needs caution. As per
many international studies, trees are the biggest killers during accidents. This is especially
significant while we are trying to increase the average speed on the roads.
Security: There are many situations where truck and cargo thefts happen. Vulnerable areas
need to be identified for better security support. ICT, including truck based video cameras,
can be used more effectively to bring in visibility.
Stresslessness: Studies have estimated that the economic loss due to damages on the road,
vehicle and cargo would amount to 2 per cent of GDP. In addition, the driver is often stressed
out, which also could be a cause of accidents. High quality road infrastructure, improved
truck cab design for drivers’ comfort, and scientific cargo loading practices need emphasis
for ensuring stresslessness.
noTES AnD REfEREnCES
1. http://www.nhai.org/roadnetwork.htm; accessed on September 23, 2015.
2. https://www.iisd.org/gsi/sites/default/files/ffs_india_irade_trucking.pdf; accessed on
September 25, 2015.
Chapter
Driver Management
Practices in Trucking
Industry
2
T he objective of this chapter is to provide an overview of the Human Resource
(HR) practices with respect to driver management in trucking industry. It
elaborates on the structural problems and other HR related challenges in trucking
industry, and the need for corrective driver management practices in the Indian
trucking industry.
The transportation industry plays a very critical role in the economic development of any nation. In India,
road transportation has been growing steadily since 1950–51.1 The trucking sector, commanding a 70 per
cent share of the total transportation industry, contributes about 4.5–5 per cent i.e., USD 55–60 billion
to India’s GDP (Transport Corporation of India Ltd. and IIM Calcutta, 2009). As a key contributor
to the economic activity of the country, the trucking sector was also severely affected by the economic
slowdown experienced in the country during 2011–14. Soaring fuel prices, a key cost input, did not help
the situation and most businesses suffered huge losses, as very few operators could withstand the crippling
impact of the economic downturn and high fuel costs.
structural ProBlems iN truckiNg iNdustry

The economic downturn intensified the effect of some of the chronic structural problems faced by the
industry.2
Prepared by Professor Kirti Sharda, Indian Institute of Management, Ahmedabad.

The author thanks Professor Debjit Roy, IIM Ahmedabad, for his contribution and support in developing this chapter. The
author also thanks Mahindra Truck and Bus Division, MPower participants and Ms Akshara Anand for their contribution.
Driver Management Practices in Trucking Industr y 15
1. lack of adequate Road Infrastructure

The growth in road networks has not kept pace with the growth in road freight volumes and the
number of vehicles on Indian roads. For example, while road freight volumes increased at a compounded
annual growth rate (CAGR) of 9.06 per cent, the total length of roads increased at a CAGR of only
3.77 per cent between 1950–1951 and 2007–2008. In India, all types of vehicles, pedestrians and animals
can use highways without any restrictions, which affect the speed of freight vehicles and increases the risk
of accidents. The speed of trucks is also reduced due to the poor quality and poor maintenance of roads,
as itleads to frequent equipment breakdowns and accidents.
2. lack of Pricing Power

The trucking sector in India is highly fragmented. About 80 per cent of the sector consists of small and
medium-sized operators who own five or less vehicles who cannot enjoy economies of scale. Due to its
fragmented nature, the industry is highly competitive with price undercutting leading to slim profit margins
or likely operating losses. Profit margins are reported to be as low as 4–5 per cent among small operators
while organized players make about 10–15 per cent.
3. low asset utilization Rates

Due to the absence of a nationwide unified GST and a proliferation of local taxes like octroi, entry tax,
state sales tax, etc., an inordinate amount of time is wasted at check-posts for fulfilling the required
documentation and other formalities, especially on inter-state routes. The confusion and anxiety of illiterate
or semi-illiterate drivers who are at the mercy of the officials or agents to complete the process often adds
to this delay. These delays coupled with the poor quality of roads impact the optimal utilization of a truck
and drivers. The average speed of a truck on Indian roads is approximately 20 km per hour. While a truck
in the US, can travel up to 400,000 km a year, an average truck on an Indian road typically covers only
between 60,000 and 100,000 km in a year. This reduces the overall service quality as on-time delivery
and reliability of service is adversely impacted.
4. Externalities and Regulatory Costs

As per estimates,idling at check-posts results in fuel-wastage of approximately `100–150 billion (USD
2–3 billion) every year. Additionally, an average truck which costs `1.2 million (USD 24,000), incurs
an additional cost of `300,000 (USD 6,000) per annum in the guise of various taxes. Corrupt practices
by various officials including police, transport and other government officials are serious problems and
increase the overall trip expenses by almost 15 per cent.
5. low levels of Re-investment

A majority of trucks that ply on Indian highways are old, obsolescent and fuel-inefficient and require a
high degree of maintenance. However, operators neither retire such vehicles nor upgrade them regularly.
Moreover, very few operators use information technology to track shipments on a real-time basis to
reduce losses due to delays. With low profit margins, transporters are reluctant to invest in new assets
and available technologies. Further, since the sector is largely unorganized and is not deemed to be an
industry officially, transporters experience difficulties in raising capital and debt through banking and
formal financial channels. Hence, the service quality of many small- and medium-sized operators remains
less than satisfactory.
Need for HumaN resource maNagemeNt iN truckiNg iNdustry

Human Resource Management (HRM) is not a key priority for most firms in this industry due to the
low level of operations. The industry sorely lacks robust and well-aligned HRM practices which could
attract and retain high-quality manpower.
Currently, a bulk of the manpower consists of illiterate, semi-literate and semi-skilled workers who work
as drivers, mechanics and cleaners for minimum or low wages. Attrition levels are high as most firms have
not invested in employee retention. Well experienced and skilled drivers are not interested in joining the
industry due to involvement of the hard labour, long working hours, low compensation and harassment
at the hands of officials.
The skill levels of drivers have a major impact on the firms’ operating costs. The quality and experience
of the driver have a direct bearing on vehicle maintenance, fuel consumption and other on-road expenses.
‘Poor quality’ of drivers also impacts inventory holding costs. The client receives payment after the truck
load reaches its destination. In case of a delay, the release of payments is adversely affected and the overall
cost goes up due to the cost of additional working capital requirement.
Shortage of adequately qualified drivers and staff in turn impacts the adoption of modern technologies
and management practices. Also high attrition rates lead to inflated hiring and training costs for firms.
driver maNagemeNt cHalleNges iN truckiNg iNdustry

Truck drivers form the backbone of the trucking industry and are one of its most critical resources.
While it is relatively easy to get qualified candidates at the managerial, staff and workshop levels, driver
acquisition and retention continues to remain one of the biggest problems faced by the industry. Not only
is it difficult to find drivers but a recent government rule mandating all drivers to be at least tenth grade
pass has further worsened the shortage problem. Most educated people do not prefer taking up a career in
trucking until forced to do so due to economic conditions. In addition to adequate education and skill-
levels, transport companies require reliable and experienced people as well. As mentioned in the earlier
section, the poor quality of manpower escalates the overall costs and revenues, reduces optimum utilization
of vehicles and results in loss of customer goodwill and business for the firm. Organizations that succeed
in procuring drivers continue to remain under constant stress, since the driver attrition rate is very high.
Some problems related to drivers are unique to this industry because of the nature of the work. Due to
the poor condition of roads and vehicles in the country, trucks can break down anywhere on the highway.
In order to save on costs, transport companies seldom provide skilled mechanics who may accompany
drivers on trips to immediately solve such problems. As a result, during a breakdown, the driver himself
has to seek help while the truck remains stranded on the side of the highway with its contents vulnerable
to theft and highway robberies. Such breakdowns also lead to a delay in the delivery of goods to the final
destination.
It is difficult to find secure locations where drivers can park their vehicles at night and take rest. Most of
them have to sleep in their trucks. Drivers are immediately held responsible if something happens to the
valuable contents of their vehicle. Given the lack of infrastructure on highways, robbery and theft pose a
serious risk to the materials and there is little that the driver can do to avoid such risks. This might at times
even endanger the life of the driver. They work under immense level of stress, trying to meet deadlines,
and at the same time acting as a watchman to guard the goods at night.
Poor construction and lack of maintenance of roads add to the woes of the truck drivers. There is always
a chance of road accidents and fatalities because of the poor condition of roads.Transporters also overload
trucks often to earn higher margins, which eventually increases the risk of road accidents.
Further, corruption in the industry affects truck drivers the most, as they have to deal with corrupt officials
while driving. The officials not only exploit the drivers by asking for illegal monetary favours, but also
deal with them disrespectfully. Most of the truck drivers are not educated enough to make sense of the
receipts required for the inter-state movements. Hence, they have to face problems at the tolling booths.
The men at the tolling booths at times unnecessarily harass the drivers for lack of proper documents,
may ask for undue monetary favours from them; sometimes keeping the drivers waiting for long, thereby
delaying the delivery of goods, for which the driver is held responsible.
Public utilities and resting facilities are seldom available on highways, which poses a big problem for
drivers who take trucks for cross-country long trips. Unavailability of such basic facilities is one of the
biggest challenges for truck drivers across the country. The lack of comfortable sleep during the course of
the trips leads to fatigue and health problems for truck drivers.
Being underpaid truck drivers are constantly away from their family and are forced to live under extremely
difficult conditions. Also, due to the requirements of their work, drivers do not get to visit their families
as and when they want to. This leads to mental unrest and an unsatisfied work life.
Since most drivers are uneducated, they do not get the respect that they deserve. They are treated poorly at
small establishments on highways where they stop for refreshment, and even at the loading and unloading
points. This can lead to a great level of stress and depression. Many times, drivers are not treated well
by their employers too. In most organizations the power distance between the truck driver and the top
management is very high. The drivers often do not even get to see the top officials and are repeatedly
disrespected by the low and middle management, who actually deal with them. This lack of dignity at
work, adds to the woes of the individuals engaged in this profession.
There is no job security and there are no retirement benefits for drivers. As the drivers grow old, they are
replaced by new and young drivers. These old drivers are then not in good health nor are they eligible to
earn their livelihood by engaging themselves in some other profession. Also, they hardly have any savings
to sustain themselves and their families in their old age, given the low pay-scales while employed.
Drivers seldom like their jobs, but most of them stay with it mainly due to lack of other opportunities.
They do not have skills, other than driving for their sustenance. The job provides regular pay; however,
in the absence of motivating incentives, drivers do not feel committed to deliver satisfactory performance.
Facing a lot of hardships both on and off the road take a toll on the mindset of drivers, who consequently
discourage their next of kin from pursuing this profession. This results in driver shortages in the entire
industry.
The following section presents an overview of important practices that can support human resources
management in the industry.
driver maNagemeNt Practices iN iNdiaN truckiNg iNdustry

In the present state of the trucking industry, driver availability is not the only challenge. Even if one does
manage to hire a driver, there is no exposure to look for a seemingly better opportunity. Since the transport
industry has suffered a serious slowdown in the last few years, retaining drivers has become a serious issue
for companies. Many companies have come up with innovative practices to help retain drivers. Many of
these systems have worked out well, and companies that have put these systems in place have been able
to enhance their driver retention rate and overall profitability.
1. Recruitment and Selection

Every organization needs responsible and dependable people. This is more so in the transport industry
wherein drivers are given the responsibility of delivering goods on time. Not only do they carry
consignments, but they also have to take care of the vehicle, which is the company’s property. Therefore,
a sound recruitment process becomes necessary. It is difficult to find people who are reliable, can be
trusted, have the required skills and experience, and are loyal and committed to the organization. People
who choose to become truck drivers generally belong to a comparatively lower stratum of society. Many
of them are semi-literate, with inadequate reading and writing skills. As mentioned earlier, the quality
of drivers can impact the overall costs borne by the organization, both in a direct and indirect manner.
It can impact the timely delivery of consignments and the manner in which drivers manage officials and
emergent problems en-route.
Many drivers are caught in a vicious circle of poverty, poor education, addiction to narcotic substances
and gambling. This can result in drunken driving, theft of goods, diesel pilferage, and sometimes rude
and aggressive behaviour at the client site. All these can reflect poorly on the organization. A recruitment
and selection process that screens out inappropriate candidates or highlights the areas of development can
help an organization create a high performance-oriented culture.
Recruiting procedures that provide a large pool of qualified applicants, with reliable and valid selection
methods have a substantial influence over the quality and type of skills new employees possess (Uzondu,
2013).3 Post-selection, selected employees can be made to go through the process of formal and informal
induction and regular training sessions, so they can develop their skills further and become an asset to the
company. License verification, examination of past records, experience of working on different routes and
reasons for discontinuation of previous employment can be examined at the time of hiring. Overall health
check-ups, especially vision and motor-coordination tests, need to be a part of the recruitment process.
There should be clarity on roles and responsibilities and the driver should be made aware of these at the
time of recruitment. The responsibilities of managerial and administrative staff should also be articulated
and they should be sensitized to the role requirements and pressures of the driver’s work so that there is
no miscommunication and loss of information.
Employee referrals are a very useful channel to acquire high-quality and reliable resources. Existing
drivers and staff employees can be asked to refer candidates from their native place. This does not only
help in finding good and trustworthy people, but since the recruited people have references, employers
can be confident of their work ethics. Further, they can easily be tracked down if the need arises. This
method has been put into use by some transporters and has resulted in hiring good quality drivers. For
further surety, some employers also do a background check on their drivers, for example, talk to their
previous employers, check the authenticity of their driving license and find out their driving history. This
promotes a stronger level of trust and the employer feels confident sending valuable goods with the new
employees.
2. Compensation and Incentives

One of the primary causes of high attrition in the transport industry is low salary. Competing firms offer
slightly higher salaries and easily lure away drivers and managerial staff. However, regular and timely
payment of salaries is more valued by drivers than higher salaries and it makes them feel financially stable
and reduces the uncertainty in their lives.
While it is difficult to increase the basic salary beyond a certain limit, organizations can institute rewards
and incentive systems, which can motivate employees and raise the standard of performance. The reward
and recognition system can be based on employee performance, behaviours or job-related attitudes.
These programmes can not only provide employees with much-needed financial assistance, but can also
encourage them to work better. It also creates a healthy workspace where the efforts of the employees are
being monitored and appreciated. Putting in incentive programmes for drivers has helped a lot of transport
companies maintain their employee retention rate.
Many transport companies have put in place a basic salary cum incentive system for their drivers. Some
incentive schemes offer a performance-based incentive above the basic salary. Other schemes offer a bonus
of a certain amount after a particular number of trips have been completed and an incremental amount is
offered if the driver exceeds the mandated trips. Parameters such as maximum attendance on the vehicle,
amount of maintenance required on the vehicle, amount of diesel consumed, errors made by the driver,
number of accidents, and distance covered beyond the mandated distance are also considered. A percentage
of the revenue generated by the extra distance covered is given to the driver as incentive. These steps have
attracted second-generation drivers for the company, and have increased vehicle running, client base and
customer satisfaction along with more satisfied drivers.
Other innovative schemes such as awarding employees with gold coins as a token of appreciation for their
performance and plots of land for lengthy tenure also help in retention of employees. Allowing drivers to
acquire ownership of the vehicle through a staggered payment plan and profit sharing over a period of
time can also stem driver attrition. Many firms have implemented a ‘Driver of the Month’ programme,
wherein the driver’s picture is put up in the premises on a monthly basis as a token of recognition and
appreciation. Such recognition also helps in motivating other drivers to work better.
3. Performance Management
Performance management is a strategic approach to improving business performance. It aims at improving
employees’ performance to achieve organizational growth. It optimizes the execution of business strategy by
controlling a set of integrated analytical processes and addressing financial, operational and human resource
parameters (Kalathil, 2010).4 Most organizations use homegrown rudimentary tracking mechanisms like
Excel based reporting. They have a very narrow focus area, which results in limited visibility. Their rules
are not very adaptable and are difficult to customize depending on the current needs of an organization.
Performance management can be done when there are clear parameters in the mind of the manager.
Employees’ standard of work is based on preset parameters and then assessed accordingly. The result is
analyzed, and feedback and final recommendation is given to improve the employees’ performance.
Ideally, a company should decide the metrics which will be used to measure performance after an in-depth
analysis of past and current performance and arrive at an incisive understanding of future performance
requirements to meet organizational goals. Goal setting should begin from top management and cascade
to the individual level. A detailed framework encompassing all parameters for a particular set of people
who are at the same level in the company should be put in place. The manager should inform his drivers
or office staff about the standard of work that is expected of them. This assures that everyone in every
role at every level is aware of the expectations from them. This also helps in monitoring the performance
level of employees against defined service levels. These metrics can also be modified or replaced to suit any
change that might occur due to changing levels of business, thus making the organization more flexible
and adaptable. Rewards and promotions for employees and training and development plans should also
be based on an assessment of employee performance and potential. It is also vital for employees to have
faith in the system of performance management, which is why it should be transparent and based on a
mechanism by which employees can give feedback on the process.
Some transport firms have put in place information technology systems and processes to set, monitor and
assess performance targets. The tracking is supported by articulating daily targets, regular meetings each
week, sharing of performance data at the end of every month, and counselling sessions for improving
performance. Involving drivers in their respective performance management appraisal and providing them
with real-time information about their work has helped these firms improve their overall organizational
performance.
4. Training and Development

At present, there exists a skill deficit in the industry, which is mainly because educated and well qualified
individuals do not find this field attractive enough. Hence, the industry has to do with those who do not
have adequate educational qualifications.
Most people in the trucking industry think of training as a significant expenditure and not from a strategic
point of view. It is essential for the management in an organization to connect training and development to
the growth of the organization. Ideally, training should be an act of change that can recognize and enhance
employees’ core skills. It adds value to a company, by creating a workforce that is highly skilled, to help
achieve the company’s goals. Training and development involves investing in people to enable them to
perform better and to empower them to make the best use of their abilities for the overall effectiveness and
efficiency of an organization (Uzondu, 2013).3 It helps build employee potential and enables employees
to acquire the skills needed for current and future jobs.
Some transport firms provide training programmes to their drivers in association with OEM companies.
Some of these are related to improving driving and fuel consumption parameters and safety and handling
of hazardous goods. Drivers too feel safe and confident post-training. However, there is a dearth of training
programmes on a continuous and consistent basis.
Driver training institutes need to be instituted to periodically train and update drivers on vehicle
maintenance, road safety, hygiene standards and health hazards (Transport Corporation of India Ltd.
and IIM Calcutta, 2009). Drivers also need to be trained in fulfilling documentation related formalities,
dealing with emergent problems en-route, and in technology related basic skills such as use of mobile
and messaging services, ATM services and similar others. It can be agreed upon at an industry level that
companies will have to provide their employed drivers with periodic certifications and approvals to drive
on highways. Industry associations and state and central governments also need to generate awareness and
growth by organizing workshops, seminars or conferences and collaborating with academia and consultants
for sector-specific projects and customized training programmes (Transport Corporation of India Ltd.
and IIM Calcutta, 2009).2
Firms also need to consider the professionalization of all employees including administrative staff. They
need to train their employees to take on more decision-making and managerial responsibilities. Managers
and staff also need to be trained in using sophisticated technology to improve their operations and human
resource management systems. This can help top management and owners to shift their attention from
the routine problems of the company and focus on organizational strategy and growth.
5. Employee Well-being
An organization can achieve its goals only when its employees are satisfied with their jobs and feel they
are seen as an asset to their organization. Some transport firms pay close attention to employee well-being
initiatives so that their employees feel supported and valued by the organization. Such initiatives include
constituting a driver management fund wherein both the company and the drivers contribute an equal
amount to the fund. This money can be used for events like weddings or during medical emergencies.
Some companies provide an additional insurance coverage in case of mishap. Other firms help drivers file
mediclaims and also provide generous loans in case of unanticipated contingencies. Free health check-ups
including eye check-up camps are also arranged by various companies to ensure drivers are in good health.
Organizations can design innovative programmes aimed at increasing employee engagement and
commitment. Firms can come together and create a micro finance society which would provide loans to
drivers at very low interest rates.
Some firms have put in place initiatives to support the families of drivers. They have instituted rewards
to recognize the academic performance of employees’ children. Some firms also provide scholarships to
children who want to pursue a career in logistics.
The most critical measure of employee satisfaction in this industry is the degree of respect that is accorded
to employees by top management. Good communication between management and drivers enables the
resolution of lot of issues. Drivers appreciate it when they can approach management with their problems
and these are addressed. One of the most impactful ways to increase driver retention is to make the driver
feel important and treat him with dignity. Some companies have realized this and have witnessed improved
performance and reduced attrition rates among drivers.
ConCluSIon
This chapter provides an insight into the ways in which driver management can be done in
a feasible way. Taking into consideration the high attrition rate of drivers in the industry, it is
highly advisable to use robust and internally consistent driver management practices which
are aligned with the organization’s goals.
The condition of drivers in the industry in India is not as good as in other countries. Less
pay and severe working conditions have led a lot of people away from this field of work. To
overcome driver shortage, organizations need to invest in driver acquisition, driver retention
and driver attraction strategies on a priority basis to improve organizational performance.
Providing drivers with incentive schemes, both monetary and non-monetary, recognizing
and rewarding their work, and making them feel respected and valued goes a long way in
establishing a secure and stable relationship between drivers and organizations. Organizations
need to inculcate a sense of participation and ownership among the drivers. This will help
elicit loyalty from them and reduce absenteeism and attrition.
In addition, companies also need to come together and work towards overall employee
skill enhancement, use of sophisticated technology and putting together infrastructure and
facilities to alleviate en-route issues. This will not only help organizations to improve their
performance but will also catalyze growth at an industry level.
noTES anD REfEREnCES
1. Raghuram, G., & Padmanabhan, G. 1992. The trucking industry: An introductory note.
Working paper no. WP 1992_1026. IIM - Ahmedabad, Ahmedabad, India.
2. Transport Corporation of India Ltd. and IIM Calcutta. 2009. Operational Efficiency of
National Highways for Freight Transportation in India.http://www.tcil.com/tcil/pdf/
TCI%20&%20IIM%20Study%20Report.pdf Accessed on 14th December, 2015.
3. Uzondu, C. C. 2013. Evaluation of HRM Practices on the productivity and performance

of transport organizations in Nigeria. IOSR Journal of Business and Management,
12 (1): 59-70.
4. Kalathil, A. 2010. Performance management in the transportation and logistics

industry; Cognizant White Paper. http://www.cognizant.com/InsightsWhitepapers/
Performance-Management.pdf Accessed on 14th December, 2015.
CASES
CASE 1 Agarwal Packers and Movers Ltd.: The Road Ahead
CASE 2 Navigators Logistics Company Private Limited
CASE 3 Agarwal Packers and Movers Limited
CASE 4 Shreeji Transport Services Private Limited
CASE 5 KM Trans Logistics: Workshop Operations
CASE 6 Spare Parts Procurement Planning at KM Trans Logistics
CASE 7 Novire Technologies: Automatic Vehicle Location
CASE 8 Instant Transport Solution Private Limited
CASE 9 Ispaat Parivahan Limited: Additional Fleet Acquisition
CASE 10 XYZ Trucking Company: Misappropriation of Company Funds
CASE 11 FarmAid Tractors Limited
CASE 12 Laxmi Transformers
C as e
1
case conteXt
T he case highlights a number of issues that Agarwal Packers and Movers Ltd.
(APML) faces, which relate to its pricing, branding and positioning. APML has
grown rapidly and positioned itself as the leading service for household relocation.
Now, it is facing competition at both ends of the spectrum—there are competitors
at the lower end which offer lower levels of service at cheaper prices and also those
that have positioned themselves at the premium end of the market and charge
relatively high prices.
Further, APML is also facing a challenge from firms that had similar names.
Both APML and the DRS group, after splitting, continue to use the name Agarwal
Packers and Movers for conducting their business. Also, a number of firms used
the word ‘Agarwal’ to claim a false association or similarity with Agarwal Packers
and Movers and to leverage the credibility of the popular brand. APML was not
only losing business but this was also harming their credibility and brand.
Agarwal Packers and Movers Ltd.: The Road Ahead
IntroductIon
On 1 May, 2015 Ramesh Agarwal, the CEO of Agarwal Packers and Movers Ltd. (APML) and
his team were to gather for their monthly meeting. These meetings were used not only to review
the performance of the previous month and to tackle various issues that had cropped up, but
were also an opportunity to discuss other strategic issues.
There were a number of items on their agenda. The reports from the field suggested that APML
was losing substantial business to its competitors as its services were priced higher than theirs.
In recent years, as the house relocation industry had grown, a number of local competitors had
come up. They had a cost advantage in small geographies; many did not pay any taxes such as
service tax or income tax and saved money by offering lower levels of service. Customers often
discovered too late that there were hidden costs to this low price. However, APML was losing
a number of customers to such players; therefore, an urgent need to work on a counter strategy
arose.
The other concern that APML had was that it was losing a number of customers to companies
which had similar names and used APML’s goodwill to conduct business. Often when customers
were cheated or provided substandard service, it was APML that would lose customer goodwill.
When Ramesh Agarwal had started the firm, he used his surname Agarwal for the company name.
Agarwal is the name of a community in north India and people belonging to this community
used this word as their surname. Using the community name for the name of the business was
quite common and Ramesh did not give much thought to it then. However, as APML became
popular, a number of competitors started using names that had the word ‘Agarwal’. Since Agarwal
denoted the name of a caste it could not be copyrighted and hence APML could not legally stop
others from using it. Ramesh wondered how he could resolve this.
APML was founded in 1987 and over time it had grown to become the largest full-service
relocation company based in India, providing third party logistics and warehousing services. Of
late, a number of competitors had emerged locally and a few international firms, attracted by
Prepared by Professor Sanjeev Tripathi, Indian Institute of Management, Ahmedabad.

Case material of the author is prepared as a basis for classroom discussion. It is not designed to present illustrations
of either correct or incorrect handling of administrative problems.
This case is not an exact representation of reality and does not necessarily reflect the position of the author on this issue.
Copyright © by Sanjeev Tripathi.
the growing Indian market, had entered in the relocation industry. It was important for APML
to differentiate and position itself in the price-sensitive Indian market. Ramesh felt that the
market might get segmented in future as the competition grew. The question was how APML
should handle this.
company
Background
APML was established as ‘one office-one lorry-small team’ in 1987. After quitting his army job,
Ramesh transported household goods for one of his ex-military seniors from Dundigal in Tamil
Nadu to Balasore in Orissa. It was a difficult task, but Ramesh used locally available material
like straw and completed the job successfully. This success led him to start Agarwal Household
Carriers to cater to the needs of the household goods relocation segment. The idea of using
packers while relocating was quite new in India. Agarwal Household Carriers set up its first
office in Hyderabad with modest funds.
According to Ramesh–
In those days we used to create ideas for different types of packaging and work really hard
to safely deliver the packets. Our customers were families who had a sentimental attachment
to their luggage. So, one had to be very careful while transporting their luggage. There were
no mobile phones and not even very good roads and infrastructure.1
The company focused on expanding its customer base and clientele. It also worked to develop a
deeper understanding of the sector and consumer needs with Ramesh talking to consumers and
various stakeholders in the industry. Over time, the company, which was involved primarily in
the shifting of defense personnel, started getting work from other sectors as well. The company’s
name was soon changed to Agarwal Packers and Movers. As they were getting work from all
over India, they had to soon open branches all over the country.
The Split
In the year 1991, the company that Ramesh Agarwal started as Agarwal Household Carriers, was
acquired by DRS Transport Limited. DRS was registered at Hyderabad and had six Directors
on its Board, all from the same family–Ramesh Agarwal, Rajinder Agarwal, Dayanand Agarwal,
A.K. Agarwal, Sanjay Agarwal and Dinesh Agarwal. The name of DRS Transport Limited was
later changed to DRS Logistics Private Limited. As a result of these changes, Agarwal Household
1
Conversation with the case author
Agarwal Packers and Movers Ltd.: The Road Ahead 29
Carriers ceased to exist and the business was owned by DRS Logistics and it operated under the
name Agarwal Packers and Movers. The name Agarwal Packers and Movers was registered in
2005 as a trademark of DRS Logistics Company.2
While the business had grown, differences developed between the various directors on the board.
This resulted in the formation of two different groups, one led by Dayanand Agarwal along with
his two sons and the other led by Ramesh with his brother Rajinder and their nephew Dinesh.
The business of DRS Logistics was divided on a regional basis in March 2009.However, this
division could not last, and both groups started doing the business through separate companies
with the understanding that both groups would use the name Agarwal Packers and Movers. The
group led by Ramesh (henceforth APML) continued its business by using the existing trade mark
Agarwal Packers and Movers along with a ‘Fauzi’ (meaning army man in Hindi, to emphasize
Ramesh’s background).The group led by Dayanand Agarwal (henceforth DRS) used the Agarwal
Packers and Movers trade mark along with the suffix ‘DRS Group’.3
Growth of apmL
Though APML under Ramesh started as a domestic household goods transportation business,
it soon expanded and started offering international movements. As the number of branches and
offices grew, it started to organize the business under various divisions with each following a
different portfolio of services and solutions. Apart from the services offered under APML, the
other divisions arranged their portfolios as APM Transportation, APM Warehousing, APM Exim
Cargo, APM ODC (over dimensional cargo) transportation and APM Infrastructure (Exhibit 1).
By 2013, APML had established 103 computerized branches across India and expanded its
operations internationally. It had also expanded its total warehousing space (owned, leased and
rented) to 4.2 million square feet and increased its total fleet size to 1,100 trucks and 400 trucking
cubes. In addition, 8.4 million square feet warehousing space was under development. The group
across its various divisions served 1.4 million customers annually. Their contribution to the field
of transporting household goods was recognized by the Limca Book of Records (Exhibit 2). In
2013–14, APML received the ISO 9001–2008 certification and also became one of the four
companies in India to be certified by ISO 39001:2012, which attested their contribution towards
road traffic safety (see Exhibit 1). By 2013–14, its turnover had reached over `3,910 million
and it aspired to reach `20,000 million by 2020. The company employed 1,173 employees and
had more than 4,000 people attached indirectly to it.
2
Senior Managers in APML
3
Company sources
Structure and Operations

The business model of the company was developed around the movement of households within
India and from India to other countries from start to finish with its own people and resources.
APML was organized as branches with each branch headed by a Branch ‘Malik’. APML called
its managers Malik or owner as this was in line with its philosophy of giving ownership to its
employees and creating an entrepreneurial spirit in its managers. A state ‘Malik’ would look after
a number of branches. The whole country was divided into four zones (East, West, North and
South). Rajinder Agarwal, Vice Chairman and head of operations managed the West, East and
South zone while the North zone was managed by Ramesh.
Each APML office had its own sales and operations personnel and different offices coordinated to
manage regional moves. It had standardized all aspects of a move at the point of origin including
the pre-move survey, quotation, confirmation, insurance packing, freight and storage, if required.
The detailed and stepwise process (Exhibit 6) with the use of an organizational book focused on
detailing the roles and functions of employees within each department.
A team of packing and moving crew was led by supervisors and trained as per ISO quality
standards. The compensation was also tied to their performance and customer feedback. They
also had a gain and share scheme in which a share of the company’s profits was distributed among
the employees with the percentage of share depending on the percentage of the target achieved by
that particular branch office. Tablets were used during the pre-move survey, ensuring detailed and
accurate inventory and providing volume and weight estimates on location. In addition, clients
were continuously updated about the position and delivery of their luggage. These measures led
to high customer satisfaction and minimized the claims for damaged goods. In 2014, APML
handled over 1,00,000 relocations with the help of nearly 6,000 employees.
Practices and Innovations

Innovation was one of APML’s strengths. The company developed processes and packaging
methods to improve the service experience and reduce the true operational cost. The cost of
packaging material was about 20 per cent of the cost to the company in transporting the goods
of an average one bedroom–hall-kitchen apartment (Exhibit 7). The wrapping material, specially
the corrugated sheets, cost `29 per kg and contributed towards a large part of the material
cost. APML came up with the idea of using a fabric sheet, which was priced at `90 per Kg;
however, this could be used six times, making it more cost effective. This resulted in a reduction
in the operational cost and was also a more environmentally sustainable practice as it saved
300 trees annually (the number of trees cut to produce the annual requirement of corrugated
sheets).
Another innovation by APML was to use cement bags filled with glass and foam to pack around
the fuel tanks of motorcycles which were prone to damage. The packing of LCD TVs was a
major problem during relocation as a number of claims were made against damaged LCD TVs.
Typically, APML would use bubble wrapping, thermocol and corrugated sheet layering and
then fix this into a wooden crate by hammering it. However, APML realized that the use of
hammers while packing the TV in the wooden crate resulted in internal damage to the TV.
Hence, it started to transport LCD TVs with the help of reusable boxes that were rugged from
the outside and soft from the inside, known as LED boxes. Another accident prone area was
the shifting of crockery items; this was overcome by using special container boxes called perfect
boxes to carry fragile items. Normal cartons for transporting books and clothes were replaced by
trendy bags. These bags also created a strong brand recall as they had the APML logo printed on
them and were left with the customer at the destination. APML also used special plant carriers
to transport potted plants.
APML had been using 24-feet double door containers to transport goods; these could carry the
household goods of two customers. Although this was a very efficient system, trans-shipment was
required in some cases. Agarwal believed that reducing trans-shipment could reduce damage to
consignments. Also, there were certain situations where clients wanted their goods to be stored at
the APML premises for a few days. This would allow the client to settle in the new city. However,
storing a customer’s goods meant that the trucks could not be used further, which meant a loss
of business. Hence, APML needed a solution to the problem of storage of goods as well as the
problem of trans-shipment. APML found this in trucking cubes which were independent units
that could be easily latched and unlatched from the trucks. The Trucking Cube (Exhibit 8) was
a significant innovation by APML. APML offered to store the customer’s goods (in cubes) for
21 days at the destination without any additional charge. These cubes could also be used as car
carriers for customers who wished to have their car transported along with their goods.
Further, APML invested heavily in IT to transform the workplace. They started using Enterprise
Resource Planning (ERP), Vehicle Tracking System (VTS) and leveraged the internet for online
enquiry forms, online payment modes, online consignment tracking, etc.
Marketing
In the early days, APML had primarily relied on word-of-mouth advertising and personal
recommendations from previous customers. They believed that a satisfied customer was the best
advertisement. As the company grew and APML realized that lack of awareness was a big problem,
they started investing in promotional efforts. For corporates, they adopted a direct marketing
approach. APML approached them through phone calls, personal sales visits, presentations and
email campaigns. For this the company developed print material, videos and presentations. The
interactive presentations were considered an important sales tool during visits to corporates. Sales
representatives were asked to distribute the print materials that had recently been updated to
highlight the innovation in services and newly added services. Such efforts generally resulted in
a request for proposals and frequently in a contract.
For the retail consumers, APML had invested in a website and used Search Engine Optimization
and Search Engine Marketing to be visible to customers who were looking for such services. The
website allowed customers to electronically request services and initiate relocation. It also had
links for contacts in various cities.
the IndIan reLocatIon Industry

The Market
The relocation industry in India was largely unorganized but was evolving rapidly. The size
of the market was said to be about `10 billion.4 The demand for relocation services had been
increasing as people were more willing to relocate for both professional and personal reasons.
The primary driver for relocation was still professional and people primarily moved either due
to job transfers or for better opportunities.
Relocation companies existed in every state and estimates suggested that there were as many as
over 40,000 small and large players and a `23.765 billion market with high growth potential.5
There were a number of local players who operated within smaller geographies, for example,
large cities such as Mumbai often had a number of local relocators. Unlike the logistics industry,
the relocation and transportation industry had no strict laws and the entry barriers were quite
low. This allowed a number of questionable transporters to enter the market; these transporters
would deceive customers, misplace their property and in extreme cases even disappear with it.
Often they would adopt names similar to established companies to attract gullible customers
who would fall for their cheap prices.
Awareness about the industry in the price sensitive and lower middle class segments was low.
The industry also faced a problem of skilled and reliable labour. Given the seasonal nature of
the industry, this problem became more acute in the summer months, April to June, when a
bulk of relocations took place.
Consumers
Relocation was not a very desirable activity for most consumers. There was a lot of tension
involved as they had to shift their entire household, often to a new and unfamiliar place. This
involved packing their household objects, leaving them in the custody of the transporter and
again unpacking and setting up home at a new place. The key concerns of the consumers were
related to hassles in the process, the security and safety of the luggage and the price.
4
http://www.business-standard.com/article/companies/with-ezmove-it-s-easy-to-move-114111700006_1.html accessed
on 5 December 2015.
5
https://relocationindia.wordpress.com/2013/03/24/relocation-industry-in-india-perspective-by-rahul-pillai/ accessed
on 27 November 2015.
Most of the consumers were professionals working with large national or international firms and
government officials. Broadly, consumers could be segmented into two types based on whether
the cost of relocation was borne by the customers or by the employers. When the customers
were paying for the relocation, they tended to be price sensitive. However, when the charges
were paid by the employers, they were less so.
From APML’s perspective, consumers were either corporates who entered into a direct deal
with relocation firms or direct retail consumers who approached relocation firms on their own.
Corporates normally preferred large relocators who had a good brand image and a pan India
presence. Corporate contracts accounted for 80 per cent of APML’s revenues.
Competitive Landscape
APML was the largest relocator in India and was said to have an over 60 per cent share of the
market. This was largely due to its pan India presence. There were about 40,000 small and large
players in this market, but the bulk of the relocation market was in the hands of a few players
such as APML, the DRS Group, Writer, Crown, Gati, etc. For APML, the main competitor was
the APM (DRS) group that had separated from them. Other companies such as Writer, Crown
and Gati had a small presence and each of them had a market share of less than 2 per cent.6
Barring APM, most of the other companies had a regional presence. In Mumbai, Writer was the
major competitor whose services and prices were similar to APML. In North India, primarily
around Delhi, Gati was a major competitor. Bengaluru was considered to be a large hub for the
relocation business, and the competition was intense among the local, national and international
players. DHL was dominant in the Hyderabad and Chennai regions. Indian Packers and Movers
had a strong presence in the North East Indian relocation market.
Competition also came from a number of relocators that operated with names similar to
Agarwal Packers Movers. A number of such firms used the word ‘Agarwal’ in their name. Since
Agarwal was the name of a community and a commonly used word, APML did not have any
legal protection against the use of this word in names. However, APML had registered this as a
trademark in 2005 and Ramesh had been successful in filing court cases against third parties for
infringement of trade mark and other intellectual property rights for using similar and identical
names. He had also been successful in getting a number of favourable orders. However, this had
not solved the problem fully. Since the word ‘Agarwal’ was not protected, firms could still use it
in their name and attract customers. The onus was always on APML to locate and then litigate
with such firms, which involved time and money.
Exhibit 10 provides a brief overview of some of the major competitors.
6
Estimated market shares as per conversation with Senior Managers of APML.
the road ahead
A large part of APML’s revenues came from corporate contracts where they had a direct tie up
with employers who paid for the relocation of their employees. However, in the retail consumer
segment, APML was losing substantial business to its competitors due to the perception that it
was high priced. While there was no doubt that APML was priced higher than some of the local
competitors, Ramesh felt that the level of service that they offered was significantly higher than
the competitors’.
In the last few years, APML had also invested in several innovations such as special packing for
LED TVs, ‘Perfect Box’ for fragile material, fabric sheets, cages for plants and pets, wardrobe
cartons and a special protocol for packing a ‘Mandir’ (house temple, which was quite common
in Indian households). APML had thought that this would improve customer satisfaction.
However, Ramesh sensed that while customers appreciated all the innovations and the better
service that APML offered, the price comparison at the time of giving the contract was a huge
barrier. Customer satisfaction reviews supported APML’s belief that it enjoyed positive word of
mouth from past customers. However, APML would still need to leverage this satisfaction and
the positive reviews to generate new and repeat business.
There were various options before Ramesh. One option was that APML could position itself
as a premium service provider and not compete with local competitors who would undercut
prices. While this seemed an easy option, the problem with this approach was that ab initio
it was difficult to identify a price conscious consumer. There was a high chance that the local
managers might drop a customer whom they would have been able to convert had they persisted.
The second option was to offer price tiers for the service. This would mean that every customer
would be able to choose a basic service at a low price that was closer to the competitor’s and offer
a higher price for value adds. However, this could drive the cost of servicing such customers,
cause confusion and would need better trained staff. Further, APML might also need to educate
customers about the value that it delivered. The question was how to do it?
APML’s major competition was the DRS group which used the same trademark. Moreover,
APML also suffered on account of firms which were trying to pass themselves off as APML. Not
only had APML lost business, but it was also losing goodwill in the market due to the unfair
practices adopted by them.
A key concern for Ramesh was the use of ‘Agarwal’ in the names of some of the competitors.
However, he had the rights to the use of ‘Agarwal Packers and Movers’ as a trademark and he
had used this right to successfully fight court cases against firms which used similar names.
Ramesh wondered if changing the current brand name could be an option. It would have to be
a name that was differentiable and had stronger legal protection. However, given the top of the
mind recall and the brand equity that APML had developed, he was not sure if this was a prudent
option; moreover, APML could lose a large market to the imposters. The other option was to
create brand elements for APML that were unique, memorable and protectable and which could
be used to differentiate APML. However, this would take time and also significant investment
and there was still no guarantee that this would solve the problem.
Ramesh was also conscious of the growing competition. The entry of the local players competing
on price was biting the market at the lower end. At the same time firms like Writer and Crown
were trying to capture the upper end of the market. He wondered if he would be squeezed
between the two just like Nokia had got squeezed by Apple, Micromax and Samsung. He knew
that APML might need to identify the right positioning for its target segments. Should APML
re-segment the market and then do the targeting and positioning?
Exhibit 1
Awards and Recognition
Source: APML
Exhibit 2
APML’s Service Portfolio and Warehouse Spread in India
APM
domestic
moving APM
APM
international
transportation
moving
APM
APM home
warehousing storage
APML
APM
exim APM car
cargo carriers
APM ODC APM

transportation infrastructure
Source: APML
Exhibit 3
APML’s Warehouse Spread in India
Map showing location completed warehouses and hubs
India
Legend:
Ambala–NH-73 Hub
Warehouse
Gurgaon
Gurgaon–Jamalpur and
Khawaspur
Palwal–NH-2
Jaipur–NH-8
Dharuhera–NH-73
Ahmedabad
Indore
Kolkata
Mumbai–NH-4
Mumbai Hyderabad
Bengaluru
Chennai
Source: APML
Exhibit 4
Firms with Similar Names
http://www.agarwalpackersmovers.
co.in/
http://www.agarwalpackers.in/
http://aggarwalmoversrelocation.
co.in/
http://www.agarwalpackwayindia.
com/
(Contd.)
http://www.agarwalhomemove.com/
index.html
http://www.agarwalbestpackers.
co.in/
http://www.agarwallogisticspackers.
in/
http://agarwalpackandmove.in/
packing-service.html
Source: Websites of the respective companies above

Exhibit 5
APML–Communication against Fraud
Source: APML website www.agarwalpackers.com/beware-of-frauds.html; accessed on 12/12/2015.

Exhibit 6
Relocation Process
Packing is done by skilled labour

and using quality materials Luggage is loaded into the
required capacity space
Packing team and material
assigned Transportation of goods
Customer from origin to
Day of packing confirmed destination
enquiry – Website,
once again
Call Email
Destination branch office

Branch office issues duty contacts the client and
slip and inventory slip confirms the date of delivery
Customer is contacted and
Survey of the site is done Introduction call Unpacking team assigned Duty
by survey officer Slip inventory slip generated
- Physical survey Your shifting Assistant is
- Distant survey – estimate assigned and reusable packing
is given by phone material collected
Survey forms are filled in Customer Feedback is taken

60% cases client agrees to after unpacking
mobile tablet to create
the after recalling the case
detailed statement of
2-3 times, if the client
work to the client, a Damaged items if any are
denies a feed is taken
transparency is listed
and closed the case
maintained List is passed to core
committee
Officer visits and confirms the

complaint and settle it down
Source: APML
Exhibit 7
Pricing for Relocation Firms (New Delhi to Bangalore)
Particulars / APML (`) Gati Angel LG packers Delight
transportation heads packers and packers and
movers movers
Basic for household 29000 28000 23000 32000 20000
goods
Car freight - - - -
Statistical charges 100 - - -
Additional freight on - - - -
value
Surcharge for rate of 2910 -
transportation
Packing charges Included Included Included Included Included
Loading charges Included Included Included Included Included
Unpacking charges Included Included Included Included Included
Unloading charges Included Included Included Included Included
Service tax 4.2% extra on 14% extra 14% extra on 14% extra 2800
total billing total billing
Insurance charges/ 3% of the 1.5% as per 3% on value 1.5 extra 2500 (@2.5%
Risk Coverage value value extra for 1 lakh)
Total (in `) 34355 28450 23200 32550 25300
Source: APML
Exhibit 8
Innovation–Trucking Cubes
Trucking Cubes on Trucks
Trucking Cube: Outside and Inside

Trucking Cube Features
Flexibility: From 4ft to 20ft (TRUCKING CUBE- Big or small? We have all).
Economy: 25 per cent reduction in packaging cost.
21 Days of free storage facility at destination in the cube.
Less damage: “No Trans-shipment” of goods.
Security: Clients can lock the Cube using their own lock and key.
Safety: Shock Absorbing Pad on floor, Net & Safety Belts on the walls to hold the goods.
Tracking: 100 per cent online Consignment Trucking through GPS.
Source: APML
Exhibit 9
Marketing Communication
Source: APML
Exhibit 10
Competitive Landscape
Name of About Network Revenue (2013–
company 14) million
Agarwal Transport of household HQ in New Delhi, India, operations `7.9 to `10
APML goods, logistical services, for global and Domestic market both. billion
APM infrastructure In India they have more than 75
services, warehousing offices.
services and other goods. Serves in 182 Countries through
partners.
Allied Lemuir Allied Pickfords, acquired Over 600 locations in 40 countries Not available
Allied Lemuir in 2011 in Allied Pickfords was handling 50,000
India international moves every year.
Crown Founded in 1965, a global Spread over 265 locations in almost 60 `42.25 billion
Relocation company countries worldwide. Warehouse Space:
Over 7.5 million square feet.
DTDC DTDC was a courier and Headquartered in Mumbai, developed `5-7 billion
Packers & cargo company based national and international markets.
Movers in India and founded in
the year 1990. Also gave
Courier express, freight
forwarding, logistics
services and other premier
services.
Maxwell A division of Maxwell Spread over India with 1,00,000 square `700 million
logistics feet of warehousing facilities
Gati Courier Gati was an Indian It has over 4,000 vehicles on road, 2 `12.9 billion to
express, company operating since marine vessels and 7,000 plus business `13 billion
freight 1989. partners across the country.
forwarding,
logistics
services,
moving other
goods
Writers Operating since 1953 and It has 360 global partners to ensure `50.5 billion
relocation serves across India, UAE, smooth relocation across the globe.
services Bahrain, Oman, Qatar
and Singapore. It is based
in Mumbai
Source: Websites of the companies mentioned above.
SuGGeSTeD QueSTIONS
1. How could Agarwal Packers and Movers Ltd (APML) compete with competitors that
offered lower prices?
2. What could APML do about its customers who were not ready to pay a higher price for
the better value that it provided?
3. What is the right consumer segment that APML should target?

4. Was it possible for APML to target multiple consumer segments? If yes, what would be
the implications on the portfolio of its offerings?
5. A number of competitors were using similar brand names. How should APML deal with
this?
A P P R O A C h f O R A N A Ly S I S
The case highlights that APML is at the crossroads as it charts its growth path. It would need
to take a number of key decisions related to choosing its target consumers, positioning and
branding strategy. APML was a pioneer in the household relocation market and developed
the market in India. However, as the market evolves, the competition has grown and the
competitors now compete with APML by differentiating themselves on attributes such as
price, service, geography, etc. APML has currently been targeting all consumer segments.
However, now there seem to be sizeable consumer segments that differ in their needs and
which are sensitive to different attributes such as price, level of service, etc.
APML could choose to focus on one of the segments, for example, the large middle-class
segment, and ignore the low-end segment, where it is being challenged by low-cost operators,
and the high-end market where premium relocators can operate. However, this might mean
that APML exits a market where it enjoys high-brand equity; this would also give space
to its competitors. The alternative is to try and target multiple consumer segments with
multiple services (and price tiers). APML may like to have a broader positioning and offer
itself as a relocation service provider for all consumer segments and offer services that cater
to the needs of all segments. It may need to unbundle its services and offer basic services
and add-ons for which it can charge a high price. Though this is a viable strategy, there will
be challenges in the execution.
A tougher challenge awaits APML where branding is concerned. Firstly, the fact that it
shares the trade mark on Agarwal Packers and Movers with the DRS group means that
there will always be a lack of consistency in the service offering and brand communication.
Moreover, as the word ‘Agarwal’ cannot be protected, protecting the brand elements and
projecting a unique identity will always be a challenge. The ‘business as usual’ strategy is likely
to have long-term negative effects. While using the brand ‘Agarwal Packers and Movers’
has its advantage APML may need to work towards a long-term solution. Firstly it may
need to settle the trademark issue with DRS so that the consistency in offering associated
with the brand is maintained. Secondly, it may need to create brand elements that are
protectable. Towards this it may think of developing sub brands and creating more unique
brand associations such as the ‘Fauzi’ logo.
C as e
2
cAse coNtext
N avigators Logistics Co. Pvt. Ltd. faced a number of issues with its clients in
terms of the fluctuation in demand volumes and extended credit periods. The
spread of client transportation requirement was not consistent across the year
and that was the major point of distress. Further, the process for handling internal
transactions was manual with limited process checks. This led to unproductive
man-hours and adversely affected business profitability. Should the company
restructure its entire client portfolio? What process changes are needed to manage
internal operations?
Navigators Logistics Company Private Limited
In July 2013, Preet Shah, the Executive Director of Navigators Logistics Co. Pvt. Ltd., Gujarat,
arrived at his office to begin his day’s work. Navigators Logistics was a road transportation
company. They transported hazardous chemical products to chemical companies in Gujarat,
Madhya Pradesh and Maharashtra.
Preet looked at the profit and loss statement of the company for the last three years and was
not surprised to find out that the company’s profit had almost been constant for these years.
He was facing regular issues with the clients in terms of fluctuation in demand volumes and
extended credit period. The spread of demand of his clients was not consistent throughout the
year and that was the major point of distress. The fluctuation in demand curve was so wide that
at times it led to the fleet being fully utilized while at other times the fleet was idle. Not only
this, during the times of full utilization at times even more trucks had to be rented from the
market. The scenario was even worse during turbulent economic conditions when the clients
used to suffer and it reflected on his company’s business as well. The payments from clients used
to be delayed and at times it even took three to four months to get the payment released. This
was a matter of serious concern to Preet. Apart from the issues arising from demand fluctuation
and extended credit period, another issue was troubling Preet. The organization had to incur
huge maintenance cost as the humidity at Kandla port (where loading used to take place) caused
corrosion of the trucks.
In addition to the external factors, there were certain issues in the way the organization used to
function. Due to the extended credit period, man-hours were wasted in follow ups for payments,
which were unproductive. Also, the company used the pen and paper medium for data entry
which was inefficient as lot of time was wasted in trip calculations. The drivers used to report
falsely on the amount of money spent on diesel, as the organization had no mechanism to check
the same. All these issues adversely affected Navigators Logistics’ business and the accounts further
weakened during unstable economic condition.
Despite of the fact that the issues were many, Preet this time was determined to solve the problems
that the organization was confronting, both, internal as well as external ones. The decisions
to be taken involved (a) whether to continue with the existing clients only or to think about
restructuring the entire client portfolio (b) what changes were to be brought about to manage
Prepared by Professor Debjit Roy, Indian Institute of Management, Ahmedabad.

Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom discussion. They are
not designed to present illustrations of either correct or incorrect handling of administrative problems.
© 2015 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/PROD0312) has been reproduced
with permission from Indian Institute of Management, Ahmedabad.
the issues in internal operations (c) what growth strategy and technological reforms should he
bring about and (d) what he had to do to acquire the competitive edge in his business? Decisions
to address these problems had to be taken at the earliest to facilitate the future course of action.
About NAvigAtors Logistics
Navigators Logistics Co. Pvt. Ltd., a logistics solutions provider was established in the year 2008
with the vision to become a major integrated logistics service provider in India.
For its existing clients, majority of them being based in and around Gujarat, it took care of
logistics management and ensured safe and timely delivery of goods. Moving a step forward,
apart from transporting goods, Navigators Logistics intended at streamlining and managing the
end to end supply chain process of its clients.
Navigators Logistics was engaged in transportation of various types of liquid cargos, gases,
chemicals, etc. It intended to extend its services beyond transportation, and wanted to serve as a
strategic planning partner to its clients by extending services such as analyzing material shortfall,
giving more visibility to their supply chain inventory, enhancing customers’ experience and
likewise, to its clients.
To serve the needs of its existing clients in a better way and also to add new clients to its folio, the
organization had expansion plans in the years to come. In addition to this, the organization was also
looking forward to diversify and provide solid cargo handling services and warehousing services to
the clients. This would enable the organization to move a step further in achieving its mission to
provide top quality logistics services to help improve the supply chain management of its clients,
by offering value added services such as building customer relationship, warehousing (for clients
having storage needs), daily consumption planning and visibility of inventory to mention a few.
Navigators Logistics had a unique style of operation. It had mostly dedicated its vehicles to specific
clients/products on long term basis, so as to be able to offer consistent services. However, the
exclusive vehicle system was feasible only for contractual clients, such as GSPC, whereas, for all
the other clients the vehicles were to be pooled. This strategy was adopted to indirectly push
more clients to enter into a contract with Navigators Logistics, thereby providing the company
with an estimate of the volumes of demand.
bAckgrouNd
Navigators Logistics has its registered office at Ahmedabad, Gujarat. It also has branch offices
situated at Bharuch, Gandhidham and Kandla (see Exhibit 1). The Ahmedabad office of
Navigators Logistics was founded jointly by Mr. Ketan Shah and Mr. Chirag Patel in the year
2008. While Mr. Ketan Shah brought with him the expertise in the field of chemical trading
Navigators Logistics Company Private Limited 53
and transportation, Mr. Chirag Patel was himself a chemical engineer. Mr. Ketan handled
administration, finance and business of the company and he was also the founder of Multichem
Corporation, a chemical trading firm that had an in-house transportation department for more
than 25 years. Preet Shah s/o Mr. Ketan Shah was the Executive Director of the office. He had
been associated with the company since January, 2012. He managed business development and
operations at Navigators Logistics and also looked after the in-house transportation department
of his father’s chemical trading firm Multichem Corporation.
After finishing his MBA, Preet had initially joined the commercial banking department of a
leading private sector bank in Ahmedabad. Perceiving his role at the bank to be monotonous, he
quit his bank job and decided to join family’s traditional chemical trading business. The dynamic
nature of the transportation business motivated him to join Navigators Logistics. Moreover,
since the Shah family was based in Ahmedabad, it provided him the necessary support and also
consideration from a number of family members.
services offered
Initially the company decided to venture into the field of transportation services, in particular,
transportation of Ethylene oxide gas, which was extremely hazardous to carry. However, the
segment was very niche to cater; it also had a very limited scope for growth due to the limited
end application of the product. So, the company decided to venture into transportation of crude
oil which was subsequently followed by hazardous chemicals, in tankers. The distribution was
spread across India and that decided the future course of action for the company. The company
achieved expertise in handling and transporting hazardous supplies. Navigators Logistics as an
organization was committed to provide professional transportation services of hazardous liquid
chemicals.
There were a number of statutory requirements to be fulfilled for transporting hazardous material.
The tanks had to be calibrated every year and the license of vehicles needed to be renewed from
time to time. The license in this regard was issued by Petroleum & Explosives Safety Organization
(PESO). All these renewals had to be done well before time to avoid any safety issues. Also, the
drivers carrying the cargo had to be trained appropriately for safe and risk-free transportation and
the company needed to ensure that every driver had a training card, authorizing him to carry
hazardous material. This card was also to be endorsed by the regional transport office along with
the valid license. The company had to abide by certain rules and regulations that were laid by
PESO under the petroleum rules for petroleum class A/B, 2002. Some of the important rules
are listed below:
o No leaky tank or container containing petroleum shall be tendered for transport.
o No person while engaged in loading or unloading or transporting shall smoke or carry
matches, lighters or other instruments capable of producing ignition or explosion.
o Petroleum shall not be loaded into, or unloaded from any vessel or vehicle between the
hours of sunset and sunrise
o Every tank vehicle used for the transport of petroleum, in bulk on land shall be built, tested
and maintained in accordance with the requirements laid down in the Third Schedule
and be of a type approved in writing by the Chief Controller
o The tank should be fabricated and mounted on the vehicle chassis by a manufacturer
approved by the Chief Controller.
o The net carrying capacity of the tank should be 97 percent of its gross carrying capacity
in case of petroleum Class A and 98 percent for petroleum Class B.
o A portable fire extinguisher (10kg, dry chemical powder or equivalent) suitable for
extinguishing petroleum fire should be carried in an easily accessible and detachable
position and away from the discharge faucets on every vehicle which is transporting
petroleum by road. Additionally, one dry chemical powder type fire extinguisher of 1 kg
capacity should be carried in the driver’s cabin of the vehicle.
o Petroleum should not be loaded into or unloaded from a vehicle until its wheels have
been secured by efficient brakes or by scotching.
Assets
The only vehicle employed by the company in transportation was the Truck. The company used
to buy their own trucks. Exhibit 2 shows the picture of a truck used by the company. When
Preet joined the company in 2012, the company operated with a fleet of 29 trucks of various
manufacturing companies (Tata, Mahindra, Ashok Leyland, and Eicher). All the trucks were
fitted with tanks made up of mild steel. The gross capacities of these tanks were 31 tons and
25 tons. The complete distribution of trucks used by the company can be found in Exhibit 3.
ProbLems with the existiNg tANks
The mild steel tanks used by company had a lot of issues with them. Though a mild steel tank
used to cost just around INR1 2.5 lakhs (as compared to other investments), the maintenance
costs of these trucks would add up to huge amounts (see maintenance costs for various years in
Exhibit 4). Most of the tankers were loaded at Kandla Port. The humid weather there used to
make the tankers rusty. It required proper and periodic maintenance for proper fitness of the
tanks. The tankers had to be painted with special anti-rust coating and proper servicing of the
trucks had to be done (once in every 6 months) to ensure long life of trucks and also reduce
the risk of leakage. All these measures used to add up to huge maintenance costs and despite all
these costs, the trucks had to be divested in 4-5 years.
1
1 USD = 63.34 INR
cLieNt bAse
The initial clients of the company were GSPC, Pon Pure Chemicals, CJ Shah Specialty, Sanjay
Chemicals, Simali Industries and Balaji Formalin. These clients were located in Gujarat, Madhya
Pradesh and Maharashtra. These clients were of high value to them as they were associated with
the organization since Navigators Logistics was founded. These clients were mostly local and
small scale chemical industries. Exhibit 5 reflects the location of various clients on the map of
India. Refer to Exhibits 6 and 7 for the share of individual clients towards the total business.
routes
The routes on which the company operated were generally short, covering a distance of not
more than 1600 kilometers in a round trip. The average distance per round trip was around 714
kilometers (refer to Exhibit 8 for complete data of the routes and trucks for the year 2011-2012).
The routes that the trucks used to follow were majorly national highways and state highways.
Refer to Exhibit 9 for the routes on the map of India.
Vehicle Tracking System (VTS) and Fleet Utilization

The company had installed VTS on each of its trucks to monitor the location during the trip.
This way they could provide their clients with the whereabouts of their goods while in transit and
also the time when the consignment would reach the destination. GPS data of the trucks could
be used to calculate utilization of the fleet. Refer to Exhibit 10 for GPS data of a truck for all
the days of May 2012. The average utilization of that truck was 13.23 percent for that month.
On an average, 4 days were taken by a truck for one round trip. The distance covered in a
round trip was 700 kilometers on an average. The average number of trips taken by a truck
per month was around 5. The average utilization of the trucks was 13.69 percent per month
in the year 2011-2012. Refer to Exhibit 8 for average monthly data of the trucks for the year
2011-2012.
Route Profitability
The fixed cost of the chassis of the truck was around INR 20–22 lakhs. The cost of mild steel
tank was INR 2.5 lakhs. The operational costs, administrative costs, maintenance costs and
financial costs accounted for a total of around INR 90,000 to INR 140,000 per vehicle per
month. The revenue generated per vehicle per month was approximately INR 100,000 to INR
150,000. Thus profit generated per route was around INR 15,000 to INR 45,000 per month.
Refer to Exhibit 8 for complete data.
exterNAL ProbLems
After joining the business in 2012 and having worked for one year, Preet began to realize that
he was not comfortable in doing business with the existing clients. There were various problems
associated with these clients that made him uncomfortable in doing business with them. These
were:
o Scattered client base: It became difficult for Preet to do business with traditional
techniques and scattered client base after having professional banking experience and
qualification. The clients with whom the company operated at that time were mainly
local chemical importers and small scale chemicals manufacturing companies. They were
not contractual clients. These clients were sole proprietors. They were not professionals
and he found it uncomfortable to do business with them, on a personal level.
o Inconsistency in volume of demands: There were inconsistent demands from these clients
over the year. During the year, in case of turbulent times in market, their volume demands
used to decrease abruptly affecting the cash flows of Navigators Logistics. This fact is
evident from Exhibit 7 and Exhibit 11 which shows the range of average volume demands
of various clients over the year. For instance, the average monthly volume demand of
Pon Pure chemicals ranged from 400 tons to 600 tons which was not profitable for the
company.
o Low utilization of vehicles over the year: The utilization of the fleet over the year was
not sizeable enough owing to the low demands of these clients. The average utilization
of the vehicles every month was just around 15 percent. 40 percent utilization was on
the behalf of vehicles rented in market. However it was not profitable enough. Rest of
the times the vehicles used to remain idle which was unprofitable as stand by costs of
each vehicle was around INR 2500-3000 per day. Moreover during turbulent times in
economy, the utilization of vehicles would come down to a mere 5 percent per month
which was certainly not profitable.
o Poor paymasters: The clients were poor paymasters. There were unnecessary follow ups
with the clients for payments. The receivable period of payments by the clients extended
to about 4-5 months. This had an adverse effect on the cash flows of the company.
o Very little growth opportunities: Since these clients were mostly small scale proprietors,
their growth over the years was not remarkable. This was evident from the fact that the
profit that the company made remained almost the constant across the years from 2009
to 2012 (See Exhibit 8). In a service based industry like transportation, business growth
is directly proportional to the growth of its clients. Since these clients didn’t reflect any
remarkable growth and their solvent demands never increased much, Navigators Logistics
was also not able to expand its operations much over the years.
iNterNAL ProbLems
Apart from the problems stated above, the company faced problems internally as well. The
company failed to match the estimated outcomes and was untouched by the technological
innovations taking place. All the data entry was done using the pen and paper medium which
was very inefficient and time consuming. The internal reporting and accounting system was
weak. Dispatches were not planned properly. Lot of time was wasted in unnecessary follow ups
with the clients and other associated agencies during loading, like terminal customs and clearing
agents. A lot of time was wasted in manual trip calculations, like driver’s expenses, trip duration,
etc. All the transactions were made through cash which was inefficient. Diesel accounted for
70-75 percent of operating costs and there was no way of keeping a check on money actually
spent by drivers on diesel as the dealings were in cash. No emphasis was laid on the technical
aspects of maintenance and wheel replacement issues. Old traditional vendors were associated
with maintenance work. Drivers’ health and safety were not given adequate attention. They had
to drive continuously for days and as a result they suffered from fatigue.
Impact of External Issues on the Functioning of Navigators Logistics

The major effect of the issues that company faced with clients reflected on the cash flows of the
company. Coming from the small scale industries background, these clients never placed orders
for large volume of solvents and as a result the company never generated high revenues at any
given time. Also the clients were poor paymasters and the company had a credit period stretched
to over 5-6 months. The unprofessional nature and the negligent attitude of the clients hindered
the growth of the company. The clients themselves didn’t grow much over the years and as a
result the company never really got a chance to grow.
core issues
Preet believed that their client base and functioning of the company was such that it was not
facilitating the growth of their business. Following the economic crisis of 2012-2013 and having
faced all the above said issues, Preet pondered upon what to do. The decisions to be taken
revolved around (a) Whether to go with the original clients or to restructure the client base?
(b) What should be the criteria for deciding new clients? (c) What growth strategy Preet should
have adopted? What technological reforms should he have introduced to make the company
more efficient? (d) What unique features should the company adopt to make them different
from their competitors?
Exhibit 1
Location of Various Offices of Navigators Logistics in Gujarat
Source: Authors’ Analysis

Exhibit 2
Photo of Truck used by Navigators Logistics
Source: Company Records
Exhibit 3
Distribution of Fleet of Navigators Logistics
Manufacturing Number of Gross capacity Number of Material of tank
company trucks (tons) wheels
Mahindra 2 31 12 Mild steel
Eicher 2 31 12 Mild steel
Tata 5 25 10 Mild steel
Tata 9 31 12 Mild steel
Ashok Leyland 11 31 12 Mild steel
Exhibit 4
Revenues, Expenditures and Profits of the Company
(in INR)
Year -> 2009-2010 2010-2011 2011-2012 2012-2013
Revenue 7811778 17618273 35840621 53903763
Operating and other expense 3945315 10437055 25664153 36548859
Administrative expense 271833 415921 1392123 2531060
Employees benefit 436545 1000031 2455039 3854949
Financial charges 1146218 2244258 3679268 7318759
(Contd.)
(in INR)
Year -> 2009-2010 2010-2011 2011-2012 2012-2013
Depreciation 10006529 2260459 4430045 6816892
Total expenditure 6826440 16357724 37620629 57070518
Profit 985338 1260549 1780008 3166755
Exhibit 5
Location of Clients on the Map of India

Exhibit 6
Distribution of Quantity of Material Transported to Various Clients
Monthly average of quantity of material
transported to various clients (tons)
350 350 GSPC
Pon Pure Chemicals
CJ Shah
500 Sanjay Chemicals

600
Simali Industries
Balaji Formalin
75 300
Exhibit 7
Quantity of Material Transported to Various Clients
Client Product Monthly average of Monthly quantity of
quantity of material material transported
transported to to various clients
various clients (tons)
(tons)
GSPC Crude Oil 350 270-430
Pon Pure Chemicals Solvent (Petrochem) 500 400-600
CJ Shah Solvent (Petrochem) 300 250-350
Sanjay Chemicals Solvent (Petrochem) 75 50-100
Simali Industries Solvent (Methanol) 600 450-750
Balaji Formalin Solvent (Methanol) 350 300-400
Exhibit 8
Typical Monthly Data for Trucks for the Year 2011–2012
Route Number of Round trip Total days Monthly Run Time Total
trucks used distance taken in trips Utilization revenue
on the route (kilometers) round trip (INR)*
Kandla to Gandhinagar 5 500 3 5 10.00% 600000
Kandla to Bhimasar 5 70 2 8 6.67% 400000
Kandla to Gandhidham 4 40 1 10 3.33% 500000
Kandla to Ahmedabad 5 592 4 4 13.33% 550000
Kandla to Vapi 5 1312 6 3 20.00% 700000
Kandla to Mumbai 5 1640 8 2 26.67% 850000
Average dis- Average Average Average Total
tance travelled number of days monthly utilization revenue
per truck per taken per truck trips per per truck per
month in per month in truck per per month month =
round trip = round trip = month = = 13.69% 3600000
714.82 4.1 5.17
* Gross profit ranges from 25-30 percent of the revenue
Exhibit 9
Routes on which Trucks Operate on the Map of India

Exhibit 10
GPS Data of a Truck for May 2012
Date Driving Idle Standing Total Distance Utilization
Time Time Time Time travelled
(hh:mm:ss) (hh:mm:ss) (hh:mm:ss) (hh:mm:ss) (km) (%)
1/5/2012 0:00:55 14:22:02 9:37:03 24:00:00 5.0 0.00
2/5/2012 3:27:24 2:22:56 18:09:40 24:00:00 141.2 14.38 T Kandla
3/5/2012 11:11:38 1:44:30 11:03:52 24:00:00 452.0 46.60 R to
4/5/2012 8:30:37 1:33:25 13:55:58 24:00:00 343.3 35.42 I Mumbai
P
5/5/2012 3:48:17 3:59:33 15:12:10 24:00:00 149.9 14.90
1
6/5/2012 4:22:03 1:42:53 18:55:04 24:00:00 176.3 18.19
7/5/2012 3:53:48 1:30:57 19:35:15 24:00:00 156.2 15.68
8/5/2012 2:56:36 0:46:02 20:17:22 24:00:00 117.2 12.22
9/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
10/5/2012 3:43:21 5:24:56 15:51:43 24:00:00 153.4 15.62 T Kandla
11/5/2012 6:00:59 9:16:10 8:42:51 24:00:00 235.4 25.01 R to
12/5/2012 2:16:27 13:33:47 8:09:46 24:00:00 87.0 9.44 I Vapi
P
13/5/2012 4:16:43 3:21:21 16:21:56 24:00:00 166.4 17.78
2
14/5/2012 1:55:39 8:22:14 13:42:07 24:00:00 62.0 7.99
15/5/2012 1:37:59 1:35:53 21:46:08 24:00:00 54.8 6.67
16/5/2012 02:52:49 1:19:14 20:47:57 24:00:00 100.8 11.94
17/5/2012 0:41:18 0:36:29 22:42:13 24:00:00 16.4 2.85
18/5/2012 3:55:39 1:03:58 19:00:23 24:00:00 142.0 15.99
19/5/2012 6:15:37 1:44:02 16:00:21 24:00:00 246.4 26.04
20/5/2012 3:18:59 0:20:37 20:20:24 24:00:00 127.2 13.75
21/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
22/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
23/5/2012 0:43:15 8:08:05 15:08:40 24:00:00 17.2 2.99 T Kandla
24/5/2012 2:06:13 3:35:51 18:17:56 24:00:00 82.4 8.75 R to
25/5/2012 2:01:37 1:11:11 20:47:12 24:00:00 80.4 8.33 I Ahmedabad
P
26/5/2012 0:13:45 1:47:06 21:59:09 24:00:00 5.2 0.90
3
27/5/2012 4:08:03 8:30:52 11:21:05 24:00:00 163.2 17.22
28/5/2012 4:55:17 8:19:58 7:44:45 24:00:00 182.0 20.48
29/5/2012 1:23:22 8:03:43 14:32:55 24:00:00 49.2 5.76
30/5/2012 4:04:30 3:34:14 16:21:16 24:00:00 161.6 16.68
31/5/2012 3:53:58 1:37:55 19:28:07 24:00:00 141.2 12.45
Source: GPS data of Navigators Logistics
Exhibit 11
Client Demand for the Year 2011 - GSPC and Pon Pure
Fluctuation in demand of material transported (in tons)
700
600
Order quantity in tons
500
400
300
GSPC
200
Pon Pure
100
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SUGGESTED QUESTIoNS
1. What decision should Preet take, with respect to the client folio? Should he continue
with the existing client base or should he consider restructuring the entire client portfolio?
What factors should Preet consider while restructuring his client base (if necessary)?
2. What process changes are needed to improve the efficiency of internal operations and
ensure client satisfaction? How can they ensure the safety of trucks and drivers and the
productivity of operations using the Vehicle Tracking System (VTS)?
A P P R o A C h F o R A N A LY S I S
Decisions with respect to the client mix are highly critical to the success of any organization.
While choosing the mix, it is extremely important to consider the potential growth
opportunities arising from the expected increase in the demand of the target clients.
It is also important to negate the demand fluctuations arising out of economic fluctuations.
To minimize the risk associated with the markets, it is advisable to opt for clients belonging
to diverse industries/sectors. Also, if the clients can be spread across wider geographies, the
underlying risk can be further reduced.
To retain clients and capitalize on the opportunities provided by them, an important

requirement is to have internal efficiency levels to support growth. So, the focus should be
on gradually introducing technical solutions. Preventive maintenance can be a key area of
interest. Enterprise resource planning (ERP) systems having modules that can prompt for
preventive maintenance activities to be undertaken could be possible solutions for improving
vehicle utilizations.
Further, transparency in business operations helps elicit loyalty from the clients. To enhance
the experience of its end clients, the business should look towards developing differentiators.
This will not only lead to a long term client association but will also contribute towards
increasing the likelihood of a greater share of business from them.
Technology based solutions such as VTS should be introduced. This will not only provide
the real-time status of the consignment, but will also help save operating costs by keeping a
check on scenarios where the vehicle was idle with the fuel ignition in a running state. Part
of the costs saved by doing this can be passed on to the drivers as well. Moreover, VTS
can help facilitate driver safety by keeping a check on speeding, which is one of the major
reasons for accidents.
Further, to ensure driver retention, incentive schemes can be introduced. These schemes
can be designed to accord either monetary or non-monetary benefits to the drivers, and
could be aligned to the objective data gathered using the VTS.
C as e
3
CASE CONTEXT
A garwal Packers and Movers Limited (APML) is an example of a business that

delivers superior customer service with continuous logistics design innovation.
The case provides details of a leading logistics and solution provider for household
goods relocation. In the past, the company had faced problems due to an increase
in the number of customer complaints and claims and also an increase in packaging
costs. Solutions were offered by modifying the processes through innovations in
its services, resulting in customer delight. As a result of continuously improving
capabilities, people, processes, and technology, the services improved too. APML
believed that mistakes could be avoided and defects could be prevented. The case
gives an insight into how the company improved its services by innovating and
how these innovations were sustained by a large organization with many branches
throughout India.
Agarwal Packers and Movers Limited
Addressing his employees, Steve Jobs once said, “Our DNA is as a consumer company–for that
individual customer who’s voting thumbs up or thumbs down. That’s who we think about. And
we think that our job is to take responsibility for the complete user experience. And if it’s not
up to par, it’s our fault, plain and simple.”
Founded in 1987, the DNA of Agarwal Movers Group (AMG) was no different. A family-owned
and professionally run business, AMG was India’s leading logistics and solution provider for
household goods relocation.
In February 2015, the annual meeting of Agarwal Packers and Movers Limited (APML) was
nothing less than a celebration for the entire team. Their key service innovations helped in
successful implementation of novel packaging processes through which the company not only
reduced customer complaints but also absorbed the increase in packaging cost without increase in
freight cost. Mr Ramesh Agarwal, Chairman-cum-Managing Worker of AMG, reflected upon the
innovative approach followed by the organization to identify cost effective solutions for packaging
and relocating household goods. Without being complacent, the APML team wondered if the
innovation process was sustainable from the point of view of the organization. In addition to
this, the company was looking at transforming the drive from a reactive (customer-complaint
driven) to a proactive innovator in the industry.
Background
In 1987, Ramesh Agarwal transported household goods for one of his ex-military seniors from
Hyderabad, which led to the foundation of Agarwal Household Carrier.
Over time, the company grew with experience, core competence, and confidence and established
itself as one of the India’s largest household transportation companies. The company’s name
was soon changed to Agarwal Packers and Movers Limited. It had a fleet of over 1,000 vehicles,
80 company-owned offices with headquarters in New Delhi. It was an ISO 9001-2008 certified
Prepared by Professor Debjit Roy, Indian Institute of Management, Ahmedabad.

The author acknowledges the support of Mr Krishan Mittal, Mahindra Trucks and Buses Division, and Mr Ramesh
Agarwal, Mr Navneet Agarwal, Ms Sandhya Bhartiya and other associates from Agarwal Packers and Movers Limited
in developing this case.
©2015 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/PROD0305) has been reproduced
organization with a turnover value of over INR 3,820 million1 in 2013-14 and aspired to reach
INR 20,000 million by the year 2020. It employed 1,173 employees at payroll with more than
4,000 people attached indirectly with the company. It was amongst the only four companies
in India to be certified by ISO 39001:2012, which attested their contributions in road traffic
safety. In 2012-13 APML was registered in Limca Book of Records for transporting household
goods of 61,302 clients (Exhibit 1). The core values of APML were Aastha,2 Apnapan,3 Awesome,
Aspiration, and Assurance.
Services by APML
o APM Domestic Moving : Performed packing, loading, moving, unloading, and unpacking
of the goods using convenient and good handling practices, all coordinated by a centralized
office in Delhi (India).
o APM International Moving : Provided relocation services to and fro for more than
200 countries and territories worldwide. The APML team conducted relevant research
on international client culture and regional etiquette to execute business operations
efficiently. Variety of packaging materials such as corrugated boxes (for books and
crockery), corrugated rolls, bubble wraps, tissue papers, thermocol, corners, crates, and
cases were used to prevent damage to the consignment.
o APM Home Storage : Involved storing client’s goods at destination for both long term
and short term. This applied to cases where client had not finalized the destination for
the goods or had to move to other places on temporary assignment.
o APM Car Carriers : Involved transportation of client’s car in its pristine condition using
safety measures such as safety chains and locks, wheel stoppers, and safety belts.
Other Services
Apart from the above services, AMG also offered:
o APM Transportation : Involved employing a multi-modal transport model as airways,
seaways, railways or roadways depending on the purpose.
o APM Warehousing : Provided safe and convenient storage for computers, documents, home
furnishings, antiques, furs, linens, mattresses, electronic equipment, musical instruments,
and innumerable other items using facilities such as multiple loading docks, provided
with ample amount of space for staging of materials at the time of receiving and shipping
(Exhibit 2).
1
1$ = INR 63.44
2
Belief
3
Oneness
Agarwal Packers and Movers Limited 71
o APM Exim Cargo : Provided inter-modal transportation for the movement of export/
import containers through local transportation for both domestic and international
shipments.
o APM ODC (over dimensional cargo) Transportation : Involved movement of over
dimensional, heavy, and bulky cargo. This included telecom equipment/towers and rail
coaches.
o APM Infrastructure : Provided infrastructure and roof-tech services to functional domains
such as commercial, agricultural, and industrial groups such as warehouses, godowns,
and large sheds using state-of-the-art technology to assure durability, quality, and safety.
Notable clients included Walmart.
APM Domestic Shifting

Agarwal Movers Group provided household relocation services under its flagship company,
APML. The revenues from relocation services accounted for over 60 per cent of total revenue
of AMG.
Organizational Structure
Ramesh Agarwal believed that while practice makes a man perfect, so if one practiced being a
server for his entire life, he can never become an owner. Therefore, in APML, the managers at
different levels were called Maliks literally meaning ‘owners’. Every branch had a Branch Malik,
while a group of branches was headed by a State Malik. For the purpose of ease of operations,
the country was divided in four zones. Rajender Agarwal, brother of Mr Ramesh Agarwal and
Vice Chairman and Head of operations managed the West, East and South zone while the North
zone was managed by Ramesh Agarwal (Exhibit 3).
Domestic Relocation Process

APML had standardized entire operational process in an organizational book detailing the roles
and functions of employees within each department. The process started when a client made
an enquiry for relocation, which came through any of the three mediums: website, telephone
or email. This enquiry was followed by a survey of the house to assess the volume of goods
that needed relocation. The survey could be either a physical assessment (98%) in which the
survey officer visited the client’s house to gather useful information about relocation on the
basis of pre-defined survey forms or through distance survey (2%) where the client gathered
the useful information himself by taking instructions from the survey officer over the phone.
The details were then entered into a mobile tablet by the survey officers. Based on this form, a
quotation was sent to the client detailing the cost of relocation. After this, for 70 per cent cases,
the booking was confirmed (sometimes, the client had to be contacted 2-3 times). In case of a
non-conformation, a feedback was taken from the client asking about the reasons for not going
ahead with the booking (Exhibit 4).
After confirmation, the process was divided into two parts: hospitality, which made the front
end of the process and operations, which made the back-end of the process. There were two
coordinators, who acted as intermediaries between the hospitality and the operations department.
These coordinators ensured smooth flow of information between the teams internally.
The hospitality team comprised of about 20 people known as ‘Your Shifting Assistant’ (YSM).
After confirmation, each client was assigned a YSM by APML, who served as the single point
of contact between the client and the company. His job was to keep the customers informed
about the location of their goods through telephone calls during various phases of the goods
transportation (Exhibit 4). The phases of the relocation process were:
o Phase I: Introduction call just after confirmation of the booking.
o Phase II: This call involved taking a feedback after packing was done.
o Phase III: During transit of goods, customers were called every alternate day to inform
them about the location of their goods.
o Phase IV: This call was to fix an appropriate delivery time based on client’s convenience,
after the goods reached the destination city.
o Phase V: This call was after the delivery and a feedback was taken from the client about
the overall experience with APML’s service.
(Start) Job Assign Hospitality Packaging & Delivery, Feedback

Yes call by operations & Hospitality
Client-Enquiry, Survey, confirmed? & Operations
Quotation Coordinators (After packaging & delivery)
No
Feedback seeking reason for

non-conformation
Action plan, No Feedback

Feedback call by
service innovation positive?
Customer Service
and implementation
Yes
Improved Service Employee

Employee Incentive
(End) motivation
Figure 1 Domestic relocation process

Source: Author’s representation
The operations team comprised of a team of packers along with their supervisors at individual
branch office. They were responsible for packing and delivery operations performed at the source
and destination respectively (Exhibit 4). On confirmation of a booking, the branch office at
the originating city was informed where the Branch Malik issued a duty slip, an inventory issue
slip, and wrapping material for the job. A typical packing team included four packers and one
supervisor. However, other factors such as the number of floors and distance between the house
entry and the vehicle location affected the number of packing team members. This team was
responsible for packing and loading of consignments. The goods were then transported from
the origin branch office to the destination branch office. At destination branch office, a duty
slip and inventory collection slip was issued and an unpacking team was assigned for unloading,
unpacking, and re-arranging the goods. They also collected the reusable packing material. The
unpacking team had the same composition as the packing team. After delivering the goods,
feedback was taken from the customer.
Cases of negative feedback post delivery of goods were handled by Customer Care Department.
Any customer claims were also handled centrally by the Customer Care Department. The idea of
having the customer care team centrally located was to have a focused approach. Also, it facilitated
observation of any patterns or trends in the complaints/claims received across locations. While
there were approximately 10 per cent complaints on the total number of deliveries, only 2.5–3
per cent of these complaints were requests for monetary settlements.
Employee Performance Appraisal

At APML, monthly performance appraisal was done at different levels based on the feedback
obtained from customers. In the hospitality department, performance score was evaluated on
the basis of appreciation given by the client. Shifting assistants got a score of 1, 4 or 6 based on
the feedback by the customer.
In the customer care department, appraisal was done on the basis of a gain share matrix which
included both, the number of claims solved and the time taken to settle a claim. They had
internally set a 21 days deadline, the base time, within which a claim must be settled.
To ensure ‘zero mistakes’ at operational level, APML conducted a weekly branch meeting. All the
employees participated in this Saturday meeting. At the employee level, this meeting provided
a platform to be heard while at the supervisory level, this meeting was an opportunity to assess
and share the feedback with the employees.
APML also started ‘gain and share’ scheme in 2014, where a share of company’s profits was
distributed among the employees with the percentage of share depending on the percentage of
the target achieved by that particular branch office.
Also, in an attempt to treat all employees as partners in the company, APML had started an
incremental profit sharing scheme under which about 50-60 per cent of the relative increment
in APML’s profit (obtained from balance sheet) with respect to the previous year, would be
distributed to the employees while the rest would be distributed to the investors or would be
invested in shares. For instance, if APML’s current year profit was INR 300 million relative to
last year’s profit of INR 250 million, then about 50 per cent of the increase in profits, i.e., about
INR 25 million would be given to the employees.
Feedback and Claim Settlement Process

21st of every month was denoted as the Claim Clearance Day, where all the claims and customer
feedback from the previous months were discussed and appropriate actions were taken. The
feedback was categorized into similar groups and the process to address the client concerns was
initiated (Exhibit 4). The feedback of groups was then sent to a core committee, which was the
think tank of APML. Problems confronted by the clients were then identified and after careful
discussion and research, a plan for improving service was presented to the task head. Thereafter,
the task head created an action plan for the implementation of improved services throughout
the country. After the creation of an action plan, the systems head controlled the process of
informing every branch in the country about the modification to the services proposed by the
central office. Lastly, the vigilance department ensured that the improved processes and services
were followed throughout the country without any branch specific discrepancies.
During the innovation process, suggestions were sought from the entire team of APML. The
supervisor gathered the suggestions from the ground staff. This was the most elementary but
also the most crucial aspect of the entire process, as the ground staff was the one who actually
handled the materials. The supervisor would then share the suggestions with the branch maliks,
who in turn would share it with the State maliks. After having received the ideas from all the
branches, the state malik would filter out the ones which were feasible from the organizational
point of view and send them to the top management for their views and further action. The top
management would then compare the ideas with the objectives for feasibility analysis and also
check the market suitability of the suggested proposal. Once the management review was done,
it was forwarded to the Research and Development (R&D) team to materialize the proposal
and do a prototype testing of the product on ground. Based on the feedback of prototype, final
changes, if any, were incorporated and followed by universal implementation.
Service Innovations by APML

APML developed new processes and packaging methods to improve the service experience on the
basis of customer feedback. Interestingly, the innovations further decreased the true operational
cost. These innovations could be grouped into three categories:
1. Managing Packaging Cost

The cost of packaging material was about 20 per cent of the cost to the company in transporting
goods of an average 1 Bedroom-Hall-Kitchen (BHK) apartment (Exhibit 5). Therefore, APML
had to cut down on their packaging costs in order to maintain the price at the same level (if not
lower) and provide better customer service.
Increasing cost of corrugated sheet Change in price of packaging materials had a

significant impact on the freight cost charged for the customer. APML had been using corrugated
sheets for packing goods. For one household packing, around two kg of packing material was
required. With the rate of corrugated sheets increasing upto INR 58 per two kg, the APML
research team had to think of an alternative, which would enable them to deliver service at a
same or lower rate without being affected by the price hike.
To find a feasible solution APML’s R&D team focused all its attention on getting a material
which not only provided same cushioning effect as done by corrugated sheet but also brought
down the overall cost. In the process, APML developed a flexible sheet named ‘Fabric Sheet’
(Exhibit 6). The cost of production of the sheet was INR 180 per two kg but it was reusable and
could be used for six times making its effective cost to be INR 34 for a single usage (including
the cost of fabric wear and tear).
Use of fabric sheets was also a step towards conserving environment because it saved 300 trees
(the number of trees cut to produce the annual requirement of corrugated sheets).
For full implementation of fabric sheet in the system of packing, a time period of 20 days was
set and this was also followed by training the packers about all specifications along with the ways
to handle it. Timely audits were then conducted to ensure compliance.
Increasing cost of cartons APML used normal cartons to transport books and clothes,
for which the cost was as high as INR 72 per carton. To lower the costs, APML designed new
trendy bags instead of cartons to transport clothes and books. This led to reduced cost as the
price of each trendy bag was INR 38 only (Exhibit 6). Further, these bags created a strong brand
recall because they had the logo of APML printed on them and were left with the customer at
the destination.
2. Managing Customer Feedback and Claims

APML’s mission was to achieve ‘Zero Claims, Zero Tension,’ i.e. minimize the number of claims,
and reduce the stress level to improve organizational productivity. Therefore, they strived hard
to deliver excellent customer service by reducing claim-related problems. At APML, feedback
was viewed as a powerful tool for reducing the claims thereby improving services.
Increasing complaints about damage to LED Television APML started receiving high
number of complaints about malfunctioning of television sets after 5-6 months of relocation.
An in-depth study of all the relocations that happened in the previous year revealed that during
the transfer once the television was packed in the wooden crate it had to be sealed using nails
(Exhibit 6). In the process of sealing, the crate was hammered 45-48 times causing damage to
the delicate circuits of LED/ LCD televisions. The problems reflected after a few months. It was
clearly a problem with the method that was being used for packing TVs.
Having identified the root problem, the R&D team at APML, under the guidance of
management, started working on possible combinations to offer a solution to the issue. After
15 days of research on designs, the team came up with a solution that also resulted in reduced
cost to the client. ‘LED Box’ was a box like container specifically designed to store television
sets during relocation process (Exhibit 6). The box was layered with soft cushion from inside
to provide extra protection to the screen, had a shock absorbing sheet, and was rugged from
outside to face the inclement weather conditions. On the cost part, the box was a ‘win win’
situation for the company as well as its client. Since the manufacturing cost of a wooden crate
was INR 800 with just one time use; whereas an LED Box with a manufacturing cost of INR
2,500 could be reused upto 14 times which brought down the cost of one time use to INR 200.
This benefit was ultimately passed on to the customers who were now required to pay less for
a much superior service.
Also, because of the innovation upto 160 trees were saved per year, which was very much in line
with APML’s Corporate Social Responsibility (CSR) objective.
Damage to fragile items such as crockery In the course of its market research, APML’s
team came across certain customers who had also used services of some other packers in the
market. Feedback obtained revealed how fragile items like crockery and glass decorative pieces
got damaged during shifting.
The research team realized packing crockery items in normal cartons resulted in much damage due
to their fragile nature. Further, thermocol sheets used for initial wrapping tended to break into
small pieces (during handling, packing, as well as unpacking) scattering all around. Hence, special
boxes called ‘perfect boxes’ were introduced which were foamed from inside for transporting
fragile items ensuring their utmost safety (Exhibit 6).
This not only solved customer problems but also resulted in cost savings for the company. The
thermo-sheet packing cost was just INR 2.5 compared to thermocol packing cost of INR 7
saving 200 trees annually. The perfect boxes were sealed with security stickers. The customer
had to sign on the sticker after the packing process, which further enhanced the customer’s trust
in the company.
Samples were distributed among different branches for testing so as to know their suitability in
practice. Testing was done for a period of 15 days in different geographical locations and with
goods of variable fragility level. Once the assessment was over all samples were evaluated and
the best were selected. Also, some major modifications were made in the internal specifications
based on the feedback obtained during testing process.
After finalization of container, a span of 20 days was fixed to replace all existing cartons used
in packing.
Also, corner and side protection covers for cartons were used in order to strengthen them
(Exhibit 6).
Requirement for filler Number of claims owing to the damage done to the clients’
motorcycle fuel tank during transportation was rising. To address this, the most apparent
solution was to use air-packed containers, which would act as fillers and provide support during
transportation. However, they were expensive. Hence, APML had to think of an alternate solution
which was cost effective too.
Finally, APML team came up with an innovative idea to collect used cement bags, clean them,
fill them with grass and foam and then use them as filler. It provided a permanent and effective
solution to the problem and the production cost was only around INR 5 per bag.
Requirement for wardrobe carton Special boxes called ‘Coat Carriers’ with pre-installed
hanger were innovated (Exhibit 6). These were meant to benefit those customers who wanted
certain clothing items such as a coat or a shirt to be transported unwrinkled at the destination
for immediate use. The cost of a hanger for coat carrier was INR 130 and it was reusable.
Packaging of religious items APML faced a problem with some of its clients while
packing their religious items. These clients were very sensitive and wanted their religious items
to be dealt with utmost care. This was a matter of serious concern for APML team, who highly
valued emotions of the clients.
After giving it a considerable thought, certain guidelines were laid down for packers to pack
items of religious value. The packers were to first wash their hands and remove their shoes before
entering the pooja room4 of the house. They were also given behavioural training for the same.
Also, the carton containing religious idols and other items of worship was marked with a newly
designed Mandir5 sticker (Exhibit 6). This sticker distinguished the particular carton from the
other cartons. These cartons were the first to be packed in the packing list and were always the
last to be placed inside the truck. The same procedure was then followed while unpacking the
goods.
4
Room of the house used for worship
5
Temple
Potted plant carriers While APML were experts in relocating household goods, there were
demands from some customers to also transport some of their potted plants, such as Tulsi,6 which
held a high religious sentiment attached to them.
To satisfy the needs of such customers, APML customized its truck and fitted them with special
potted plant carriers (Exhibit 6) at the bottom of the truck which could carry customer’s plants
safely and separately along with household goods. They were designed in such a manner that
the plants got fixed at a place where they were open to air and sun and also the drivers were
instructed to water the plants during their stoppages.
3. Managing Transport and Goods Storage Problems

Transportation cost had the highest share in the total cost of moving 1 BHK apartment at
40 per cent (Exhibit 5). Therefore, APML needed to device ways to cut down on the
transportation cost.
Trans-shipment and storage problems APML used 24ft double door trucks to transport
goods, which could normally carry goods of two customers. Although this was a very efficient
system, trans-shipment was required in some cases. Agarwal believed that reducing trans-shipment
was the key behind reducing damage to consignments. Also, there were certain situations where
clients wanted their goods to be stored at APML premises for a few days. This period would
allow the client to settle down in the new city. However, storing customer’s goods meant that
the trucks could not be used further, which meant loss of business. Hence, APML needed a
solution to the problem of storage of goods as well as the problem of trans-shipment.
To address both these concerns, the company’s R&D team after a month long discussion, came
up with a cost-effective solution called ‘Trucking Cubes’ (Exhibit 6). Trucking cubes were
independent units that could be easily latched on and unlatched off the trucks. These cubes could
also be used as car carriers for customers who wished to have their car transported along with
their goods. APML stored the customer’s goods in them for 21 days at the destination without
any additional charge. The cubes came in three sizes: 8 ft, 11ft, and 16ft. The client’s goods were
picked up at source through branch vehicle by either 20ft or 16ft trucks. These cubes were then
collected at the nearest hub (Exhibit 2). The goods were next transported from the hub near
to source to the destination hub via big 33ft trucks that could carry 4, 3, or 2 cubes depending
on the size of the cube. APML was currently in the process of acquiring more of these cubes
and 33ft trucks. The team analyzed that for efficient functioning of the truck-cube system, 5
cubes on an average per truck were needed. Since 6 cubes were needed per truck for 11ft cubes
(3 for transit and 3 for storage) whereas 4 cubes were needed per truck for 16ft cubes (2 for
transit and 2 for storage), an average of 5 cubes was required for a single truck operation. While
6
Basil
33ft trucks would be purchased, the 20ft and 16ft trucks would be acquired by modifying the
existing trucks in order to make them suitable to carry trucking cubes. They had 46 trucks and
100 cubes, and at the rate of introducing 50 new cubes per month, they aspired to reach their
target of 1,000 cubes and 200 trucks.
Trucking cubes also helped to reduce cost in the long term. Agarwal mentioned that trucking
cubes reduced the overall operating cost by 18-20 per cent, including 20 per cent annual fuel
savings (volume in litres). The cost savings included toll tax savings and fuel (diesel) savings
because the new 33ft trucks incurred only half of the toll tax and consumed half of the fuel
(diesel) compared to the 40ft trucks earlier used as car carriers. Cost saving was also due to the
fact that, with effectively 3 cubes attached to a truck, a single truck was doing the work of 3
individual trucks used earlier, thereby reducing the transportation cost to one-third of the previous
value. The total investment on trucking cubes was around INR 400 million with breakup as
INR 110–120 million on cubes, INR 210 million on trucks, and INR 60 million on secondary
trucks (around 80 secondary trucks). The cost of an individual truck was around INR 1.1 million
which included a customization cost of INR 0.1 million.
Thefts on highways There were many cases of thefts on highways in certain areas such as
Madhya Pradesh where some groups were involved in thefts even on moving vehicles. APML
had to think of a solution to curtail these thefts.
In order to counter these thefts, the carriers were fitted with a separate top and bottom lock
which would make thefts very difficult. This customization was done at body shop located
in Ghaziabad, Uttar Pradesh, India. Total cost of customization was around INR 400 which
included bolt charges of INR 100, labour charges of INR 100, and sheet charges of INR 200.
Also, ‘lashing belts’ were used at the back of trucks in order to securely hold the goods and
prevent any accident to the worker while unloading. While the cost of each belt was INR 90,
there were 12 belts required for a single truck making the total customization cost for a single
truck to be INR 1,080.
Driver exhaustion and lack of motivation According to Agarwal, truck driver was the
driving force behind the country’s economy. However, truck driver’s job was not considered
respectable in India; hence very few second and third generation youth considered it as a career
option. As a result, there were only 770 drivers per 1,000 trucks.
To boost the morale of drivers in APML, Agarwal launched a scheme called ‘Khub Chalao Khub
Kamao’ meaning ‘Drive More, Earn More.’ Under this scheme, drivers were given incentive to
drive more by paying them extra for every kilometre driven.
However, this scheme led to use of increased speed by the drivers, damaging the consignments.
Further, the scheme also incentivized more driving hours per day, leading to driver sleep
deprivation and accidents. To arrest this situation, APML had to think of a more innovative
solution, which would not only increase the performance level of drivers but also boost safe
driving practices.
Keeping in mind the safety concern, a modified ‘Khub Chalao Khub Kamao’ scheme was launched.
It proposed that the driver could recruit a co-driver to drive with him. Incentives were given
based on the number of hours for which a truck was driven rather than the distance travelled.
The time driven by the truck was monitored using a Global Positioning System (GPS) device,
which also checked the speed of truck and ensured that drivers do not increase their speed above
50kmph. Under this scheme, while APML paid INR 2 per km driven to drivers, in case of driving
for more than 15 hours, additional incentive of INR 15,200 was awarded (this was to be shared
between the two drivers). This scheme not only ensured that output of each truck was doubled
(because the truck now ran for double the time by two drivers as compared to a single driver)
but also reduced the problem of highway thefts, as there was more vigilance in the presence of
two drivers as compared to one.
Looking Back
APML had always taken customer feedback constructively and used it to modify and enhance
their existing service resulting in decrease in the cost incurred by the customer and therefore
customers’ delight. Agarwal wondered whether the existing processes for implementing innovative
solutions were sufficient for APML to remain a domestic location leader.
Exhibit 1
APML Awards
Limca Book of Records Certificate ISO 39001:2012 Certificate

Exhibit 2
Warehouse Details and Location of Hubs and Warehouses
Every warehouse has a similar structure:
Basement: Industrial Storage
Ground Floor: Short Term/Transit Storage
First Floor: Long Term Storage
Second Floor: Complimentary residential facility for warehouse workers
Map showing location of completed warehouses and hubs

INDIA
Legend:
Ambala – NH-73 Hub
Warehouse
Gurgaon
Gurgaon – Jamalpur and

Khawaspur
Palwal – NH-2
Jaipur – NH-8
Dharuhera – NH-73
Ahmedabad
Indore
Kolkata
Mumbai – NH-4
Mumbai Hyderabad
Bengaluru
Chennai

Exhibit 3
Organizational Structure
Board (8)*
Ramesh Agarwal Rajender Agarwal

Group Chairman Vice Chairman
Head North Head West/East/South
State Malik (7) State Malik (7)
Branch Malik (50) Branch Malik (45)
*Number in parenthesis indicates the total number of employees in that division

Source: On the basis of interview
Exhibit 4
Domestic Relocation Process of APML
Confirmation Process
Large load
e.g., 1 BHK Survey A
apartment
Customer Enquiry:
Customer
• Website is
• Call contacted
(IVR)
• Email On the spot
Very Small Load quotation over B
e.g., a student the phone (QTN)
A
Enter
Physical information in Quotation
Survey tablet (QTN)
98%
Survey B
2%
Distance Email quotation
Survey (QTN)
B
Yes by customer Confirmed
2-3 times
(70% success rate)
QTN Recalling
No by customer
Cancelled
Feedback
Hospitality Process
Phase I Phase II Phase III
Your Shifting Call after packing Call on alternate days to

Assistant Introduction has been done inform clients about
Assigned Call taking feedback location of their goods
Phase V Phase IV
Call after unpacking Call asking for fixing an

asking for an appropriate delivery
appreciation time
Operations Process
Origin Branch Duty Slip Packing team and material

Confirmation assigned
Office Inventory Issue Slip
Transit
Unpacking team
assigned and reusable Duty Slip Destination Transportation of goods
packing material Inventory Collection Branch Office from origin to destination
collected Slip
Customer Feedback
Service Innovation Process and Implementation
Customer Categorization Innovation

Core committee Task head
Feedback Grouping
Action plan
Controlling
activity
Vigilance Systems head

Exhibit 5
Cost Breakup of Relocation Process
Cost share in movement of 1 BHK apartment from Delhi to Ahmedabad:
Packaging cost: 16%
Transportation cost: 40%
Labour cost: 10%
Overhead cost (Your shifting assistant, supervision and other): 7%
FOV (Risk cover charge): 1%–3%
Surplus charges: 10%
Remaining cost share which is around 12.5% accounts for the company proﬁt.
Exhibit 6
Service Innovations
Before Innovation After Innovation
Corrugated Sheets Fabric Sheets
Wooden Crate LED TV Box

Corrugated Box Perfect Box
Thermocol Thermo-sheet
Not present Corner Protection Cover
(Contd.)
Cartons Trendy Bags
Not present Coat Carrier
Not present Mandir Sticker

Not Present Potted Plant Carriers
Single Door Truck Double Door Truck with Front and Back Door
Not Present Trucking Cubes

SuggEStED QuEStIOnS
1. How is Agarwal Packers and Movers Limited (APML) able to bring innovation into its
services to meet customer demands without increasing packaging cost and customer
freight rate?
2. How are these innovations sustained in a large organization with many branches across
India?
3. How far does the organizational structure of APML help in implementing innovative
solutions?
4. What is the operating strategy adopted by APML which enables it to innovate and
incorporate the process of total quality management (TQM) in its operations?
5. How APML is different from other companies providing domestic relocation services?
A P P R O A C h F O R A n A Ly S I S
The innovation process at APML was based on an analysis of customer feedback. The
company ensured that the new process or product did not burden the customer in terms of
increased freight. Given the pace of innovations at APML and its mission to provide standard
services across its branches, it was critical to sustain the innovations with zero tolerance
for deviations. To ensure process standardization, APML had listed down the processes and
procedures in a rule book. The standard operating procedures had clearly listed the roles
and responsibilities of all employees, which enabled effective implementation of new service
innovations. The motivational and behavioural training imparted to its employees also helped
in maintaining their process discipline and execution. Further, the human resources team
ensured that employee performance measures and incentives were aligned to the process
performance metrics.
APML had an organizational structure that had instilled a sense of ownership among all its
employees. They could relate to the innovations and were keen to implement these because
they had participated in the early phases of implementation by providing feedback. To add
to the sense of participation and involvement, the employees were provided a share in the
profit of the organization, thereby encouraging them to work efficiently.
The operating strategy of APML focused on the participatory involvement of each and every
employee in the innovation process, irrespective of their level. This helped it to implement
TQM which is a method by which the management and employees can be involved in the
process of continuous improvement in production of goods and services.
Due to its integrated and standardized relocation logistics processes (no transfer of goods to a
third-party from pick-up to delivery), APML was able to effectively adopt customer feedback
while improving its processes. It evaluated the quality of services by collecting feedback at
various stages of the relocation process. A root cause analysis of new complaints/ feedback
registered by customers resulted in innovations, leading to improved services and processes.
Also, to provide distinguished services, APML set up an exclusive customer care department
to deal with customer queries, complaints and claims.
C as e
4
case conteXt
S hreeji Transport Services Private Limited (SHREEJI) was a family-owned

trucking business, engaged in providing a range of transport and logistics
services. SHREEJI was in the process of improving its business operations including
routewise profitability, performance levels of the parcel business and the incentive
scheme. For this purpose, it was looking to develop a Management Information
System (MIS). This case focuses on the design and role of the MIS to address the
above-mentioned problems and highlights the role of spreadsheets as a business
modelling and a scenario-generating tool.
Shreeji Transport Services Private Limited
It was Wednesday, August 7, 2013. Mitesh Shah, Vice President, Parcel Business and Harshal
Shah, Chief Executive Officer, Full Truck Load (FTL) and Bonded Trucking (BT) business of
Shreeji Transport Services (SHREEJI) Private Limited, were in a meeting with V. Kannan, Vice
President, Metis Family Office (METIS) at SHREEJI’s office in Chennai. Bipin Shah (father of
Mitesh Shah and Harshal Shah), Chairman and Managing Director, SHREEJI; along with other
family members who worked as Directors of the company were also in the meeting.
METIS had been helping SHREEJI to examine its overall strategy by developing Management
Information Systems (MIS) that helped in the analysis of the business. Such analysis had enabled
the company to review its focus on what was perceived to be a highly profitable BT business. It
had given pointers on the cost economics being in favor of hired trucks over owned trucks. It
had also helped them to time the acquisition of trucks based on business potential rather than
just the price discounts.
The representatives of SHREEJI had scheduled the meeting for the assessment of the overall
performance of the company for the quarter ended June 2013. Among a larger agenda, the
focus area of the meeting was to analyze the routewise profitability of the FTL business, service
performance of the parcel business and incentive schemes for truck drivers.
History of tHe Business
SHREEJI began as Kumar Transport Company (KTC). It was started by Bipin Shah’s father,
Chhabildas Shah and his two brothers, Manubhai Shah and Virendra Kumar Shah. In 1967,
KTC purchased its first two trucks. Later in 1976, the company’s name was changed to Rakesh
Roadlines. The name was again changed to Rakesh Bajwa Roadlines in 1977 after the addition
of two new partners, Bhajan Singh Bajwa and Jaswant Singh Bajwa. They brought in 20 trucks
owned by them.
In 1983, Chhabildas Shah, his brother Manubhai Shah, and the family’s second generation
members (Exhibit 1) started Shreeji Transport Corporation (STC) with sole focus on parcel
Prepared by Professor Rekha Jain and Professor G. Raghuram, Indian Institute of Management, Ahmedabad.
Research assistance by Ms Deepmala Pokhriyal is acknowledged. The authors gratefully acknowledge the funding
support for this case provided by Mahindra Buses and Trucks Limited.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion. They are not
designed to present illustrations of either correct or incorrect handling of administrative problems.
© 2015 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/CISG0131) has been reproduced
services. The company catered to the clients with garments manufacturing business in Mumbai
and their customer base in the southern parts of the country. Consequently, STC focused on
the Mumbai to Bengaluru and Chennai route in the early years. In the beginning of its business,
STC used half-bodied trucks. But by early 1990s, it shifted to the use of full-bodied trucks as
safety of the consignments became a priority service for the company. It also provided door-to-
door delivery of the consignments on a milk run basis.
Later, in 1984, the second generation members of the Shah family formed Bangalore Roadways
with focus on truck brokerage business. Working as a truck-brokering firm, it earned revenues as
commission for hiring trucks for its clients on NH-4 which linked Mumbai, Pune, Bengaluru,
and Chennai.
In 1994, the company was incorporated as SHREEJI. It was a family-run business with Bipin
Shah, his brothers and extended family members in the key decision-making roles. Its wide
geographic network along with key customer relationships (built by its history of brokerage)
helped the company venture into FTL business. While the share of FTL in the company’s overall
business was high, the company moved to potentially more profitable segments given that the
competition in FTL business was increasing in Southern India. In 2000, the company started
using containerized full-body trucks for both FTL and parcel businesses. With this, the total
cost of trucks increased by 20 per cent. However, SHREEJI were compensated by a 150 per
cent rise in the capacity of the trucks. In 2001, SHREEJI introduced global positioning system
on its trucks for real-time tracking of vehicle movement.
The company’s most recent venture was in 2002 when it pioneered the BT business. (This
business involved carrying export/import cargo of various international airlines to/from the airline-
serviced airport from/to other airports having air cargo complexes to serve a larger customer base.
The transportation happened in sealed custom-bonded trucks, with customs clearance happening
at the air cargo complexes.) Since the concept was relatively new in India, the company called
it a ‘path breaking move’. SHREEJI initially operated with international airlines on a trial basis
and then regularized with both international and domestic airlines.
In 2008, SHREEJI invested in bus services. However, the services were discontinued in 2012 as
the operations were found to be unviable and it involved dealing with human lives.
Details of the various services provided by SHREEJI are given in Exhibit 2.
Metis faMily office

METIS was a business advisor to family-run businesses, and managed the assets of these business
families and the individuals. The company worked on the principle of “Mentoring Entrepreneurs
to Innovate and Succeed” to facilitate effective decision-making in these businesses. Its vision
was to be the best, unique and unbiased business advisor to help mid-sized family-run businesses
achieve their corporate and individual goals.
Shreeji Transport Services Private Limited 95
METIS was founded by Suresh Ramanujam and I.A.S. Balamurugan who worked in the capacities
of Directors of the company. Both of them had been senior bankers who had spent many years
with leading banks in corporate finance, commercial banking, investment banking and private
wealth management. Meanwhile, Kannan worked with the finance segment of the company. He
had been a senior business and corporate finance professional with over 20 years of experience
and worked with various mid-sized companies.
Suresh Ramanujam was associated as a banker with the Shreeji family. He offered that METIS
could become their business advisors. SHREEJI also thought that it was the right time to avail
METIS services as they felt it would be of value to them to reach the next level of growth. In
June 2011, SHREEJI became one of the early clients of METIS.
start of tHe Metis engageMent
After the first session between METIS and SHREEJI in August 2011, METIS inferred some
‘positives and concerns’ regarding the overall business of SHREEJI. METIS analyzed the situation
and came up with recommendations for the company. It also suggested the domains it would
focus on during its affiliation with SHREEJI. The following is based on a presentation made
by METIS to SHREEJI.
Positives of Business
o Good diversification between own and hired fleet.
o Topline growth at a CAGR of 15 per cent from 2006 till 2011.
o Profit after tax growth at a CAGR of 22 per cent from 2006 till 2011.
o Return on capital employed improved from 14 per cent in 2006 to 18 per cent in 2011.
o Net worth of SHREEJI grew at a CAGR of 26 per cent from 2006 till 2011.
o More than 25 per cent of SHREEJI’s vehicles were debt free.
Concerns for Business

o Receivables increased from 77 days in 2006 to 90 days in 2011.
o Few major routes were operating with negative margins.
o Idle capacity to the extent of 15 per cent for various reasons. It remains as a cost with
scope to improve profitability.
Recommendations and Analysis

o Develop a standard cost model for major routes to understand the profitability of each
route, profitability gap between onward and return trips to get price increases wherever
imperative, and to evolve an optimal route mix.
o Track the distance covered by each vehicle tripwise, to know the exact capacity utilization
and productivity. Set up targets vehiclewise in terms of distance (in kilometres), revenue
and profitability.
o Build a driver incentive scheme with the dual objective of profitability and capacity
utilization. Develop a flexible template for the incentive scheme to improve the kilometre
efficiency of the vehicles.
o Test run new vehicle models with one or two vehicles only to avoid high operating cost
and drivers’ reluctance towards new models. (It had been observed that 2008 model
vehicles were being sold due to high operating cost as early as in 2011 itself.)
o Carefully plan the proposed purchase of vehicles for INR 110 million, as it involved
additional equated monthly installment (EMI) payments of INR 3 million in addition
to the current monthly debt payments of INR 5.7 million.
o Reduce the administrative overheads from the current 9 per cent of turnover to 7 per
cent of turnover.
Focus for Future

o Segmentwise profitability of the businesses of SHREEJI (FTL, Parcel, BT, third party
logistics (3PL) & import-export (IM-EX)).
o Route network optimization for improving profitability.
o Interest cost reduction through strategic financing.
o Analysis of administrative overheads towards cost reduction.
cHange in tHe systeMs of sHreeji
Prior to its association with METIS, SHREEJI operated with all its members working in their
own locations. This meant that each family member focused on the business in his geography and
took decisions based on the company’s requirements in that particular region. This resulted in
truck acquisitions that were more than the requirement and higher expenses that outweighed the
returns from geographical expansion. As one of the initial recommendations, METIS devised an
organizational chart based on the capabilities of different members and provided functional clarity
in the business based on individual interests. As a result, functional and business responsibilities
were given to each of the members, as shown in Exhibit 3. For example, Mahendra Shah had
marketing and client relationship responsibilities for SHREEJI, while also being responsible
for FTL business. Harshal Shah had similar responsibilities like Mahendra Shah and dealt with
marketing and FTL business of SHREEJI. Similarly, Rajnikant Shah had finance, accounts
and software related responsibilities, while Mitesh Shah handled the parcel business and shared
functional responsibilities with Rajnikant Shah. The family members continued to operate from
their respective locations.
METIS helped SHREEJI in implementing MIS which reduced managerial workload and led to
a centralized information sharing platform. During this time, SHREEJI used enterprise resource
planning (ERP) enabled systems to monitor and manage office procedures and on-road operations.
With the help of MIS, MÉTIS suggested to SHREEJI to track the distance covered by each
vehicle through kilometre reading. METIS found that while SHREEJI did not take into account
the cost involved in the repair and maintenance of the idle and moving trucks, only the revenues
from the trips were used for financial calculations. METIS suggested that SHREEJI should
look at its overall profits rather than its standalone revenues. For this, the accounts (revenues
and expenses) of each of its businesses were combined and SHREEJI focused on increasing the
profitability of each segment through the use of MIS data. For instance, the BT business was
profitable in the initial days of the venture. However, with time, the overhead expenses increased
more than the rewards from the business. As these overhead expenses were included in the total
expenses of the company, the high cost of running BT business was not isolated and therefore,
not known to the company. Thus, after METIS’ analysis, it was observed that the BT segment
of SHREEJI’s business was actually lower in profitability than expected.
Further, METIS suggested that SHREEJI should increase its presence in the new areas with
lower competition and focus on the more profitable customers. METIS used ABC framework
for classification of the customers, and recommended to SHREEJI that it should use this analysis
to improve its customer service.
METIS also advised SHREEJI on the ratio of hired to own trucks to be maintained by the
company. SHREEJI had a fleet with over 70 per cent of its own trucks and the rest were hired. It
was continuously buying new vehicles for geographical expansion. Since, the ratio of owned trucks
was higher in the company, the cost associated with the repair and maintenance of these vehicles
was also high. Consequently, though SHREEJI had high revenues, its profitability remained low.
METIS advised that SHREEJI should increase the number of hired trucks as compared to its
own trucks. SHREEJI was, however, concerned that it might lose those customers who relied
on SHREEJI for vehicles owned by it. The customers believed that such vehicles were more
reliable.
Along with this, METIS worked on the timing of acquisition of new trucks and the sale of old
ones. Prior to the association with METIS, SHREEJI bought trucks on the basis of the discounts
available in the market, irrespective of their demand and use in the business. However, METIS
pointed out that as a consequence, the company had to resort to selling trucks earlier due to
underutilization. It also devised an incentive scheme to encourage the drivers to drive the old
vehicles. Further, METIS advised that the strategy of buying new trucks be restricted by way
of buying them subject to the proper evaluation of business opportunities.
Exhibit 4 gives the key financial indicators of SHREEJI until 2012-13.
PreParations for august 2013 Meeting

Routewise Profitability
This analysis was attempted in the FTL business, which contributed to more than 60% of the
revenue. Earlier, the company viewed longer routes as being more profitable since they provided
higher vehicle utilization. This was because the loading and unloading time to total time was
low. Further, due to the growth in the business, SHREEJI believed that empty trips would not
be a concern. All this led to the business focusing on longer one way trips, rather than on a
route (to and from trips).
METIS however felt that an analysis of routewise profitability through MIS would help SHREEJI
to confirm their views. They used one month’s data of 772 trips for the analysis (Exhibit 5). Of
these, 611 trips on seven (to and fro) routes were analyzed for profitability. The remaining 161
routes were both loaded and empty to keep the vehicle balance over the month.
They obtained tripwise data on the distance, rate, and variable cost (including route advance and
repairs & maintenance). Based on the EMI and other expenses incurred on a truck (irrespective
of usage), total cost was calculated to arrive at a fixed cost per vehicle per month which was
INR 60,615. Based on this, the contribution per km was calculated and the breakeven kms were
arrived at. This gave an insight into the relative profitability of the various trips. It challenged
the belief that longer routes were more profitable. For example, the Chennai-Bengaluru trips
had traditionally received a lower priority than the Chennai-Mumbai trips due to their shorter
length while the MIS showed otherwise. This analysis did not include the opportunity cost of
the loading and unloading time, which could vary from half a day to one day.
METIS also attempted an analysis of routes (to and fro trips) to examine if there should be a
routewise marketing and/or asset allocation focus. As an example, out of the revenue earning
trips on the Chennai-Mumbai route, 73 per cent were from Chennai to Mumbai and 27 per
cent were from Mumbai to Chennai. Using this relative share, they analyzed the route parameters
under the ‘Combined’ column. Based on the route parameters, they generated the breakeven first
for the round trips (4.26), and then for the to and fro trips. Mitesh and Harshal were unsure
as to how to interpret the 6.19 and 2.34 as the ‘breakeven’ trips for the Chennai-Mumbai and
Mumbai-Chennai routes respectively.
While there was an attempt by SHREEJI to minimize empty trips, the Cochin-Chennai segment
inherently did not provide the opportunity. Out of the 24 per cent of the Cochin-Chennai trips,
only one in four had a return load at a rate of INR 16,800 (INR 24 per km). The Cochin-
Chennai rate was low since there was not as much outbound demand as inbound demand. The
MIS consequently recognized this as INR 6.00 per km. The same was also true for the route
advance which was INR 7.10 per km for the empty trips and INR 14.14 per km for the loaded
trip, giving an average of INR 8.86 per km.
While SHREEJI generally felt that in most of the destinations, a loaded trip to some other
destination would be available, Cochin did not always offer such opportunities. Hence there
were empty trips from Cochin to Chennai. Rupesh and Harshal wondered how to improve the
profitability of this route by seeking higher rates from Chennai to Cochin on the premise that
the return could be empty. On the other hand, they wanted the least rate they could charge
from Cochin to Chennai to increase their demand and yet get a positive contribution. Given
the competition in Chennai, in case they could not get rates higher than the current INR 38.57
per km, how much should they charge at Cochin to make the to and fro route viable?
An organizational issue was whether SHREEJI should open a branch office in Cochin to develop
a market for loads to Chennai.
Performance of the Parcel Business

The parcel business was an early aspect of the growth of SHREEJI and contributed to nearly
10 per cent of their revenue. In order to focus on this business, Mitesh Shah had started setting
yearly targets which were broken down by customer and month. The idea was to focus on those
customers who were more profitable. However, the current MIS did not help them to analyze
the margin profile of C and D type of customers, as they could only get the aggregate revenue
generated from their clients. It was possible that some of these customers could be giving a high
margin, despite low revenues. SHREEJI also needed to monitor those customers who had not
given their business to it in the recent past. Driven by the need to reduce delivery times, SHREEJI
had earlier felt that it was good to have the trucks moving as soon as they were loaded. In the
past, this had led to shipments for Chennai and Bengaluru to be clubbed together in the same
truck. Trans-shipment then happened at Bengaluru. However, recognizing the additional cost
of trans-shipment associated with this method and given more than adequate volumes to cover
both Chennai and Bengaluru separately, this practice had been discontinued. For instance,
SHREEJI had reduced the number of average delivery days from 8.16 days in April 2012 to
5.90 days in March 2013. It had also introduced a ‘bakshish’ system in which the workers were
rewarded for faster delivery of parcels.
SHREEJI did not monitor the delivery time of parcels. It was trying to gather data on the
details of hub to hub operations. Currently, SHREEJI monitored the total delivery time, but
was wondering whether it should disaggregate it.
The company kept records of the customer name, origin, destination, date, time, type of
consignment, etc., at their collection centers. The goods were then loaded by destination and
a Lorry Receipt (LR) was generated. The originating centre dispatched these details to the
destination electronically. At the destination, the truck arrived at SHREEJI warehouses, where
it was unloaded. The unloaded articles were manually checked against the received information.
SHREEJI generated a monthly report on the Number of Articles, Number of LRs, Total Revenues,
Total Days Used and the Average Days of Delivery per Article (Exhibit 6). Although SHREEJI
had a computerized system of booking the parcels, it was unable to analyze by customer and
track their performance, as the quality of data input was poor. For example, the same customer’s
name was stored differently by various data entry operators, the units associated with the parcel
whether a bundle, billet or something else was not standard and variations existed. Mitesh was
keen that SHREEJI should generate clientwise performance report which when shared with the
client would let the client know regarding SHREEJI’s on-time performance. He felt that this
could help them to establish better credentials and improve the business.
Paiya Gumao, Paisa Kamao Scheme

METIS had suggested that SHREEJI should introduce an incentive scheme. Three options were
proposed (Exhibit 7), out of which one was selected for implementation in September 2011. The
scheme was called ‘Paiya Gumao, Paisa Kamao’ under which the drivers were entitled to cash
payments for driving trucks over a distance of 7,000 km per month. Under the selected option,
a flat incentive of INR 1,500 was given to all drivers who drove 7,000 km, above which there
was an INR 1 per km incentive upto 9,000 km and INR 1.50 per km thereafter.
However, as seen in Exhibit 8, the old trucks were unable to cover a distance of 7,000 km every
month and the drivers were less interested in these vehicles. In turn, the management thought
of selling off the old vehicles as the cost of keeping the old trucks idle were high. However,
there was also the consideration that the incentive scheme may need restructuring as per the
age of the vehicle.
Meeting Details
As the meeting proceeded, the following decisions were taken, based on various MIS inputs.
For studying the declining profitability of BT business, it was decided that the Directors
of SHREEJI would meet in Bengaluru to discuss the performance of BT business and do a
comparative study of the last three years.
It was decided that SHREEJI would focus on receivables older than 180 days in all branches,
but with a greater focus on Bengaluru. The receivables above 180 days in Bengaluru were high
at around INR 7.5 million.
On the reporting front, it was decided that reports of the performance of the company would be
sent to the clients on a monthly basis. This would allow SHREEJI to improve its prominence
amongst the new clients it added while maintaining a strong position amongst its old clients.
Looking at the benefits from the MIS, SHREEJI had decided that the format would be made
accessible to all the Directors. This would allow use of the data for effective results across business
segments.
Further, in order to attain its target of reaching a gross profit of INR 200 million, SHREEJI
would set up monthly targets, while METIS would regularly monitor the turnover and gross
profits on a quarterly and monthly basis.
New routes would be added to the MIS and their various combinations would be studied in
order to analyze profitability of the FTL trucks.
For the parcel business, the cost elements would be reworked under METIS’s guidance to establish
the precise profitability of the business. The discussion was still continuing…
Exhibit 1
SHREEJI’s Family Tree
Tribhovan Das J Shah
Chhabildas Shah Manubhai Shah Virendra Kumar Shah*

(1965-1982) (1965-2001) (1965-1983)
Bipin Shah Mukesh Shah Kamlesh Shah

(1977-) (1979-) (1981-1983)
Narendra Shah Shailesh Shah** Rakesh Shah

(1977-) (1981-2003) (1982-1983)
Rajnikanth Shah Rupesh Shah

(1978-) (1983-)
Mahendra Shah
(1983-)
Note: The dates in parentheses denote the year of joining and exiting the business of the family members.
* Virendra Shah and his family separated from the family-run business in 1983.
** Shailesh Shah moved out of SHREEJI in 2003 to start his own business.
Source: SHREEJI Communication
Exhibit 2
SHREEJI’s Services
Full Truck Load (FTL) services

o It moved around 1,500 trucks and 500 containers between inland container depots in ports with de-stuffing
points on a monthly basis.
o It offered leasing services to the companies on either monthly or trip basis from all its regional offices.
o The fleet consisted of full-body, half-body, platforms, trailers and containers ranging between 17-40 feet.
o The company followed a time-bound delivery to suit individual requirements of its clients.
o It also used Digi m-Track; a web based fleet management solution for information on real-time vehicle location,
and duration and location of stops.
Parcel and Part-Load Services

o The company provided door delivery of parcels on a daily basis from Mumbai, Vapi, and Surat to Bengaluru
and Chennai.
o The GPS-enabled trucks of the company allowed the customers to track their consignments on a real-time
basis.
o It started ‘Express Parcel Bakshish’, an incentive to the truckers for long haulage routes to reach in specified time.
The scheme helped SHREEJI to increase the volume of parcels by 20 per cent.
o The company branched out to new routes in parcel service i.e., Indore, Ahmedabad, and Madurai.
o For these new routes, the company used ‘Hub & Spoke Model’ where in all the cargo was moved to SHREEJI’s
hub near Mumbai from where the material was moved in trucks to South India.
Parcel Division 2012-2013

Origin 3
Destinations 4
Total Routes 11
Bonded Trucking (BT)

o SHREEJI ventured into the new area of BT business in 2002.
o The company started with Bengaluru and served around nine airports as well as 25 airlines. It worked with
the air cargo complexes in Chennai, Mumbai, Hyderabad, Cochin, Coimbatore, Ahmedabad, Indore and Delhi.
o As a custom bonded trucking solution provider, it handled export and import cargo of various international airlines
from many air cargo complexes.
o SHREEJI used standard size container trucks for regular transport.
o In case of cargo dimensions larger than normal truck size, SHREEJI was flexible and made possible special
arrangements to transport the same.
o With such a solution, the company reduced its freight charges as compared to the movement of cargo by
domestic flights.
Warehousing and 3PL

o SHREEJI offered this facility in and around Mumbai, Bengaluru and Chennai. Further, the services were extended
to other centers as well as per its clients’ requirements.
o It also inter-linked its offices with ERP software, MIS reports and inventory applications for information access to
the customers and consignment-handling employees.
o It followed the ‘First in First out’ system enabling circulation and distribution of goods in accordance with their
expiry dates, especially for pharmaceuticals and FMCG industry.
Shipping Line Container Movement (IM-EX)

o SHREEJI connected the ports with the rail segments for containerized freight movement. This kind of specialized
trucking runs between ocean ports, rail terminals, container freight stations and inland container depots.
o It catered to both export and import of containers with a length of 20 feet and 40 feet.
o On an average, SHREEJI moved more than 6000 container loads per annum.
SHREEJI’s Background (2012-13)
Turnover (INR in million) 680

Number of Employees 250
Number of Drivers 200
Number of Branches 25
(Contd.)
SHREEJI’s Fleet Strength (as March 31, 2013)
Vehicle Type Capacity (tonnes) No of Vehicles

32-feet closed container 7 150
32-feet taurus closed container 15 27
22-feet closed container 5 7
20-feet platform truck 21 12
40-feet platform trailer 25 10
Light commercial vehicles 3 3
Total 209
Exhibit 3
Business and Functional Organization Chart
Exhibit 4
Key Financial Indicators of SHREEJI
(Rs million) CAGR 2012- 2011- 2010- 2009- 2008- 2007- 2006- 2005-
(%) 13 12 11 10 09 08 07 06
PROFIT & LOSS:
Operating Income (OI) 13.2 678.7 620.8 574.2 452.6 424.7 425.9 363.6 285.1
Growth (%) 9.3 8.1 26.9 6.6 -0.3 17.1 27.5
Operating Expenses (OE) 479.9 432.2 401.8 317.7 302.7 314.2 274.5 216.5
(Contd.)
(Rs million) CAGR 2012- 2011- 2010- 2009- 2008- 2007- 2006- 2005-
(%) 13 12 11 10 09 08 07 06
Operating Profit before 15.3 106.4 111.9 101.6 83.8 71.9 64.8 53.9 39.2
Depreciation, Interest & Tax
(OPBDIT)
Depreciation 61.0 60.5 49.5 34.3 36.6 34.3 28.8 20.7
Profit before Interest & Tax 45.4 51.4 52.1 49.5 35.3 30.5 25.1 18.5
(PBIT)
Interest & Finance charges 33.1 29.2 25.1 24.0 22.0 17.2 13.5 8.1
Profit after Tax (PAT) 6.9 10.5 15.0 17.5 17.0 6.5 8.5 7.9 6.6
Net Cash Accruals (NCA) 71.5 75.5 67.0 51.3 43.1 42.8 36.7 27.3
= (PAT + Depreciation)
Total Turnover 665.6 608.0 560.8 444.8 420.2 424.1 358.7 283.7
Turnover (Outsourced 230.3 218.6 189.2 137.4 136.6 163.1 143.1 137.5
vehicles)
Less: Margin 34.5 32.8 28.4 20.6 20.5 24.5 21.5 20.6
Hire Charges Paid 195.7 185.8 160.8 116.8 116.1 138.6 121.6 116.9
Turnover (Outsourced 34.6 35.9 33.7 30.9 32.5 38.4 39.9 48.5
Vehicles) (%)
Turnover (Owned Vehicles) 435.3 389.4 371.6 307.4 283.6 261.0 215.6 146.2
Turnover (Owned Vehicles) 65.4 64.1 66.3 69.1 67.5 61.6 60.1 51.5
(%)
BALANCE SHEET:
Owned Vehicles at the Year 203 184 188 171 168 144 121 -
End (number)
Gross Block 366.9 363.2 303.7 257.8 231.4 190.5 153.3 119.4
Trucks 290.4 289.3 233.3 194.2 172.4 151.6 131.5 101.3
Buses 0.0 0.0 6.9 6.9 6.9 6.9 0.0 0.0
Others 76.5 73.9 63.5 56.7 52.1 32.0 21.8 18.1
(Rs million) CAGR 2012- 2011- 2010- 2009- 2008- 2007- 2006- 2005-
(%) 13 12 11 10 09 08 07 06
Net Block 145.9 187.9 156.7 110.7 89.5 83.8 78.3 54.6
Trucks 91.5 132.0 106.7 72.0 61.2 61.8 69.0 47.1
Buses 0.0 0.0 1.7 2.8 4.6 0.0 0.0 0.0
Others 54.4 55.9 48.3 36.0 23.7 22.0 9.3 7.5
Total Debt (TD) 276.0 313.4 232.4 190.4 167.7 153.9 137.3 97.8
Total Networth (TNW) 121.0 110.5 95.5 70.6 53.5 46.9 38.4 30.5
Deferred Tax Liability (DTL) –1.2 2.7 3.1 1.1 –0.9 –0.3 2.1 3.5
Capital Employed (CE) 395.8 426.6 331.0 262.1 220.3 200.5 177.8 131.8
Current Assets (CA) 250.5 233.3 180.7 182.4 150.4 143.3 115.6 87.8
Debtors (Accounts 177.0 154.1 141.1 116.3 101.3 97.3 71.7 60.0
Receivable)
Current Liabilities (CL) 25.4 20.5 27.7 41.8 38.5 37.1 23.5 16.4
Creditors (Accounts Payable) 25.4 20.5 27.7 21.8 24.9 16.1 9.9 8.0
Bank Overdraft 122.9 105.6 74.5 73.2 61.4 50.0 29.3 13.8
Net Working Capital 102.2 107.2 78.5 67.4 50.5 56.2 62.8 57.6
(NWC) = CA – (CL + Bank
Overdraft)
RATIOS:
OPBDIT/Interest & Finance 3.2 3.8 4.0 3.5 3.3 3.8 4.0 4.8
Charges
OPBDIT/OI (%) 15.7 18.0 17.7 18.5 16.9 15.2 14.8 13.7
PAT/OI (%) 1.5 2.4 3.0 3.8 1.5 2.0 2.2 2.3
Net Block/Gross Block 0.4 0.5 0.5 0.4 0.4 0.4 0.5 0.5
Asset Turnover (Net) = OI/ 4.7 3.3 3.7 4.1 4.7 5.1 4.6 5.2
Net Block
(Contd.)
(Rs million) CAGR 2012- 2011- 2010- 2009- 2008- 2007- 2006- 2005-
(%) 13 12 11 10 09 08 07 06
Asset Turnover (Gross) = OI/ 1.8 1.7 1.9 1.8 1.8 2.2 2.4 2.4
Gross Block
Asset Turnover (Gross 2.3 2.1 2.4 2.3 2.4 2.7 2.8 2.8
Trucks and Buses) = OI/
Gross Trucks and Buses
Asset Turnover Owned 3.0 2.1 2.4 2.8 3.2 3.1 2.8 2.7
Vehicles (Net Block) =
Turnover (Owned Vehicles)/
Net Block
Turnover per Owned Vehicle 2.1 2.1 2.0 1.8 1.7 1.8 1.8 –
Benchmark Turnover per 3.2 2.9 2.6 2.4 2.2 2.0 1.8 –
Owned Vehicle @ 10%
annual growth
Current Ratio = CA/(CL + 1.7 1.9 1.8 1.6 1.5 1.6 2.2 2.9
Bank Overdraft)
Debtor Days = Debtors/ 95 91 90 94 87 83 72 77
(OI/365)
Creditor Days = Creditors/ 19 17 25 25 30 19 13 13
(OE/365)
NWC/OI (%) 15.1 17.3 13.7 14.9 11.9 13.2 17.3 20.2
Debt Service Cover (i) = 25.9 24.1 28.8 26.9 25.7 27.8 26.7 27.9
NCA/TD (%)
Debt Service Cover (ii) = 2.6 2.8 2.3 2.3 2.3 2.4 2.5 2.5
TD/OPBDIT
Debt Equity Ratio = TD/ 2.3 2.8 2.4 2.7 3.1 3.3 3.6 3.2
TNW
Return on Capital Employed 11.0 13.6 17.6 20.5 16.8 16.1 16.2 14.0
(ROCE) = PBIT/CE (%)
Return on Equity (ROE) = 9.1 14.6 21.1 27.4 12.9 19.9 22.9 21.6
PAT/TNW (%)
Exhibit 5
Route-wise Profitability of SHREEJI
CHENNAI- CHENNAI- CHENNAI- CHENNAI-
MUMBAI BENGALURU COCHIN AHMEDABAD
Ahmedabad-
Ahmedabad
Bengaluru-
Combined
Combined
Combined
Combined
Bengaluru
Chennai-
Chennai-
Chennai-
Chennai-
Mumbai-
Chennai
Chennai
Chennai
Chennai
Mumbai
Cochin-
Cochin
MAJOR
ROUTES
Km per trip 1400 1400 2800 350 350 700 700 700 1400 1850 1850 3700
Rate per trip 27000 38000 65000 13500 11500 24000 27000 4200 31200 38000 45000 83000
Mix of 73% 27% 100% 51% 49% 100% 76% 24% 100% 82% 18% 100%
onward and
return trip
Rate per km 19.29 27.14 21.44 38.57 32.86 35.74 38.57 6.00 30.71 20.54 24.32 21.23
Variable cost 16.36 16.36 16.36 17.07 17.07 17.07 16.64 11.36 15.37 16.50 16.50 16.50
per km
a. Route 13.86 13.86 13.86 14.57 14.57 14.57 14.14 8.86 12.87 14.00 14.00 14.00
advance
b. Repairs & 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50
maintenance
Contribution 2.93 10.78 5.08 17.22 17.22 17.22 21.93 –5.36 15.34 4.04 7.82 4.73
per km
Fixed cost per 60615 60615 60615 60615 60615 60615 60615 60615 60615 60615 60615 60615
vehicle
Breakeven km 20718 5621 11936 3521 3521 3521 2764 – 3951 15002 7747 12819
Breakeven 6.19 2.34 4.26 5.08 4.98 5.03 4.28 1.36 2.82 5.67 1.26 3.46
trips
(Contd.)
BENGALURU- BENGALURU- BENGALURU-

MUMBAI HYDERABAD TUTICORIN
Hyderabad-
Hyderabad
Bengaluru-
Bengaluru-
Bengaluru-
Combined
Combined
Combined
Bengaluru
Bengaluru
Bengaluru
Tuticorin-
Tuticorin
Mumbai-
Mumbai
MAJOR
ROUTES
Km per trip 1050 1050 2100 600 600 1200 650 650 1300
Rate per trip 21000 34000 55000 17000 15000 32000 22000 10000 32000
Mix of 40% 60% 100% 60% 40% 100% 86% 14% 100%
onward and
return trip
Rate per km 20.00 32.38 27.38 28.33 25.00 26.99 33.85 15.38 31.29
Variable cost 16.79 16.79 16.79 16.08 16.08 16.08 16.35 16.35 16.35
per km
a. Route 14.29 14.29 14.29 13.58 13.58 13.58 13.85 13.85 13.85
advance
b. Repairs & 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50
maintenance
Contribution 3.21 15.59 10.59 12.25 8.92 10.91 17.50 -0.97 14.94
per km
Fixed cost per 60615 60615 60615 60615 60615 60615 60615 60615 60615
vehicle
Breakeven km 18883 3888 5723 4947 6795 5555 3464 - 4058
Breakeven 2.20 3.25 2.73 5.53 3.73 4.63 5.38 0.86 3.12
trips
Note:
1. Break even km is considered based on each vehicle fixed cost and its deployment on particular route in terms
of onward and return separately.
2. Break even trips calculated for onward and return as per the mix.
Fixed Cost Considered/Vehicle To Stations
Ahmedabad
Hyderabad
Bangalore
Tuticorin
Chennai
Madurai
Mumbai
Cochin
Total
Per
Vapi
Basic Parameters Month From
(i) EMI 36698 Ahmedabad 2 7 9
(a) Cost of the new vehicle Bangalore 122 15 50 62 249
with 20% margin INR Chennai 9 125 26 71 231
1360000 Cochin 18 8 10 36
(b) Loan tenure
46 Months
(c) Interest Rate 11.50 %
(ii) Insurance (INR 20000 per 1667 Hyderabad 10 15 25
annum)
(iii) Road tax (INR 12000 per 1000 Madurai 5 17 22
annum
(iv) Permit & FC (INR 19000 3250 Mumbai 74 27 10 10 121
+ INR 20000 per annum)
(v) Administrative OH 15000 Tuticorin 10 40 22 72
allocated
(vi) Interest on working capital 3000 Vapi 7 7
TOTAL 60615 Total 9 249 231 36 25 22 121 72 7 772
Exhibit 6
SHREEJI’s Parcel Delivery Performance
2011-12 No of No of Lorry Total Total Days Average Average

Articles Receipts Revenues Used Revenue Days of
(INR) per Delivery
Article per LR
(INR)
April 26,204 9,125 5,294,691 82,300 202.06 9.02
May 22,375 6,844 4,136,980 54,265 184.89 7.93
June 20,744 5,764 4,007,098 41,799 193.17 7.25
July 26,190 7,471 5,005,177 60,307 191.11 8.07
August 27,124 10,587 5,851,622 94,365 215.74 8.91
September 30,087 10,958 6,682,010 78,347 222.09 7.15
October 26,101 8,494 5,202,637 68,326 199.33 8.04
November 18,516 5,405 3,872,842 34,829 209.16 6.44
December 23,111 7,965 5,088,730 52,178 220.19 6.55
January 17,087 5,745 3,518,474 43,164 205.92 7.51
February 19,973 7,157 4,305,445 45,036 215.56 6.29
March 23,799 8,492 5,198,436 60,922 218.43 7.17
Total 281,311 94,007 58,164,143 715,838 206.76 7.61
2012-13 No of No of Lorry Total Total Days Average Average

Articles Receipts Revenues Used Revenue Days of
(INR) per Article Delivery per
(INR) LR
April 23,038 8,332 5,473,748 67,974 237.60 8.16
May 21,501 6,634 4,433,912 49,853 206.22 7.51
June 18,321 5,784 3,883,699 38,890 211.98 6.72
July 23,080 8,599 5,463,081 54,335 236.70 6.32
August 25,886 9,916 5,790,142 68,266 223.68 6.88
September 24,297 8,347 5,203,695 63,520 214.17 7.61
October 32,641 11,998 8,093,814 91,932 247.96 7.66
November 22,838 5,736 4,288,213 45,477 187.77 7.93
December 27,900 7,904 5,678,159 52,351 203.52 6.62
January 22,844 7,518 4,917,995 51,775 215.29 6.89
February 21,831 6,883 4,646,791 43,700 212.85 6.35
March 33,075 10,098 6,802,552 59,559 205.67 5.90
Total 297,252 97,749 64,675,799 687,632 217.58 7.03
Exhibit 7
Paiya Gumao, Paisa Kamao Scheme
Incentive Scheme 1
Total No of Vehicles 140 Contribution 6.50
(Rate minus Variable cost) (INR per km)
Average km per 7,000 Current Total km per Month 980,000
Month per Vehicle
Average km per 84,000 Slab in Multiples of (km) 500
Annum per Vehicle
Base km for 7,001 Flat Fixed Incentive for 7,000 km (INR) 1,500
Variable Incentive
Incentive (INR per km) Achieved Incentive Benefit to %
Monthly Quarterly Total (km per Cost (INR Company (INR Spent
SLABS Month) per Month) per Month)
Up to 7,000 km 0.00 0.00 0.00 8,000 2,500 6,500 38.46
7,001 km to 9,000 km 1.00 0.00 1.00
Above 9,000 km 1.50 0.00 1.50
Incentive Scheme 2
Month per Vehicle
Annum per Vehicle
Base km for 7,501 Flat Fixed Incentive for 7,500 km (INR) 0
Variable Incentive
Incentive (INR per km)Achieved Incentive Benefit to %
Up to 7,500 km 0.00 0.00 0.00 8,000 2,750 6,500 42.31
Above 7,500 km 1.50 0.00 1.50
(Contd.)
Incentive Scheme 3
Month per Vehicle
Annum per Vehicle
Base km for 7,001 Flat Fixed Incentive for 7,000 km (INR) 0
Variable Incentive
Incentive (INR per km) Achieved Incentive Benefit to %
Up to 7,000 km 0.00 0.00 0.00 9,000 3,500 13,000 26.92
7,001 km to 9,000 km 1.00 0.00 1.00
Above 9,000 km 1.00 0.50 1.50
Note: The three incentive schemes were analyzed in August 2011 and Scheme 1 was selected and implemented from
September 2011.
Exhibit 8
Payments as per Paiya Gumao, Paisa Kamao Scheme
Year of make No of Average Total km Average km Expected
trucks km prior to post incentive incentive
incentive scheme scheme payment (Rs)
2009 20 6,200 124,000 5,600 0
2010 20 6,200 124,000 5,600 0
2011 35 7,000 245,000 7,000 52,500
2012 65 7,100 461,500 7,200 110,500
2013 70 7,300 511,000 7,400 133,000
Total 210 6,979 1,465,500 6,928 296,000
The actual incentive payment for the 2013 trucks was as below:
Year of make No of trucks Average km Total km Actual total

incentive (Rs)
2013 10 9,500 95,000 42,500
60 7,050 423,000 93,000
Total 70 7,400 518,000 135,500
SUGGESTED QUESTIONS
1. What does the Management Information System (MIS) on the routewise profitability
information of Shreeji Transport Services Private Limited (SHREEJI) reflect? Is the
information relevant, considering SHREEJI’s business model?
2. What additional information should SHREEJI consider to work out the freight rate?
What relevant analysis would help decisions in the Chennai–Cochin route, as discussed
in the case?
3. How should the MIS of the parcel business be designed to help SHREEJI?
4. What are the likely distortions in the incentive schemes?
A P P R O A C H F O R A N A LY S I S
The MIS on routewise profitability is based on the assumption that the trucks make round
trips and will be useful for taking managerial decisions only if the same truck is used for the
towards and return journey. Examining it as a to and fro ‘product’ with the actual imbalanced
share of the to and fro loaded movements would lead to inconsistencies. The MIS would
be valid only if the share of loaded movements between the to and fro are close to 50-
50. Hence, the ‘combined column’ might not be relevant for SHREEJI, as the product of
SHREEJI is point-to-point service.
While taking managerial decisions as to whether to ply on a given route or not at a given rate,
it is important for SHREEJI to account for all relevant costs as well as make an assessment
of the use of the truck at the destination. The subsequent use could be empty or loaded.
Apart from the revenue generated, all relevant costs including opportunity costs during
loading and unloading need to be considered. The case of the Chennai–Cochin service is
interesting. It is more like a to and fro journey due to significant load imbalance.
A spreadsheet model can be designed to serve as a tool for decision-making supported by

scenario-based analysis.
The MIS of the parcel business should support relevant decisions like how to make a trade
off between loading a truck fully and ensuring timely delivery. A related decision would
be whether to club sources and/or destinations. Information to enable troubleshooting of
extreme performance would also help while taking corrective action.
Incentive schemes can help motivate the drivers. However, it is also important to understand
that such schemes, if not designed right may lead to unfavourable behaviour. If the incentive
slabs are perceived as not being achievable, performance could be worse than normal, like
in the case of the old vehicles.
C as e
5
caSe conteXt
K undanmal Mukanmal Trans Logistics Pvt. Ltd. (KM) was a well-known road
transportation company in western India, operating out of its headquarters as
a family-owned business in Jaipur. It functioned as a logistics provider for flatbed
steel and finished automobiles (primarily four-wheeler passenger cars and light
to medium cargo vehicles). The case highlights the challenges faced by KM in
managing its workshop operations in an emerging economy with a contract labour
pool. It also offers an opportunity to explain how operational delays are caused
due to lack of interactions/improper coordination among resources (labour pools
and physical bays).
KM Trans Logistics: Workshop Operations
In October 2013, Arihant Jain, co-executive director of Kundanmal Mukanmal Trans Logistics
Pvt. Ltd., India (KM), arrived at his office to begin his day’s work. KM was a road transportation
company functioning as a logistics provider for flatbed steel and finished automobiles (primarily
four-wheeler passenger cars and light to medium cargo vehicles).
Jain was in a pensive mood. The KM workshop in Jaipur was facing regular logistics issues and
delays in repair and maintenance of trucks and carriers due to resource idiosyncrasies. Worker
unavailability was a cause of concern on certain days, while excess capacity plagued the day-to-
day operations at other times. With the Jaipur workshop dedicated to repair and maintenance
of a large fleet of 175 trucks, management of labour manpower was a frequent cause of concern
for the two executive directors, Jain and his cousin, Anuj Jain. There were difficulties with
mechanics resorting to fraudulent means (showing false records of repair work done, stealing
or selling off fuel, engine oil, lubricants and parts, etc.), loitering, arguing and teaming up with
truck drivers to create a ruckus when unoccupied. All of these problems disrupted workshop
operations, especially during festive seasons when labourers often did not even turn up for work.
Both directors were serious this time about rightsizing manpower at the KM workshop. Maximum
labour issues happened around festive occasions, when time-consuming repair activities such
as accidents, denting, cabin, wheel and axle repair issues continued to pile up and manpower
idiosyncrasies exacerbated the situation. A schematic system to estimate or predict the number
of labourers required in each department—and the workshop as a whole—was a solution the
executive directors looked forward to. They hoped to estimate the right number of manpower
resources (including seasonal variations), figure out a mechanism to allocate trucks to mechanics
Professor Debjit Roy and Mr Arindam Bandyopadhyay wrote this case solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors
may have disguised certain names and other identifying information to protect confidentiality.
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Copyright © 2014, Richard Ivey School of Business Foundation. This Case (9B14D009) has been reproduced with
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and bays (a marked area in the workshop where a truck is positioned for repair (see Exhibit 3),
and reduce the waiting time of trucks requiring repair, making workshop operations more
efficient overall.
Warning SignS before feStival time
Jain was interrupted from his work by a telephone call from Anuj. There had been three accidents
within the previous 18 hours and the mechanical labourers had not shown up to work. Anuj
reminded Jain that with the festive season of Diwali1 approaching, the workers had requested
leave from October 30 to November 7. Although he had asked the works manager to discuss the
gravity of the situation with the mechanics and ask them to work a bit longer than the stipulated
seven hours each day, Anuj was apprehensive since bays were expected to be occupied for stretches
of four to 20 days when any accident cases arrived. Workers were threatening to leave, regardless
of wages, and Anuj estimated that KM would incur opportunity costs of approximately INR
2,5002 per truck for each day of delay.
Jain asked Anuj to do a rough analysis on the number of mechanics needed during the course
of the month. He asserted that in the long term, KM should hire an operations consultant to
address the company’s problems in detail. If a solution could be developed which could predict
or estimate the number of workers needed in each of KM’s six departments, the company would
hire that number of mechanics accordingly. Similarly, Jain wanted Anuj to examine bay utilization
and do a comparison between the time each truck spent at the workshop and the maximum
time KM could allow each truck to spend there.
about Km tranS logiSticS
KM was founded as a family-owned business in Jaipur by brothers Kamal Kumar Chandwar

and Prabhachand Chandwar on August 23, 1988. KM maintained a fleet of 625 carriers in
three vehicle categories: flatbed carriers, car carriers and chassis carriers (see Exhibit 1). Nearly
600 (97 per cent) of the vehicle fleet were manufactured by TATA Motors. The car carriers
segment transported nearly 17,000 cars per month, the chassis/truck carrier segment transported
approximately 225 trucks per month and the flatbed steel segment carried nearly 11,000 tons
of steel per month.
1
Diwali—a five-day long Hindu festival—is known as the ‘festival of lights’ because houses, shops and public places
are decorated with small earthenware oil lamps. Many Indians (particularly Northern Indians) prefer to take time
off from work during the festival in order to be with their families. /www.bbc.co.uk/schools/religion/hinduism/
diwali.shtml, accessed August 1, 2014.
2
60 INR (Indian Rupee)=1 USD (US Dollar)
KM Trans Logistics: Workshop Operations 121
The company owned two workshops—one in Gurgaon, Haryana, which was spread over a 0.5
acre open piece of land, and one in Gidani, Rajasthan, nearly 50 kilometres (km) from Jaipur,
the capital city of Rajasthan. Out of the 625 carriers, 175 were repaired and maintained in the
Jaipur workshop, whereas the remaining 450 were maintained by the Gurgaon workshop, which
enjoyed locational advantage. However, since the Jaipur workshop was equipped with better
technology and machinery, some carriers came for repairs to the Jaipur workshop en-route to
delivery to the client. In addition, the Chandwar family was based in Jaipur and hence, the
workshop there enjoyed direct care and attention from a number of the company family members.
The Gurgaon operations faced minimum labour problems as the labourers there were paid on
salaried terms and conditions (unlike Jaipur where payment was on a per job basis). The salaried
payment structure worked well there because of a professionally managed team, which was well
trained and more educated and hence, demanded a fixed minimum salary.
manpoWer and WorKforce Structure at the Km WorKShop

The Manager Tier
Anuj Jain, in his capacity as executive director, headed the operations of the workshop, with two
works managers (engineers by profession) reporting to him.
The Supervisor Tier

There were a few supervisors reporting to the works manager, on an ad hoc basis. Workers could
assume the role of supervisor after reaching a certain level of seniority.
There were certain supervisors engaged in recording the in and out times of trucks to the
workshop, as well as drivers, job cards and worker assignment duties. These supervisors also
took note of tracking data for trucks, in the form of truck number, client information, loading
point, destination and driver information, among other details. At the end of the day, the final
status of each truck in-service was transferred to a spreadsheet for records and future reference.
The workshop was planning global positioning system (GPS) integration with a new Enterprise
Resource Planning (ERP) system to track carrier movements automatically. All desk operations
were carried out by these supervisors. A few call supervisors were also present at the support
desks; these individuals engaged in negotiations with clients and performed financial and other
book-keeping activities. There were nearly 10 such supervisors present at the workshop as of
October 2013.
The Mechanic/Technician/Assistant Tier

There were 36 workers spread across six functional groups: mechanical, electrical, denting,
balancing, tire and welding. The workers had no formal training and were largely unskilled when
they joined. However, with experience, they acquired varied skills and at varying levels. They
could be classified as high-, medium- or low-skilled workers (see Exhibit 2).
WorKShop layout and bayS
The Jaipur workshop was fairly self-sufficient as far as repair and maintenance of trucks was
concerned. The family decided not to engage authorized service centres for repair and maintenance
of trucks, not only because they cost more per repair, but also because they caused excessive
delays, taking up to five days to repair small problems that could be fixed in a matter of a few
hours if done in-house—provided mechanics and all spare parts were made available. In March
2014, the workshop acquired a TATA-authorized service centre status. However, it continued
to hold repair operations for its own carriers and the management did not plan to engage in
repair work for carriers owned by other parties.
The workshop procured all its spare parts inventory from authorized dealers and stocked them
in its own stores in the workshop after batch inspections were completed at Jaipur. It took an
average of two days for parts to arrive at the sales and marketing office in Jaipur and then another
day from the Jaipur office to the workshop. The mean lead time for procurement was therefore
approximately three days.
Spare parts were issued to mechanics for repair and maintenance. Shortage of spare parts was
generally not a major problem for the workshop. When a truck arrived at the workshop, the
driver would be expected to first inform the security personnel at the gate about the problems
in the truck that require repair. If it was a very minor issue requiring less than 30 minutes of
repair time (e.g., broken headlight, minor lubrication, small wiring changes, etc.), it was not
allowed to enter the premises. Repair was done outside the gate directly on the service lane
outside the workshop.
Once a truck was allowed to enter, it spent at least 45 minutes getting in, finding a space, parking
the carrier, being inspected, being repaired and then exiting the workshop premises. Job cards, if
necessary, also had to be prepared. There were avoidable and unnecessary delays due to human
factors (such as driver unavailability for driving out of the workshop, etc.). Hence, it was always
better to minimize the waiting time of trucks.
The workshop had eight numbered service bays (see Exhibits 1 and 3). A ninth inspection bay
was intended for inspection of the truck from beneath. However, drivers were reluctant to drive
over the inspection bay, worrying that some of the carrier wheels might fall into the pit (as there
was not enough room to manipulate a large-sized vehicle comfortably) and the carrier would
either get stuck or parts would break; in either case it would be very difficult to extricate/repair
the fallen part of the vehicle. Bay nine was therefore largely unused, as of October 2013.
Management had decided to convert a large unused space into four extra bays. These bays
were to be used exclusively for accident, denting, welding, cabin setting and tire repair cases, in
addition to making new horse3 cabins out of irrecoverably damaged trucks. All jobs taking four
days or more were to be serviced in these four side bays (accident jobs could take up to 20 days
to repair). These new bays would improve workshop operations tremendously as time-consuming
jobs would be separated from the speedier jobs.
Other important structures in the workshop included the spares store, the driver and mechanic
training room, lubricants storage room, tire storage, supervisors room, works manager room,
lathe room, engine repair room and a few other amenities for workers and drivers (pantry, rest
room with nearly 20 beds and canteen).
WorKShop operationS
A detailed list of carrier arrivals for servicing showing the count of jobs from April 1, 2013 to
June 12, 2013, is given in Exhibit 4. The service time for each of these types of jobs is detailed
in Exhibit 5. These service times varied according to the skill level of the worker employed to do
the job. The given times are for skill level 10 (expert) mechanics. Hence, for four- (low) rated
mechanics, the service time increased by a ratio of 10 to four or 2.5 times of the time taken by
an expert mechanic.
Mechanics worked in day-long shifts from 10:00 a.m. until 7:00 p.m. at the latest, with one hour
designated for lunch break and an additional hour allowed for in-work breaks. Each mechanic
therefore worked approximately seven hours each day. This figure did not change much on a
seasonal basis.
Accidents were a critical and special type of workshop operation, which required maximum
amount of bay time and labour effort (see Exhibit 6). The accident case of a truck generally
occupied the bay and a huge percentage of labour effort for any duration between 12 to 15
days—even up to 20 days in some severe cases. For that duration of time, the whole bay was
occupied and no other work could be performed there. Sometimes, the carrier was damaged
beyond repair and only the mangled horse was brought back to the workshop. If the horse
was not repairable, it was broken down and any salvageable engine and mechanical parts were
extricated to construct another horse.
The criticality of accident cases was so high that in Exhibit 5 (Mechanic Requirements), the
numbers have been scaled to reflect the actual utility of each department in fixing accident cases.
For example, a value of 0.1 for Balancer showed that a worker was needed for wheel balancing
3
Front portion of the truck
for only 10 per cent of the job service time. Sometimes, carrier accidents involving axle damage
or tire damage were so severe that the whole axle needed to be changed. There were 16 cases
of accidents from April to June 2013, and these cases occupied the maximum portion of work
time available to the labour workforce and management alike, aside from all the legal hassles and
police interrogations the concerned parties also had to undergo in case of an accident. Seeing
this problem, the brothers decided to construct the four extra bays on the unused side of the
workshop. Jobs were taken up in “shortest job first” order and the priority of car carriers was
always higher than flatbed steel carriers.
While a majority of incoming trucks were driver-reported problems, there were certain routine
checks and repairs carried out on trucks as well. The ERP system used at the workshop carefully
tracked the routes on which every truck was plying, repair required on each truck by its
registration number, last job card and repair report, total distance travelled by the truck since
last repair and a few other technical or truck-specific parameters (see Exhibit 7). The process of
truck position tracking was manual as of October 2013; however, GPS integration was being
planned. The ERP system even notified supervisors as to any routine repairs required on each
truck as soon as it entered the workshop and supervisors queried its repair history and last job
sheet. Hence, no truck left the workshop without completing a preventive maintenance checklist
(see Exhibit 8).
maintenance model
All repairs were carried out in-house using spare parts procured from authorized dealers. Some
parts were occasionally procured from local dealers at lower cost (quality notwithstanding) but
the advice of expert technicians and the works manager was generally taken in cases of deviation
from original component purchases.
The bays and mechanics (resources) were reserved for the KM fleet only. With regards to
outsourced repair, a few cases of accident, engine overhaul, repairs related to fuel injection pumps,
steering, radiators, turbochargers, boring engines and wheel alignment were subcontracted to
third parties, who sometimes brought mobile vans to the workshop for conducting repairs. On
occasion, employing these mobile repair vans worked well to avoid delays. Some tasks such as
wheel balancing had to be necessarily outsourced since it was not feasible for the company to
incur high fixed costs of purchasing and maintaining computerized high technology machinery,
which was to be used sparingly. In case of outsourced engine overhaul, the truck occupied the
bay for the entire duration of time when the engine was under repair (separated from the horse).
These carriers weighed several tons and it was expensive to invest in a machine that could tow
away the carrier while the engine was disassembled for repair. This was another factor contributing
to lowered efficiency of operations.
Some spare engines, engine components, gears, radiators and a few critical components were
repaired and kept spare on a rotational basis to save time and money during emergency delivery
situations. Delays were greatly minimized using these spare components.
Seasonality of jobs also played a role in worker selection—on both skill level and number of
mechanics to be kept. For example, in the rainy season, tire problems and accidents were more
frequent. During summers, engine overheating and head repairs were more common; while
during winters, lamp repairs were frequently reported by drivers.
WorKShop competition
There were several small to medium-sized workshops owned by similar transporters in the
vicinity. Consequently, KM faced considerable competitive threat with respect to availability of
labour in times of need. The notable competing workshops were: Rajesh Motors (30 km away
from the KM workshop), Anand Motors (12 km away) and Fast-Speed Motors (50 km away).
These workshops were very attractive job-hopping destinations for the labourers, who gained
tremendous bargaining power due to the locational advantage they had on offer—i.e., with the
workshops being within such close distances of one another. The compensation terms were also
very competitive. Labourers often formed cartels and bargained with workshop managers to get
their terms accepted. This was a significant concern for a majority of transportation providers
in North India.
human reSource iSSueS or Severe challengeS?
The same morning after his telephone call to Jain, Anuj arrived at the workshop, pondering over
the long list of trucks awaiting repairs. His main concern was the labourers, who were adamant
about taking long leaves—10 to 15 days in duration—that KM could not afford to allow. If
they took such long leaves, all pending transportation orders for car transportation to showrooms
in North India would need to be cancelled during the festive season. Each day of delay meant
incurring heavy opportunity costs and causing dissatisfaction to the showroom owners.
The workers threatened to leave the job, knowing that there were several competing workshops
in and around Jaipur, even though they were much smaller in size and scale of operations than
KM. This made labour problems very delicate to handle, with respect to both truck drivers and
mechanics.
Anuj noted:
[For many workers], the time that they spend idling in the workshop is not only wasteful
but also dangerous for regular streamlined operations. They cause mischief, loiter around,
gossip and misbehave with co-workers to distract even those mechanics who are at work!
The drivers leave for rest breaks and come back at their own will. Sometimes, they even
come up with faulty excuses and false alarms as if there is a functional problem with
the truck requiring repair, just to idle in the waiting room. That is why we fix small
issues outside the gate itself. The security guards have been instructed not to allow any
truck into the workshop that does not need repair. On certain occasions, a mechanic
goes out and checks if repairs are needed at all on a waiting truck. Only if the truck is
cleared for inspection, it is allowed to enter the premises.
In spite of all these measures, many fraudulent cases entered the workshop.
A bigger challenge for large transport companies in India was the problem of corrupt drivers.
They quoted a lower amount to the client company for carrying the load than the quoted figure
in the KM contract terms and then took the work as a private job. Though most of KM’s clients
were professionally run organizations, some of the lesser known companies such as small town
car showrooms and dealers did agree to pay the driver for transportation services. Some drivers
even started casual businesses out of these practices, utilizing the client contacts acquired during
their work for KM. Though the driver indulged in such malpractices for small gains, the end
loser was the transporter company.
Both fuel and parts were occasionally stolen. Even worse than other malpractices, sometimes,
the loaded material in the truck was stolen. Brand new cars were stolen from car carriers. Steel
slabs and sheets were stolen from flatbed carriers. Corrupt drivers often had the audacity to
demand higher salaries and threaten to leave when confronted with their malicious actions. Due
to driver problems, 10 per cent of the fleet was always off road, parked at arbitrary places, even
in loaded condition.
Jain and Anuj knew that the critical success factors in the transport business were extreme patience,
courage and resilience. Gaurav Benera, another senior workshop executive, said:
Clients such as car retailers, showrooms and even steel manufacturers demand on-time,
perfect delivery in mint condition. If any premium customer’s ordered car gets delayed,
they threaten the dealers with severe consequences such as barging into the dealer’s
showroom with armed goons. If such an incident happens, the first blame for delay
always comes to the transporter and you have to be patient enough to listen to the
complaints they hurl at you.
For the steel and cement industry, there are measurable parameters. Say, an hour of
delay will get you one black star in transporter evaluation criteria. Repeat that delay
three times, and you may not be able to renew the contract. Raw material procurement
is one of the most critically tracked activities in the steel and cement industries. You
simply cannot delay it. This is why such human [resource] factors are affecting daily
operations in our workshop. There is just too much at stake for a single hour of
delay.
recruitment
While the senior executives (works managers and above) were recruited through professionally
conducted interviews, the mechanics were hired on an ad-hoc basis. They typically learned from
their seniors who had been in the business of truck repairs for a long period of time. Some
mechanics trained at local workshops or vocational training schools were hired occasionally, but
they usually did not stay for a long time. The works manager said:
These mechanics generally are able to do quality work, even without any formal
education. We do not worry about how long they are going to stay with us. There is
no shortage of manpower available from nearby localities close to the highway. Also,
we cannot afford to hire trained mechanics. Their demands are just too much. A better
strategy is to hire an experienced and trained mechanic for short periods of time—say
seven to 10 days—for the purpose of training our mechanics.
limited entry barrierS to tranSport buSineSS in india
Entry barriers to the logistics business in India were quite low. Small loans of only INR 400,000
to 500,000 were sufficient to purchase a truck. Alternatively, one could rent a truck to drive for
a few years, earn some requisite amount to purchase trucks and other assets and then gradually
expand the business. There was no minimum qualification in terms of formal education required
to start up on one’s own business, which is why any truck driver could start a casual transportation
business on the side. However, to scale the business to large proportions (INR 10 to 20 million
in turnover annually), a professional scheme of management had to be adopted.
core iSSueS
The brothers believed that poor manpower planning was hurting the timely repair of the trucks.
It was possible that a shortage of repair personnel and the staff’s low skill levels introduced long
waiting delays for the trucks to be repaired; however, too many repair personnel also disrupted
the maintenance operations. Nevertheless, there were other factors that could be responsible for
the long repair delays, which could not be ruled out. They pondered upon several other reasons
for long delays: Was the number of repair bays sufficient to meet the truck repair demand?
Were the repair processes designed efficiently? Were other organizational problems marring the
operational performance? How could they optimize workshop performance?
Exhibit 1
The Workshop in Gidani (District Dudu, Rajasthan)
Inspection Bay – Largely
unused – Drivers are
Numbered Bays (Side Views) reluctant to drive over it.
Chassis Carriers Car Carriers Flatbed Steel Carriers

Source: Company files.
Exhibit 2
Worker Skill Map
Number of workers in each department is tabulated below, segregated on skill level.
Department High Medium Low All

Skilled Skilled Skilled
Mechanical 3 8 3 14
Denting 3 1 1 5
Balance Rod 3 0 0 3
Electrician 3 0 0 3
Welder 1 4 1 6
Tire 5 0 0 5
Total 18 13 5 36
Source: Company documents and interviews of personnel.
Exhibit 3
Workshop Layout
Old Spare Storage

Area Trucks Generally Parked Here—Both Awaiting Repair & After Repair
Trucks Generally Parked Here—Both Awaiting Repair & After Repair

Tires & Engine Components &
Lubricants Spare Parts Repair, Lathe Room &
Storage Area Storage Worker Training Area
Workers
Canteen &
Refreshment
Area
(Chassis Inspection)
Usual Bay 1
Usual Bay 2
Usual Bay 3
Usual Bay 4
Usual Bay 5
Usual Bay 6
Usual Bay 7
Usual Bay 8
Usual Bay 9
Admin Area
Extra Bay 1
Extra Bay 2
Extra Bay 3
Extra Bay 4
Truck Entry/Exit
Source: Company records.

Exhibit 4
Number of Arrivals of Trucks for Repairs [73 days–April to June’13]
Job Type Usual OR Flatbed Car Std. Deviation Labour

Extra Bay Carrier (Arrivals/Day) Cost (INR)
Accident Extra 7 9 0.31 15,000

Air Filter Change Usual 39 10 0.64 30
Balance Rod Alignment (Leaf Spring) Usual 89 9 1.39 100
Battery Check Or Change Usual 45 6 0.75 100
Brake Lining Change Usual 13 8 0.35 15
Brake Oil Usual 9 8 0.36 30
Brake Setting Usual 58 30 0.82 10
Cabin Setting Extra 9 8 0.36 250
Clutch Overhaul Usual 15 20 0.49 700
Clutch Setting Usual 53 33 0.90 50
Compressor Overhaul Usual 13 5 0.39 300
Coolant Tank Repair Usual 6 1 0.21 70
Coolant Change Usual 29 11 0.56 50
Cross Change Usual 1 6 0.21 50
Crown Oil Change Usual 15 6 0.44 75
Denting Extra 23 6 0.49 4,000
Diesel Filter Change Usual 49 38 0.94 40
Diesel Tank Repair Usual 4 1 0.18 350
Engine Oil Change Usual 31 16 0.72 75
Engine Oil Top-up Usual 92 27 1.24 75
Engine Overhaul Usual 9 6 0.27 5,000
Fan Belt Change Usual 7 4 0.29 50
Fifth Wheel Check Usual 15 4 0.44 50
Fuel Injection Pump Repair Usual 22 26 0.62 500
Gear Lever Setting Usual 36 18 0.68 50
Gear Oil Change Usual 16 7 0.42 75
Gear Overhaul Usual 15 7 0.36 600
Horse Hub Grease Usual 31 16 0.55 65
Hosepipe Change Usual 13 3 0.35 40
Pressure Leakage Usual 114 89 1.28 40
Job Type Usual OR Flatbed Car Std. Deviation Labour

Extra Bay Carrier (Arrivals/Day) Cost (INR)
Radiator Service New Usual 39 7 0.68 325

Relay Valve Usual 13 8 0.41 200
Self-Alternator Service Usual 14 7 0.41 200
Steering Box Oil Filter Usual 42 12 0.83 35
Tappet Setting Change Usual 26 11 0.48 100
Thermostat Valve Repair Usual 1 1 0.12 70
Trolley Grease Usual 63 23 0.99 65
Turbo Check Change Usual 11 1 0.30 50
Tire Extra 90 64 1.24 40
Water Body Change Usual 3 0 0.14 100
Window Glass Or Machining Usual 8 11 0.39 50
Wiring Usual 317 134 2.89 1,000
Source: Company documents and interviews of personnel. 1) Includes frequently bundled jobs. 2) Costs mentioned
above are only indicative, for calculation purposes, actual costs may vary greatly especially for accident, denting and
few other unpredictable cases.
Exhibit 5
Service Times and Mechanic Requirements
Service Times
Job Type Expected Time Taken Mean Time (Minutes) *
(Minutes)
Accident Uncertain (Generally > 15 Days) 6,300
Air Filter Change 5 5
Balance Rod Alignment (Leaf Spring) 90 90
Battery Check Or Change 30 30
Brake Lining Change 90 (per wheel) 540
Brake Oil 30 30
Brake Setting 30 30
Cabin Setting Uncertain 180
Clutch Overhaul 180Mins 240
Clutch Setting 30 30
Compressor Overhaul 90 90
Coolant Tank Repair 60-90 (Metal) 75
(Contd.)
Job Type Expected Time Taken Mean Time (Minutes) *

(Minutes)
Coolant Change 30 30
Cross Change 60-75 67
Crown Oil Change 30 30
Denting Uncertain 240
Diesel Filter Change 30 30
Diesel Tank Repair Leyland - 240/TATA - 90 100
Engine Oil Change 30 30
Engine Oil Top-up 10 10
Engine Overhaul 2400 900
Fan Belt Change 30 30
Fifth Wheel Check 60 60
Fuel Injection Pump Repair 180 180
Gear Lever Setting 30 30
Gear Oil Change 30 30
Gear Overhaul 180 210
Horse Hub Grease 30 (per wheel) 180
Hosepipe Change 60 60
Pressure Leakage 30 30
Radiator Service New 60 60
Relay Valve 90 90
Self-Alternator Service 60 60
Steering Box Oil Filter 30-45 36
Tappet Setting Change 30-60 45
Thermostat Valve Repair 30-45 36
Trolley Grease 30 (per wheel) 195
Turbo Check Change 90 90
Tire 10-20Mins 30
Water Body Change 60-90 75
Window Glass Or Machining 50-60 55
Wiring 20-60 45
*(1) Includes frequently bundled jobs. (2) Service Times indicated here are those expected for expert mechanics (Skill
level 10). For low skilled workers, service times are expected to increase as per skill level. (3) Service Times have
low standard deviation (maximum 0.3) except for accident, denting and outsourced engine overhaul cases. Suitable
assumptions may be made regarding the mathematical distribution of service times.
Mechanic Requirements
Job Type Mechanical Denting Balancer Electrician Welder Tire

#
Accident 0.3 0.7 0.1 0.3 0.6 0.1
Air Filter Change 1 0 0 0 0 0
Balance Rod Align (Leaf 0 0 1 0 0 1
Spring)
Battery Check Or Change 0 0 0 1 0 0
Brake Lining Change 1 0 0 0 0 1
Brake Oil 1 0 0 0 0 0
Brake Setting 1 0 0 0 0 0
Cabin Setting 0 1 0 0 0 0
Clutch Overhaul 2 0 0 0 0 0
Clutch Setting 1 0 0 0 0 0
Compressor Overhaul 1 0 0 0 0 0
Coolant Tank Repair 1 0 0 0 0 0
Coolant Change 1 0 0 0 0 0
Cross Change 1 0 1 0 0 0
Crown Oil Change 1 0 0 0 0 0
Denting 0 2 0 0 0 0
Diesel Filter Change 1 0 0 0 0 0
Diesel Tank Repair 0 1 0 0 1 0
Engine Oil Change 1 0 0 0 0 0
Engine Oil Top-up 1 0 0 0 0 0
Engine Overhaul 1 0 0 0 0 0
Fan Belt Change 1 0 0 0 0 0
Fifth Wheel Check 0 0 2 0 0 0
Fuel Injection Pump Repair 1 0 0 0 0 0
Gear Lever Setting 1 0 0 0 0 0
Gear Oil Change 1 0 0 0 0 0
Gear Overhaul 2 0 0 0 0 0
Horse Hub Grease 2 0 0 0 0 1
Hosepipe Change 1 0 0 0 0 0
Pressure Leakage 1 0 0 0 0 0
Radiator Service New 1 0 0 0 0 0
(Contd.)
Job Type Mechanical Denting Balancer Electrician Welder Tire

Relay Valve 1 0 0 0 0 0
Self-Alternator Service 0 0 0 1 0 0
Steering Box Oil Filter 2 0 0 0 0 0
Tappet Setting Change 1 0 0 0 0 0
Thermostat Valve Repair 1 0 0 0 0 0
Trolley Grease 2 0 0 0 0 1
Turbo Check Change 1 0 0 0 0 0
Tire 0 0 0 0 0 2
Water Body Change 1 0 0 0 0 0
Window Glass Or Machining 0 1 0 0 0 0
Wiring 0 0 0 1 0 0
#
Figures in decimals indicate the pro-rated quantum of labour time needed in that particular department with
respect to other departments using whole number of labourers for that job type. In other words, a mechanic is
needed on 3 accidents out of 10 (0.3), while a balancer is needed in 1 accident of 10 (0.1), assuming all accidents
take equal time to repair.
Exhibit 6
Accident Cases in April, May and June 2013
Vehicle No Date Vehicle Type

GC-3420 01-04-2013 Flatbed Carrier
GD-2622 19-06-2013 Flatbed Carrier
GC-9117 09-04-2013 Car Carrier
GD-1913 16-05-2013 Car Carrier
Vehicle No Date Vehicle Type

Source: Company Records.
Exhibit 7
Routine Checks & Repairs
Job Type Conducted Every Regular Interval

Engine Oil Change 21,000 kms
Set of 3 (Oil Filter, Diesel Filter, Water separator) 21,000 kms
Horse Hub Grease 45,000 kms
Trolley Grease 40,000-80,000 kms
Gear Oil 72,000 kms
Crown Oil 72,000 kms
Source: Company Records.
Exhibit 8
Truck IN & OUT Times
Sample Data (Showing 7 out of 340 Cases)
Vehicle No In Date In Time Out Date Out Time

GA-5988 01-09-2013 10:00:00 01-09-2013 18:30:00
GA-9388 01-09-2013 10:10:00 01-09-2013 16:50:00
GE-1706 01-09-2013 10:25:00 01-09-2013 16:00:00
GD-4542 01-09-2013 10:30:00 01-09-2013 11:00:00
GB-6778 01-09-2013 10:35:00 06-09-2013 19:30:00
GD-8714 01-09-2013 15:00:00 01-09-2013 18:45:00
GA-7292 02-09-2013 09:45:00 02-09-2013 12:15:00
(Contd.)
Vehicle Statistics on Time Spent in Workshop

[Data Available for 340 cases from April 2013 to June 2013]*
Trucks Spent Less Than 1 Day 310

Trucks Spent More Than 1 Day 30
Trucks Spent More Than 2 Days 8
(* These time duration statistics below are inclusive of value added (VA), non-value added (NVA) and waiting
times. Driving in and out times are a portion of NVA time.)
Max No. of Days^ 1 2 3 4 5 6 8 21 >=22
Mean Times 259.5 358.3 366.7 366.7 401.2 446.8 505.8 592.4 592.4
(Minutes) #
Std. Dev. Times 259.8 455.1 479.9 479.9 653.1 879.5 1163.9 1974.0 1974.0
(Minutes) @
^
= It is a Data Table. If data for trucks spending more number of days (than Max # Days) are ignored, these
would be the mean and standard deviation of time spent in the workshop.
# = Mean of time spent by trucks in the workshop in Minutes (those spending maximum N or more days).
@ = Standard Deviation of time spent by trucks in the workshop in Minutes (those spending maximum N or
more days).
Source: Company documents and analytics performed on the data by the case writer.
SUggESTED QUESTIONS
1. What are the workshop resources that affect the throughput time of the truck repairs?
Why is rightsizing the labour pool important?
2. Which resource do you think is causing delays in repair–the bays or the labourers? What
should be the right size of both the resources to minimize the delays?
3. Is the interaction among the resources (i.e. the delay caused by a worker or a truck
waiting for a bay to be available) significant?
4. What are the other issues faced by Kundanmal Mukanmal Trans Logistics Pvt. Ltd. (KM)
management at the workshop? What remedial measures or management practices would
you suggest to counter these issues?
A p p R O A C H F O R A N A Ly S I S
The goal is to estimate the right number of workshop resources given an estimate of the job
volumes. The maintenance job completion time is dependent on both, the number of bays
as well as the number of workers. However, based on the case facts it is evident that extra
manpower resources create a disturbance by colluding with the drivers. Lower manpower
resources can cause excessive waiting time before job completion. Hence, to streamline the
workshop operations it is essential to have an optimal number of resources.
To identify the resource responsible for causing the delay in repairs, it is necessary to
calculate the individual utilization of the labour groups by department and bays. For labour
groups, if the utilization value is more than 100 per cent, it indicates that the overall available
bandwidth of all labourers taken together in that department is less than the work piled up in
that department. On the other hand, if the utilization value is too low, it indicates that the
department is overstaffed and the number of workers in that department can be reduced
to reach a desirable level of utilization. Recommendations can be made from the calculation
of bay utilization along similar lines.
Apart from rightsizing the number of bays and the number of labourers, the case highlights
several other issues affecting the operational efficiency of KM such as the skill level of the
labourers, job segregation, etc.
C as e
6
CaSe ConTeXT
K undanmal Mukanmal Trans Logistics Pvt. Ltd. (KM) was a well-known road
transportation company in western India, operating out of its headquarters as
a family-owned business in Jaipur. It functioned as a logistics provider for flatbed
steel and finished automobiles (primarily four-wheeler passenger cars and light to
medium cargo vehicles). The case highlights the spare part inventory management
challenges faced by KM in managing its workshop operations.
Spare Parts Procurement Planning at KM Trans Logistics
“We want to turn our inventory faster than our people.”

James Senegal
“Less emphasis on inventories, I think, may tend to dampen business cycles, because
business cycles are typically in the grasp of inventory cycles and heavy industry cycles.”
Paul A Volcker
It was a clear and sunny winter morning of February 2014 in Gidani. However, the people in
the office of the Executive Director of workshop operations, KM Trans Logistics India Pvt.
Ltd, were in a somber mood. Anuj and Arihant Jain, the Executive Directors in-charge, were
discussing fresh problem created by store managers of the workshops in Gidani and Gurgaon. The
problem was disorderly procurement of spare parts (for repair and maintenance of trucks) by store
managers. Every few days, adhoc purchase orders were raised for vendors in batch quantities of
50 or 100.
Anuj picked up his phone to call the store manager in Gurgaon while Arihant paced the room
thinking what could be done. The store managers were only harbingers of the larger issue at
hand. The challenge was to start seeking alternative solutions to stabilize ordering of spare
parts. Better inventory management tools would prove to be just the right thing at a time when
the company had started to make losses owing to a slow and sluggish manufacturing sector.
Kundanmal Mukanmal Trans Logistics Pvt. Ltd. was a road transportation company functioning
as a logistics provider for flatbed steel and finished automobiles (primarily for passenger cars and
light to medium cargo vehicles).
With the Gidani workshop dedicated to repair and maintenance of a large fleet of 175 trucks;
management of spare parts inventory was a major cause of concern. A software programme to
calculate what to order and when to order seemed to be the best possible solution to them at
that moment. A software solution named ‘MIST’–MIS for Transporters–was procured from a
Prepared by Professor Debjit Roy, Indian Institute of Management, Ahmedabad and Mr Arindam Bandyopadhyay.
© 2014 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/PROD0298) has been reproduced
vendor in Delhi. Though it was a miniature Materials Requirement Planning (MRP) system,
providing features such as alarms, notifications, automatic invoicing, and inventory control; the
software was not capable to estimate the values of inventory control input parameters.
The Company
KM Trans was founded by two brothers, Kamal Kumar Chandwar and Prabhachand Chandwar in
the Pink City, Jaipur, in India on August 23, 1988. Their father, Madan Lal Chandwar migrated
to India at the time of partition between India and Pakistan. The family started business with
textile retail stores in Pakistan and India, and then sold the business to start a Spices Trading
business, naming the company as Kundanmal Mukanmal Traders Pvt. Ltd. When the business
did not perform as per the expectations, they started manufacturing storage tankers for diesel,
petrol, and lubricants, including the gigantic ones seen at depots owned by large oil companies.
This too, did not work out too well and the Chandwar brothers decided to venture into logistics
and transportation business throughout India. An organizational structure chart is given in
Exhibit 1. A detailed family tree is presented in Exhibit 2. Exhibit 3 highlights the income
statements for three fiscal years–2010-11, 2011-12, and 2012-13.
The company did fairly well in the lucrative logistics and road transportation business, with the
lion’s share (96%) of the total revenues of the company coming from road transportation of
flatbed steel and manufactured automobiles. It chose to transport only those goods such as steel
and cars which had higher turnover and profits, in addition to the benefit of having to deal with
only professional managements in both categories. Hence, even after 25 years of business, the
company was not considering transporting any other commodity in the near future. The rest of
the revenues (4%) of KM Trans came from Kota stone polishing and some real estate activities.
KM Trans maintained a fleet of 625 flatbed and car carriers, and had recently added chassis
carriers to the fleet – making it three categories of vehicles in all. Nearly 600 (97%) of the owned
vehicle fleet were manufactured by TATA Motors.
The ‘car carriers’ segment transported nearly 17,000 cars per month. The ‘chassis/truck carrier’
segment transported around 225 trucks per month, while the ‘Flatbed Steel’ business segment
carried nearly 11,000 tons of steel per month.
The company owned two workshops. The Gurgaon workshop was spread on a sprawling 0.5
acre open land near Manesar, Haryana, whereas the Jaipur workshop in question was located
in Gidani, a village in Dudu District of Rajasthan which was nearly 50 kms from Jaipur, the
capital city of Rajasthan. Out of the 625 trailers, 175 were repaired and maintained in the Gidani
workshop, whereas the remaining 450 trailers were maintained by the Gurgaon workshop which
enjoyed locational advantage being close to Delhi, the national capital. The Gurgaon operations
faced minimum labor problems as the laborers there were paid on salaried terms and conditions
Spare Parts Procurement Planning at KM Trans Logistics 141
(unlike Gidani where payment was on per job basis). The salaried payment structure worked
well there because of a professionally managed team and trained and more educated workers
who demanded a fixed minimum remuneration. However, since the Gidani workshop was
equipped with better technology and machinery, some trailers would come for repairs en-route
their delivery to the client. The family was based in Jaipur city and hence, the Gidani workshop
enjoyed direct care and attention from the owners.
KM Trans faced competition only from small time flatbed steel transporters in West and
North India, and a few from South India. In car carriers business, there were small to medium
sized transporters who generally associated with known contacts of dealers. Hence, there was
competitive rivalry amongst them. Also, there was stiff competition from steel transporters
from the East. There were a number of steel manufacturers including large conglomerates such
as TATA Steel and JSW Steel, which had long term contracts with transporters making it very
difficult to get new clients in the East. The company, therefore, had almost all of its loading
points located in the northern and western half of India – Jammu and Kashmir, Himachal
Pradesh, Delhi, Punjab, Haryana, Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh,
Karnataka, Kerala, and Tamil Nadu.
Unloading points, however, were spread throughout the country. “You will find KM Trans
unloading points including warehouses right from Srinagar in the North to Kanyakumari in
the South. At least one KM Trans unloading point could be located at every 50-100 kms on
the map of India. However, the same cannot be said about loading points,” said Arihant. “Even
drivers are reluctant to go to the East for picking up loads since they are not aware of the routes
and fear bad roads and weather due to incessant rains. Most of the drivers are from the North
and West,” he added.
KM Trans executives decided to transport only flatbed steel since hot rolled/cold rolled (HR/CR)
coils were huge and needed special machinery and cranes to be loaded and unloaded. During
the early formative years of the business, there were a few cases of the HR/CR coil loosening
from the shackles, getting untied and ramming into the horse1 of the truck, badly damaging the
horse and killing the driver instantly. After such instances, the company decided to transport
only flatbed steel. Since majority of steel plants were located in East India, the major transporters
were located in East, East-North, and South-East parts of India exclusively. KM Trans enjoyed
locational advantage since the steel plants in western India had them as a major transporter,
primarily because Eastern part of the country was handled by other key players such as East
India Transport Agency (EITA), DARCL, and several other small players with an annual gross
1
In a truck, the front part containing the locomotive machinery with the driver, engine and cabin is called the horse,
whereas the latter part which carries and contains the load is called trailing part or trailer. The horse part is self-
sufficient for locomotion and powers the truck whilst the trailer is just a passive carriage with no power or propulsion
mechanism. The truck cannot move without the horse part.
turnover varying from INR 100 to 1,000 million annually. Other players in flatbed steel and
automobile carriers business across the country were–SVLL, IDEAL, Del-Baroda-Road Carriers,
Del-Gujarat-Freight Carriers, Chetak, Mahavira, etc.
What have I done!!

Before the clock on the desk struck 10AM, Anuj wanted to act. As he stared at the computer
printout of an invoice, he prepared to call Suresh, the store manager in Gurgaon to make him
understand the seriousness of the situation created by adhoc ordering. His fingers trembled in
anxiety.
In Gurgaon, the store manager was enjoying his early morning tea with the fellow mechanics
at the workshop. Suddenly, his phone rang. He fumbled to take the call, knowing whom it was
from, feeling nervous already.
Suresh: [In a disturbed voice] Hello Mr Anuj. How have you been doing? I hope everything is
going perfectly.
Anuj: Good morning Suresh! I called to check if you’re aware of Invoice # 3128906 dated 4th
January 2014 sent to Advance Automobiles; 3 barrels2 of engine oil. I hope it sounds
familiar.
Suresh: Yes. Dinesh (store helper) placed the order 2-3 days back. Has anyone from Advance Auto
replied as to when they are going to supply it? I’m expecting the barrels to be here before
evening.
Anuj: They’d rather not deliver it. I want the order cancelled.
Suresh: [cutting short] But why? Trucks were waiting last week due to engine oil shortage. I didn’t
want a repeat of that situation and hence I ordered the barrels that would take care of
the demand for next 15 days! Are you sure we need to cancel it?
Anuj: Suresh, for the past several months, I have been noticing the irregularities in making
spares available on time. On several occasions trucks have to wait due to shortage and at
other times you order in huge excess. Do you realize that we incur an interest cost which
amounts to a staggering 10% of the excess inventory?! Had we been required to pay rent
for the storage space or very high insurance premiums, our business would not be running
till this date! I hope you understand my point. Also, please do the order cancellation as
soon as possible.
Suresh: Yes, I understand, Mr. Anuj. I thought I had predicted the demand correctly last week
but two accident and five oil change cases came in together which consumed lots of engine
2
One barrel equals 210 liters of fluid (oil or lubricant). In workshops, fluids are ordered in multiple units of barrels.
Opened or unsealed barrels are generally rejected at the time of inspection.
oil. After that, I could do nothing but to make the next trucks wait. Hence, this time I
thought it better to order in excess. Did I make a mistake?
Anuj: Suresh, we need to be very careful from now on. We cannot continue like this. Our income
statements have begun to show losses for the first time in several years. Next order onwards,
we need to provide a better order quantity estimate for each spare part that you include
in the e-mail every time you place an order. I hope you will be able to do that.
Suresh: Yes. I will ensure that I calculate properly before ordering next time.
Workshop Operations
The Gidani workshop was fairly self-sufficient as far as repair and maintenance of trucks was
concerned. The family decided not to engage authorized service centers for repair and maintenance
of trucks because they not only increased the cost per repair, but also caused excessive delays,
taking up to five days to repair small problems which could be fixed in a matter of a few hours if
done in-house, provided mechanics and all spare parts were made available. On some occasions,
service centers even performed unnecessary repairs, that is, parts that might not need repairs in
the near future were replaced or tampered with unnecessarily. Recently, the workshop acquired a
TATA authorized service center status. It continued to hold repair operations for its own trailers.
The management did not plan to engage in repair work for trailers owned by other parties as it
would be hard to deliver others’ trucks on time, when they were struggling to keep pace with
their own fleet. The number of trailers owned by KM Trans (with the categorized breakup)
during the last three years is given in Exhibit 4.
The workshop procured all its spares inventory from authorized dealers of spare parts and stored
them in its own stores in the workshop after batch inspections at Jaipur sales office. Spare parts
were issued to mechanics for repair and maintenance. Shortage of spare parts was generally
not a major problem for the workshop. When a truck arrived at the workshop, the driver was
expected to first inform the security personnel at the gate about the problems in the truck that
required repair. If it was a very minor issue requiring less than 30 minutes of repair time (for
example, headlight broken, minor lubrication, small wiring changes), it was not allowed to enter
the premises. Repair was done outside the gate directly on the service lane outside the workshop.
All repairs were carried out in-house. Some parts were procured from local dealers at lower cost
– which might be of inferior quality, but the advice of expert technicians and the works manager
was generally taken in cases of deviation from genuine component purchases.
The bays and mechanics were reserved for KM Trans fleet only. With regards to outsourced
repair, a few cases of accident, engine overhaul, Fuel injection pump (FIP), steering, radiator,
turbocharger, boring engines, and alignment were contracted to third parties who were allowed
to bring mobile vans to the workshop for conducting repairs. Sometimes, giving a call to mobile
repair vans worked well to save time and trouble. Some tasks such as wheel balancing had to
be necessarily outsourced as it was not feasible for the company to incur high fixed costs of
purchasing and maintaining computerized high technology machinery which would be used
sparingly. In case of outsourced engine overhaul, the truck would occupy the bay for the entire
duration of time the engine was under repair (separated from the horse). These trailers weighed
several tons and it would be costly to invest on a machine that could tow away the trailer while the
engine had gone for repair. This was another factor contributing to low efficiency of operations.
Some spare engines, engine components, gears, radiators, and a few critical components were
repaired and kept as standby on rotational basis to save time and money during emergency
delivery situation. Delays were greatly minimized using these spare components.
Seasonality of jobs also played a role in spare parts ordering – for example, in the rainy season,
tyre problems and accidents were more frequent. During summers, engine overheating and head
repairs were more common; while in winters, lamp repairs were frequently reported by drivers.
Anuj neither wanted to use the MIST software for ordering seasonal items, nor was he interested
in calculating inventory parameters for such items since they could be ordered on-demand and
at will.
Store Operations
The stores were located within the workshop premises in both Gurgaon and Gidani. The Gidani
workshop was established in June 2004 when the company decided to carry out repairs on their
wholly-owned fleet rather than involving authorized service centers. The stores were established
in 2009 and renovated once in 2011 to create space for more spare parts.
Prior to 2009, spare parts were managed by a local third party vendor in Jaipur. The vendor was
given some space in the workshop to stock parts and operate efficiently. However, things did
not work out well as there were frequent problems of trucks waiting for spare parts. Also, there
were repeated issues of over-pricing and fraudulent billing. Hence, the vendor was de-contracted
and the company decided to start stocking parts on their own.
Exhibit 5 shows the layout of the stores. The engine room as shown was also established in 2011
when the company started stocking spare engine, gear and clutch components. As seen in the
layout, there was a tyre and lubricant storage room where, in addition to five barrels of engine
oil and 1-2 barrels of lubricant; new and used tyres were kept. Tyres were ordered by very senior
executives of the company because of heavy inspection and high level of adherence to minimum
specifications and quality and high expense incurred in purchasing. Each tyre was procured for
a price of minimum INR 18,000, ordered only from specialized vendors, inspected thoroughly
for marks, proper treading, thickness, sturdiness, shape, design, and several other parameters and
was tested at the workshop before being accepted. After it passed inspection, it was stored in the
room as given in the layout. Because of these reasons, “we would like to keep tyres out of our
calculations, they were procured by senior executives anyway,” said Anuj.
The main store room, as seen in the layout, was 5m X 6m in size and had four rows of storage
racks, each row having five racks making it a total of 20 racks. There were six shelves in each rack
and these shelves were separated from one another by a vertical gap of nearly two feet. When all
the shelves were full, the spares which would not be affected by dust, moisture, water, chemicals
or pests and rodents were kept on the floor. This room could hold 5 to 10 units of each spare
part. Exhibit 6 contains the list of top 50 spare parts used in the workshop. These were either the
most expensive or the most fast-moving components used in trucks, in other words, of utmost
interest and importance for the store manager. Exhibit 7 contains the usage pattern of each of
these parts for 36 months i.e. from January 2011 to December 2013.
The fast moving (highest demand) items were kept close to the stores helper for easy accessibility.
The heaviest items were kept in the lower shelves whilst the lighter ones on the top. Engine
Oil was the most frequently used item followed by light bulbs. Engine oil arrived in barrels and
the barrels were taken directly to the lubricants and tyre storage room. There was an electric-
mechanical extraction system that pumped out required amount of oil from the barrel in varying
amounts corresponding to each type of truck. This prevented any oil contamination or back-flow
into the barrel. There was less than 0.5 per cent oil wasted due to spillage or pilferage. The same
applied to other spare parts as well. Wastage, in whatever small amounts, happened only if there
was some technology upgrade or the truck for which the part was intended got irrecoverably
damaged or was sold. There was negligible loss incurred due to bad recordkeeping.
The spares room cleaning and maintenance cost was nearly INR 7,500 per month. The store
manager got a salary of INR 15,050 per month and the store assistant got INR 13,000 per
month as compensation. Both these executives were present at the store during regular working
hours of the workshop from 10.00 AM to 6.00 PM daily with an hour of break in between.
They were responsible for tracking parts arrival, issuing parts to mechanics, updating job sheets
and parts requisition, and updating the inventory level on computer. Mechanics generally did
not have to wait for more than five minutes to get the requisite spare parts.
KM Trans paid an insurance premium of INR 18,685 per annum for the spare parts and the
stores. The opportunity cost was nearly INR 2,500 per truck per day hence it was crucial for all
parts to be made available on time. Any delay in parts availability that made a truck wait for the
next day to get repaired was unacceptable. The cost of processing orders-forms, paper, phone,
email, labor, and other things was nearly INR 1,500 per month.
The workshop did not use any computer-based intelligence or software for inventory management.
The MIST software was to bring in a welcome change, reducing manual effort and errors in
procurement schedules.
Procurement Policy
Parts were ordered via a two-leg transportation mechanism wherein the Jaipur sales office acted
like a miniature warehouse for preliminary counting and inspection of the next incoming order.
A bunch of vendors catering to the orders of all the transporters in Gidani area packed the
combined set of spare parts into a van such that all the space in the van was fully utilized. The
van did the rounds in Jaipur almost daily and each transporter got his orders delivered, counted,
and inspected before the van left for the next transporter. The van was released from duty only
when it was empty. KM Trans got some or the other invoice delivered every day. On average,
every spare part got delivered twice a week – mostly due to mismanaged inventory orders by
store managers. This comprised the first leg of transportation.
TC1
TC2
Dealer K M Trans Jaipur

Hired Van KMT
Sales Office for
Inspection & K M Trans
Intermediate Hired Van
Warehousing
Spare Parts Dealer K M Trans Workshop
TC3
TC4
1st Leg Transportation 2nd Leg Transportation
Figure 1 Two-leg transportation at KM Trans workshop stores in Jaipur.

Note: TC1 to TC4 denote the other transportation companies in Jaipur being served by the same dealer. The same
van distributes parts to all the companies in the vicinity. As many parts as possible are filled in the van before it leaves
for its rounds. This is done by the dealer to save transportation costs.
In the second leg, the parts from the Jaipur sales office were taken to the workshop stores as
and when the need arose. The order quantity and procurement schedule in the second leg
too depended on the discretion of the store manager, rather than an analytical or quantified
mechanism of calculating when and how much to order (see Figure 1). The van used for the
second leg transportation was hired by KM Trans and not by the parts dealer or any other party.
If a part was required urgently such that waiting for a van to be hired would make the trucks
under repair wait on the bay; an executive of the workshop was authorized to carry the part(s)
in his personal vehicle on way to office.
Shipping Costs came to nearly INR 20,000 per month (tempo, carriage of parts, packaging items,
etc.). Handling costs (loading, unloading, and miscellaneous expenses), generally incurred once
every week, was nearly INR 980 per order for the first leg from dealer to Jaipur office and INR
200 per order for the second leg from Jaipur office to workshop.
Most transporters in the vicinity of Jaipur followed this two-leg transportation scheme since it
allowed for the registered sales office to do a preliminary inspection and intermediate warehousing.
Also, it prevented shocks in inventory – when there was either too low or too high demand for
repairs. After KM Trans started their own stores, they actually saved transportation costs, out
of schedule deliveries, and also streamlined the procurement to a great extent. Price fluctuations
reduced, fraudulent billing was eliminated completely, and most importantly, the instances of
trucks waiting at the bays requiring repair due to shortage of spare parts reduced considerably.
The average time for arrival of parts from the dealer to the intermediate Jaipur warehousing
office was generally 1.5 days with a standard deviation of 0.2 days. From the warehouse it took
an average of one day for the parts to reach the workshop store with a standard deviation of
0.2 days. Hence, from the time orders were placed, parts generally reached within three days.
The Mystery of MIST!

As Anuj and Arihant pondered over the issues plaguing their store operations and whether, how
and when the MIST software could be put in place to streamline their inventory procedures,
the phone rang once again at 4.15 PM.
Caller: “Hello Mr. Arihant.”
Arihant: “Yes, who is it?” Arihant switched on the loudspeaker for Anuj to hear.
Caller: “This is Hari calling from Delhi regarding our MIST software deal with KM Trans.”
Arihant: “Hello and Good Morning. We need to discuss a few things. The most important among
those is - What all parameters do we need to supply to the software to make it take over
inventory control all by itself?”
Caller: “You need to provide maximum inventory order-up-to level, inter-order time period in
days, and the reorder level for each of the spare parts. After that, it should be able to take
over.”
Arihant: “OK. When can you send a technician over to set things up here?”
Caller: “Not before 21st February but definitely before 1st March. We only have a single visiting
technician earmarked for semi-premium customers and he is going to leave for Calcutta
on 1st of March.”
Arihant: “That is going to be a problem. We do not have the calculations in place at the moment.
The server hardware hasn’t been set up as yet. It is hard to believe that you do not have
any other technician who can guide us. Please make alternate arrangements.”
Caller: “Sorry for the inconvenience, Mr. Arihant. The only advice that I can give you is to ask
you to upgrade your membership to a premium category. Then we can give you a dedicated
technical advisor and consultant. This will cost you INR 254,000 in addition to your
current subscription.”
Arihant: “We will think about that. But as for now, please book 28th February as our meeting
date with your executive. There is no way we can finish our inventory calculations before
that.”
Caller: “Definitely. Goodbye.”
Arihant: “Goodbye.”
Anuj stared at Arihant trying to absorb his brother’s predicament. February 28 was fast
approaching. There was hardly any chance of them completing their number work till the
executive arrived but it had to be done anyway to prevent inefficient inventory ordering in
future. INR 254,000 for a dedicated consultant was too much of a price which they could do
well without spending. They wondered what to do.
Exhibit 1
KM Trans Organizational Structure
K M Trans
[The
Company]
K K Chandwar Prabha Chand

[MD & Chandwar
Founder] [CEO & MD]
Amit Chandwar
Finance HR [Director Operations &
Marketing]
CA1 Gaurav
Anuj Jain Arihant Jain Berera
(Chartered HR [ED]
[ED] [ED]
Accountant)
CA2 Sahil Sharma

Sales & Flatbed
(Chartered Recruitment [Works
Marketing Business
Accountant) Manager]
Supervisor Chassis Dinesh Arya

Supervisor Supervisor Carrier [Works
Workshop Spares Store
Reporting Works Business Manager]
Floor
Floor Floor & Store Marketing

Data Entry
Incharge Accident Incharge Functions
Team
Incharge
Mechanics Mechanics
(Accident Storekeeper
(6 Teams)
Mechanics)
Subordinate
Source: Interview and Author’s Analysis

Exhibit 2
Family Tree
Kamal Kumar Chandwar

Amit Chandwar
[Founder & Current MD;
BA, Gold Medalist] [MBA Mkting, Sydneham
College, Mumbai]
Started his career at the
age of 16 with father's Joined the business in 2001,
business of spices trading. started car carrier business.
Started KM Trans in 1988. Currently in charge of
Fleet of 15 trucks, LPG purchasing, sales and BD.
Cylinder transportation
Arihant Jain
Prabha Chand Chandwar
Madan Lal Chandwar [Executive Director; Masters
[Co-Founder & Current
in International Mgmt. from
CEO; M.Com, LLB]
[Grandfather of Anuj & IE Business School]
Arihant Jain] Responsible for overall
Incharge of overall field sales
leadership, business growth
Carried forward the legacy and marketing and chassis
and HR, IR, and Recruit-
of the Family Business carrier business. A key figure
ment. Backbone of the
named 'Kundanmal in the case.
family business.
Mukanmal Traders Pvt Ltd'
with spices trading. K M
Trans Logistics was
started by his sons Prabha
Chand & Kamal Kumar Anurag Jain
Chandwar.
[MBA Marketing]
Joined Kota Stone
business in 2006,
Naresh Kr. Chandwar currently handling all the
responsibilities of Kota
[M.Com, LLB] Stone business.
Started his business career at
the age of 20 with spices
trading. Moved to Kota Stone
Polishing and processing
factories business. Runs 2
factories in hometown Anuj Jain
Ramganj Mandi [Executive Director;
(Dist. Kota, Rajasthan). M.Com, Delhi University]
Handles all daily
workshop operations in
Jaipur. One of the key
figures in the case.
Source: Interview and Company Records

Exhibit 3
KM Trans – Income Statements
Income Statements (in INR crores) 2010-11 2011-12 2012-13

Revenues 155.75 181.13 190.87
Operating Costs 120.70 140.41 153.90
Gross Profit 35.05 40.72 36.97
Admin Expenses 2.03 2.53 2.91
Selling Expenses 22.53 26.59 23.86
Employee Benefit Exp. 2.59 3.35 4.49
PBIT 7.63 8.25 5.71
Interest Expense 6.48 7.69 7.13
PBT 1.15 0.56 -1.42
Tax 0.26 0.19 -0.15
PAT 0.89 0.37 -0.32
Exhibit 4
Fleet Size Variation
(September 2010 - December 2013)
As on Date Car Carrier Flat Bed Carrier Chassis Carrier TOTAL

30/09/2010 356 140 0 496
31/03/2011 359 142 0 501
30/09/2011 401 174 0 575
31/03/2012 412 160 0 572
30/09/2012 417 152 05 574
31/03/2013 412 143 25 580
30/09/2013 420 119 53 592
Exhibit 5
Stores Layout
Engine Repair, Engine

Components & Lathe Room
3m x 6m
Entry and Exit Doors

Parts Issuing History
and Tracking Server
Parts Issuing and Requisition

Parts Issuing Window
Stores Inventory Manager
Desk and Register

& Requisition Helper
Numbered Racks for Spare Parts Storage which Parts List attached
Spare Parts Store Room

Entry and Exit Doors
5m x 6 m
Engine Oil and Lubricants
Extraction and Deliver System

Tyre Inventory
Engine Oil and Lubricants
Tire and Lubricants Storage Room

4m x 6 m

Exhibit 6
Spare Parts List–Top 50
(Most Expensive & Most Frequently Used)
Part No. Part Name Part Supplier Supplier Name Min Cycle Co/Cu
Cost Order Service
INR Qty. Level
P_0000M1 Engine Oil 167 Shell Advance Tacmte 209 100 0.010
Ch4
P_275225200106 Clutch Plate 4,200 Tata Motors Vijay 5 100 0.005
60No. Automobiles
P_275225400105 Pressure Plate 9,600 Tata Motors Vijay 5 100 0.005
60No. Automobiles
P_278609139908 Air Filter 1,001 Dealer Vijay 20 100 0.005
Outer Automobiles
P_278607989916 Water 371 Tata Motors Vijay 24 100 0.005
Separator Automobiles
P_0000M5 Crown Oil 158 Shell Advance Tacmte 209 100 0.010
85W140
P_0000M2 Engine Oil 175 Shell Advance Tacmte 209 100 0.010
Ci4
P_272425200134 Clutch Plate 5,796 Tata Motors Vijay 3 100 0.005
75No. Automobiles
P_252718130145 Oil Filter 1,052 Tata Motors Vijay 10 100 0.020
N/M Automobiles
P_272425400129 Pressure Plate 10,062 Tata Motors Vijay 3 100 0.005
75No. Automobiles
P_0000M4 Gear Oil 158 Shell Advance Tacmte 209 100 0.010
80W90
P_278609119904 Diesel Filter 185 Tata Motors Vijay 24 100 0.005
Automobiles
P_278609139909 Air Filter 330 Dealer Vijay 20 100 0.002
Inner Automobiles
P_0000M7 Coolant 135 Valvoline Vijay 50 100 0.001
Automobiles
P_278618139902 Oil Filter 210 Tata Motors Vijay 24 100 0.005
Automobiles
P_265172300105 Door Lock 221 Vendor Ramanuj Motor 20 100 0.005
(Contd.)
Cost Order Service
INR Qty. Level
P_269126204623 Synchro Cone 1,690 Dealer Vijay 10 100 0.002
Automobiles
P_278605999928 Tappet Cover 67 Tata Motors Vijay 120 80 0.005
Gasket Automobiles
P_257681100153 Side Glass 83 Vendor Shubh Laxmi 48 100 0.005
P_10000012467 2467 Bulb 15 Dealer Goyal 220 80 0.010
Automobiles
P_10020010 Clutch 4,587 Dealer IMPL 4 100 0.005
Booster 3518
P_269126204635 Synchro Cone 1,754 Dealer Vijay 6 100 0.002
5/6 Automobiles
P_278609999920 Fuel Strainer 108 Tata Motors Vijay 20 80 0.005
Automobiles
P_27861599996302 Fan Belt 398 Tata Motors Vijay 10 50 0.001
Automobiles
P_278620999937 Viscous Ass. 4,700 Dealer Bhagwati Intl. 2 100 0.002
3516
P_100001566563 Wheel Bearing 857 Nbc Metro Sales 5 100 0.002
566/563
P_10000012441 2441 Bulb 14 Dealer Goyal 220 80 0.010
Automobiles
P_278615999902 Fan Belt 1,849 Tata Motors Vijay 5 80 0.002
Tensioner Automobiles
580/572
P_278620999959 Water Pump 2,013 Tata Motors Vijay 3 100 0.002
Bs2 Automobiles
P_4000041243 Head Light 181 Dealer Goyal 20 80 0.002
Bulb 12V 43T Automobiles
P_0000M9 Brake Oil 233 Tvs-Girling IMPL 10 100 0.002
250Ml
P_278613999920 Kit 1/226 357 Webco IMPL 10 80 0.005
P_257689100149 Cabin Shocker 422 Tata Motors Vijay 10 80 0.002
Automobiles
P_4000042443 Head Light 201 Dealer Goyal 20 80 0.002
Bulb 24V 43T Automobiles
Cost Order Service
INR Qty. Level
P_278614605802 Hump Hose 172 Vendor Modi Motor 10 100 0.005
P_300003070 Kit 3/70 357 Webco IMPL 10 80 0.005
P_278613999916 Kit 1/215 193 Webco IMPL 10 80 0.005
P_261854249910 Horn 24V 255 Dealer Shubh Laxmi 10 100 0.005
P_266835607701 Rear Wheel 55 Silver Seal Modi Motor 30 100 0.002
Oil Seal
P_269854209980 Horn 12V 151 Dealer Shubh Laxmi 10 100 0.005
P_300003066 Kit 3/66 236 Webco IMPL 5 80 0.005
32308
P_7000000001 Three Bond 90 Vendor Modi Motor 20 100 0.005
Big
P_26216033 Alternator 737 Dealer Shubh Laxmi 3 70 0.001
Cutout 6033
P_80000001601 Joint Socket 55 Dealer Shubh Laxmi 20 100 0.001
6Way
P_261854500101 Combination 401 Vendor Shubh Laxmi 5 100 0.003
Switch
P_257633407801 Front Wheel 35 Silver Seal Modi Motor 30 100 0.002
Oil Seal
P_266835605301 Axle Packing 6 Moto Modi Motor 60 100 0.001
8Hole
P_600006001 Fog Lamp 177 Dealer Shubh Laxmi 48 70 1.000
Exhibit 7
Parts Usage (2011)
(Month-wise Count)
Part No. Part Name Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
P_0000M1 Engine Oil 0 451 580 468 489 692 535 1634 1170 633 840 878
Ch4
P_275225200106 Clutch Plate 6 3 3 4 11 3 5 14 15 6 19 22
60No.
P_275225400105 Pressure 0 0 1 2 0 1 4 4 9 3 8 7
Plate 60No.
P_278609139908 Air Filter 8 14 20 14 25 28 20 18 51 12 31 32
Outer
P_278607989916 Water 40 37 26 36 47 40 39 106 68 48 124 116
Separator
P_0000M5 Crown Oil 0 45 46 55 62 80 30 288 202 107 45 97
85W140
P_0000M2 Engine Oil 501 149 0 0 0 0 0 0 0 0 0 0
Ci4
P_272425200134 Clutch Plate 1 1 1 0 0 0 0 1 2 1 2 0
75No.
P_252718130145 Oil Filter 0 0 0 0 0 0 0 0 0 0 1 0
N/M
P_272425400129 Pressure 2 0 0 0 0 0 0 1 1 0 1 0
Plate 75No.
P_0000M4 Gear Oil 0 0 0 42 50 289 41 244 149 106 94 79
80W90
P_278609119904 Diesel Filter 4 37 26 36 47 40 39 105 68 49 124 119
P_278609139909 Air Filter 10 15 17 11 25 28 20 20 50 15 26 29
Inner
P_0000M7 Coolant 49 54 34 41 38 62 49 47 77 68 52 41
P_278618139902 Oil Filter 22 29 15 24 46 34 27 110 53 32 107 89
P_265172300105 Door Lock 23 21 22 23 25 14 22 38 22 33 88 99
P_269126204623 Synchro 0 0 0 0 0 0 2 5 9 8 0 0
Cone
P_278605999928 Tappet 42 39 46 34 7 10 54 101 98 93 226 138
Cover
Gasket
P_257681100153 Side Glass 48 53 49 24 45 45 57 49 132 84 123 151
P_10000012467 2467 Bulb 305 172 204 344 312 267 332 443 641 424 474 532
P_10020010 Clutch 0 0 0 0 0 0 0 0 0 0 0 0
Booster
3518
P_269126204635 Synchro 0 0 0 0 0 0 2 5 5 5 0 0
Cone 5/6
P_278609999920 Fuel 16 9 9 7 4 12 15 19 24 11 38 36
Strainer
P_27861599996302 Fan Belt 3 13 4 10 4 4 7 7 9 3 8 7
P_278620999937 Viscous Ass. 0 0 0 0 0 0 0 0 0 2 2 0
3516
P_100001566563 Wheel 1 0 1 2 0 0 1 3 3 3 4 1
Bearing
566/563
P_10000012441 2441 Bulb 446 280 250 207 228 309 353 615 546 484 468 471
P_278615999902 Fan Belt 1 1 1 3 0 2 3 1 1 0 0 0
Tensioner
P_100001580572 Wheel 2 1 4 1 2 1 1 6 5 3 2 2
Bearing
580/572
P_278620999959 Water 0 0 0 1 0 1 1 0 2 0 1 1
Pump Bs2
P_4000041243 Head Light 15 0 4 11 24 7 8 18 20 16 24 18
Bulb 12V
43T
P_0000M9 Brake Oil 9 9 6 11 4.5 8 10 8 15 15 30 14
250Ml
P_278613999920 Kit 1/226 2 5 5 5 4 0 4 2 4 5 10 3
P_257689100149 Cabin 1 0 2 0 2 1 2 3 4 4 3 3
Shocker
P_4000042443 Head Light 12 17 20 16 28 14 16 14 25 22 26 17
Bulb 24V
43T
P_278614605802 Hump Hose 3 1 6 3 6 3 4 11 11 12 9 13
P_300003070 Kit 3/70 1 3 2 2 1 6 4 5 5 3 14 17
P_278613999916 Kit 1/215 5 4 3 4 2 3 6 6 2 4 7 13
P_261854249910 Horn 24V 5 4 2 2 4 2 15 3 20 10 35 5
(Contd.)
P_266835607701 Rear Wheel 7 8 6 13 10 2 2 11 24 13 12 30
Oil Seal
P_269854209980 Horn 12V 1 3 9 9 12 10 11 22 27 25 8 10
P_300003066 Kit 3/66 1 1 1 3 4 1 3 8 3 4 14 14
P_257633403103 Wheel 5 2 0 0 0 0 2 1 2 0 0 3
Bearing
32308
P_7000000001 Three Bond 14 5 3 4 2 4 6 14 10 12 8 15
Big
P_26216033 Alternator 1 0 1 1 0 0 0 0 0 0 1 0
Cutout
6033
P_80000001601 Joint Socket 9 10 16 19 20 17 25 24 26 25 44 21
6Way
P_261854500101 Combina- 3 1 0 1 0 2 2 1 5 0 3 2
tion Switch
P_257633407801 Front 4 6 0 2 0 0 0 5 3 2 9 14
Wheel Oil
Seal
P_266835605301 Axle 12 6 5 11 6 6 1 4 35 21 13 43
Packing
8Hole
P_600006001 Fog Lamp 0 0 0 0 0 0 0 0 3 5 8 6
Parts Usage (2012)
P_0000M1 Engine Oil 803 1191 555 0 0 0 0 0 274 496 520 633
Ch4
P_275225200106 Clutch Plate 12 29 29 9 22 28 31 17 10 16 6 10
60No.
P_275225400105 Pressure 7 9 6 8 0 14 8 9 10 6 5 3
Plate 60No.
P_278609139908 Air Filter 62 116 77 52 46 80 42 92 63 93 35 46
Outer
P_278607989916 Water 69 200 87 43 232 234 116 103 148 153 90 119
Separator
P_0000M5 Crown Oil 86 304 70 105 67 32 67 371 239 157 176 42
85W140
P_0000M2 Engine Oil 0 0 0 0 0 0 0 0 228 351 205 256
Ci4
P_272425200134 Clutch Plate 1 1 2 6 0 1 1 0 1 1 2 1
75No.
P_252718130145 Oil Filter 0 2 1 51 54 21 1 7 39 27 33 47
N/M
P_272425400129 Pressure 1 1 2 6 3 2 3 2 0 0 1 1
Plate 75No.
P_0000M4 Gear Oil 72 284 47 91 48 36 52 191 148 81 37 55
80W90
P_278609119904 Diesel Filter 70 199 88 43 232 234 116 104 147 153 90 117
P_278609139909 Air Filter 61 111 76 52 46 81 40 78 57 91 35 46
Inner
P_0000M7 Coolant 36 73 130 155 114 193 88 107 124 207 55 59
P_278618139902 Oil Filter 55 163 78 28 146 79 92 63 116 107 62 82
P_265172300105 Door Lock 68 84 55 58 35 45 155 52 58 31 35 41
P_269126204623 Synchro 0 0 0 0 11 15 4 0 12 6 7 6
Cone
P_278605999928 Tappet 140 159 88 244 183 131 192 133 168 174 82 200
Cover
Gasket
P_257681100153 Side Glass 81 122 169 52 149 59 166 54 136 75 152 59
P_10000012467 2467 Bulb 472 370 594 518 339 621 578 605 900 438 716 743
P_10020010 Clutch 0 3 1 0 1 1 0 1 2 4 5 2
Booster
3518
P_269126204635 Synchro 0 0 0 0 18 7 5 0 8 2 3 5
Cone 5/6
P_278609999920 Fuel Strainer 47 48 28 46 111 127 70 106 93 41 92 54
P_27861599996302 Fan Belt 12 35 9 8 37 27 9 9 15 7 7 3
P_278620999937 Viscous Ass. 1 1 0 0 0 1 2 2 1 2 2 1
3516
P_100001566563 Wheel 8 2 0 1 6 10 1 4 15 4 23 3
Bearing
566/563
P_10000012441 2441 Bulb 421 345 262 262 290 257 385 482 410 347 429 649
P_278615999902 Fan Belt 1 2 6 12 0 1 2 2 3 3 3 2
Tensioner
P_100001580572 Wheel 5 1 1 5 1 13 1 5 15 7 21 2
Bearing
580/572
(Contd.)
P_278620999959 Water 1 4 4 1 5 2 5 1 2 2 7 2
Pump Bs2
P_4000041243 Head Light 6 1 3 0 0 0 0 58 30 34 19 33
Bulb 12V
43T
P_0000M9 Brake Oil 13 16 10 11 11 13 14 16 17 16 15 15
250Ml
P_278613999920 Kit 1/226 7 5 23 13 6 15 4 11 14 26 11 12
P_257689100149 Cabin 6 5 8 12 11 8 15 8 14 18 8 12
Shocker
P_4000042443 Head Light 34 0 0 0 0 0 0 0 33 5 5 9
Bulb 24V
43T
P_278614605802 Hump Hose 50 27 15 20 17 32 38 23 10 21 23 38
P_300003070 Kit 3/70 3 10 7 9 14 19 10 12 15 13 14 14
P_278613999916 Kit 1/215 4 8 8 15 10 17 7 16 16 31 10 24
P_261854249910 Horn 24V 11 6 1 6 3 3 10 4 7 6 7 16
P_266835607701 Rear Wheel 30 24 42 21 26 35 42 55 88 41 39 53
Oil Seal
P_269854209980 Horn 12V 3 5 7 10 6 14 9 12 22 14 13 10
P_300003066 Kit 3/66 12 14 18 3 4 1 3 8 3 4 14 14
P_257633403103 Wheel 1 1 2 4 3 2 0 2 2 4 2 4
Bearing
32308
P_7000000001 Three Bond 13 28 19 2 8 12 0 1 22 18 26 15
Big
P_26216033 Alternator 3 3 3 4 4 1 2 2 1 1 2 1
Cutout
6033
P_80000001601 Joint Socket 21 31 27 27 20 23 11 19 22 22 19 15
6Way
P_261854500101 Combina- 0 2 4 2 0 2 2 1 6 0 1 3
tion Switch
P_257633407801 Front Wheel 10 12 20 21 15 22 37 54 68 34 26 34
Oil Seal
P_266835605301 Axle 19 123 26 134 33 31 138 62 177 43 26 57
Packing
8Hole
P_600006001 Fog Lamp 2 1 0 0 0 0 0 0 0 0 3 5
Parts Usage (2013)

P_0000M1 Engine Oil 635 594 480 686 1010 491 639 866 633 671 304 548
Ch4
P_275225200106 Clutch Plate 21 19 12 14 15 15 31 28 28 12 8 7
60No.
P_275225400105 Pressure 8 5 5 5 4 2 7 9 15 3 6 0
Plate 60No.
P_278609139908 Air Filter 85 59 49 35 77 34 54 32 74 13 48 19
Outer
P_278607989916 Water 171 66 73 107 73 41 69 175 96 48 19 55
Separator
P_0000M5 Crown Oil 159 301 125 278 216 151 286 87 95 239 359 306
85W140
P_0000M2 Engine Oil 244 237 169 316 481 255 207 431 252 230 89 165
Ci4
P_272425200134 Clutch Plate 12 3 9 10 9 4 12 25 13 3 5 4
75No.
P_252718130145 Oil Filter 67 27 50 75 27 45 12 61 25 27 14 14
N/M
P_272425400129 Pressure 1 2 2 3 6 2 5 8 9 2 2 0
Plate 75No.
P_0000M4 Gear Oil 94 104 85 154 157 144 103 101 142 156 193 151
80W90
P_278609119904 Diesel Filter 171 67 73 107 73 41 69 175 96 48 20 55
P_278609139909 Air Filter 77 53 46 33 71 35 36 29 67 15 23 15
Inner
P_0000M7 Coolant 107 66 78 114 136 125 115 126 377 290 88 128
P_278618139902 Oil Filter 80 19 70 28 17 21 23 93 24 28 7 14
P_265172300105 Door Lock 52 42 20 126 31 119 61 67 109 48 13 27
P_269126204623 Synchro 5 4 5 14 1 4 12 27 19 11 4 6
Cone
P_278605999928 Tappet 90 216 76 54 61 56 288 216 366 147 93 128
Cover
Gasket
P_257681100153 Side Glass 66 44 39 142 129 121 68 135 89 85 97 54
P_10000012467 2467 Bulb 316 383 293 347 561 782 414 338 643 606 485 537
P_10020010 Clutch 2 1 0 2 0 1 6 9 5 5 4 2
Booster
3518
(Contd.)
P_269126204635 Synchro 3 4 0 4 4 7 9 15 9 4 1 1
Cone 5/6
P_278609999920 Fuel 47 53 48 116 51 97 48 112 108 73 24 39
Strainer
P_27861599996302 Fan Belt 47 7 12 9 25 8 17 54 23 8 5 14
P_278620999937 Viscous Ass. 1 0 2 1 4 4 1 4 4 2 2 0
3516
P_100001566563 Wheel 22 28 4 1 1 6 4 16 22 12 3 6
Bearing
566/563
P_10000012441 2441 Bulb 240 292 270 117 484 208 195 340 288 445 293 344
P_278615999902 Fan Belt 5 1 9 0 3 3 7 11 4 2 0 2
Tensioner
P_100001580572 Wheel 15 27 1 5 0 2 15 12 3 9 4 4
Bearing
580/572
P_278620999959 Water 1 0 0 7 0 2 10 1 3 2 1 2
Pump Bs2
P_4000041243 Head Light 28 36 16 20 23 31 24 41 81 44 26 52
Bulb 12V
43T
P_0000M9 Brake Oil 16 15 14 15 15 39 36 42 28 18 17 18
250Ml
P_278613999920 Kit 1/226 10 12 18 20 3 28 10 21 22 6 9 17
P_257689100149 Cabin 14 8 7 9 15 15 18 19 26 12 13 2
Shocker
P_4000042443 Head Light 12 3 12 9 6 15 9 21 79 30 9 12
Bulb 24V
43T
P_278614605802 Hump Hose 45 9 12 6 19 16 27 23 21 10 15 3
P_300003070 Kit 3/70 7 8 3 6 3 2 9 12 10 6 3 14
P_278613999916 Kit 1/215 8 24 6 29 4 30 12 35 23 6 10 14
P_261854249910 Horn 24V 9 12 12 22 6 21 8 26 7 1 3 3
P_266835607701 Rear Wheel 37 48 23 150 37 15 49 68 43 116 68 42
Oil Seal
P_269854209980 Horn 12V 10 9 4 5 8 10 25 28 16 15 19 3
P_300003066 Kit 3/66 12 14 18 8 8 4 18 13 12 5 5 4
P_257633403103 Wheel 4 17 1 3 4 4 9 4 3 17 5 5
Bearing
32308
P_7000000001 Three Bond 22 13 16 28 14 26 24 86 55 35 16 37
Big
P_26216033 Alternator 4 2 4 5 1 0 4 2 4 3 3 5
Cutout
6033
P_80000001601 Joint Socket 11 10 15 11 117 10 22 30 32 39 16 14
6Way
P_261854500101 Combina- 13 5 0 2 2 2 6 4 1 2 3 5
tion Switch
P_257633407801 Front 26 40 19 92 29 9 41 48 78 103 103 36
Wheel Oil
Seal
P_266835605301 Axle 49 247 22 170 59 18 265 64 65 153 81 91
Packing
8Hole
P_600006001 Fog Lamp 8 6 2 1 0 0 0 0 0 0 5 2
SuggeSTeD QueSTIONS
1. How should Kundanmal Mukanmal Trans Logistics Pvt. Ltd. (KM) decide about the
frequency of placing the spare part orders with its vendors?
2. How much quantity should KM order while placing an order with its vendor? What
factors affect the optimal ordering quantity?
3. Should all parts follow the same or a differentiated inventory review policy?
4. Based on this analysis, which trucks would you propose to put on annual maintenance
contracts? What other fleet attributes would you consider to perform this analysis?
A P P R O A C h F O R A N A Ly S I S
Initially, the analysis may begin with the categorization of parts into A, B, and C categories –
holding 70, 20 and 10 per cent of the entire investment cost on the purchase of the 50 spare
parts respectively. Investment cost is the product of the unit price of the part and its yearly
usage count (demand). This classification should guide the reader to identify a suitable
inventory model for each category of parts. Then the different inventory cost components
such as purchase cost, carrying (holding) costs and ordering (setup), and stock-out expenses
should be identified for each part. Finally, the optimal ordering quantity and possible ordering
frequencies should be identified for certain customer service level criteria.
C as e
7
CAse CoNteXt
N ovire Technologies, an IT-based logistics solutions provider, had introduced a

new system called Automatic Vehicle Location (AVL) which used the Global
Positioning System to track vehicles. ABC Private Ltd, a cement manufacturing
company, conducted a pilot study of this system on five of its trucks. The company
was considering implementation of AVL which would enable better capacity
utilization and effective management of cement distribution. The focus of this case
is on analysing the data obtained from the pilot study, identifying the additional
data requirements, and examining the scalability, implementation feasibility and
flexibility of the AVL system.
Novire Technologies: Automatic Vehicle Location
On Monday, March 3, 2008, Mr Dhaval Verma, General Manager, Logistics, of ABC Private Ltd
(ABC), a cement manufacturing company, walked into the conference room where he was to have
a meeting concerning the implementation of a new technology in ABC. The other participants
of the meeting were Mr Kaushik Somanathan, Executive Director of Novire Technologies
(NT) and Mr Aman Bansal, Senior Product Development Manager, NT. The meeting’s main
agenda was to discuss the outcome of a pilot project of a new technology for a fleet management
system called Automatic Vehicle Location (AVL) which had been implemented for ABC. The
results of the pilot project implemented on five trucks had just come in. ABC was considering
implementing a fleet management system which supposedly, would enable them to have better
capacity utilization and effective management for cement distribution. ABC had cooperated
with NT for carrying out the pilot fleet run and tracking of data to visualize the usefulness and
feasibility of the system.
ABC PrivAte Ltd
ABC was the third largest cement manufacturer, with an aggregate grey cement capacity of
13.41 million tons per annum spread across India. It had a broad product portfolio including a
variety of cements. Recognizing the fact that a large product portfolio did not necessarily ensure
success in the intensely fragmented and competitive cement industry, ABC offered a host of value
added services to customers, including concrete mix design, cube testing services, non destructive
testing and training and site visits by qualified engineers. Additionally, ABC was in the process
of implementing modernization and capacity expansion projects for debottlenecking.
The company had a bulk cement terminal at Jawaharlal Nehru Port Trust (JNPT) with a capacity
of 2600 tons per day, from where it supplied cement to all its customers and dealers. This
terminal was also responsible for supplying bulk cement to all its Ready Mix Concrete (RMC)
plants in and around Mumbai. The entire radius of operations for this plant was approximately
Prepared by Professor G Raghuram, Indian Institute of Management, Ahmedabad and Mr Aditya Goyal.
Assistance provided by Ms Aswathy is acknowledged. We thank Mr Kaushik Somanathan for inputs from the company.
©2008 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/PROD0292) has been reproduced
150 Km. The terminal received cement from the port which was at a distance of about 40 Km
(see Exhibit 1 for a map of the Mumbai area). The company used a dedicated fleet for the supply
of cement, both from the port and to the customer locations. The capacity of the trucks varied
between 9 and 24 tons.
Novire teChNoLogies
Novire was incorporated in India in the year 2004. The brain behind the Novire strategy was
a team of five professionals. Between them, they had over 150 years of experience in global
technology, product development, marketing, and building a world class organization.
o Mr Sudhir Awasthi (Ex Managing Director of Godrej Industries), a professional with 27
years experience in handling administration, production, sales and marketing activities,
was spearheading the Indian operations.
o The technical savoir-faire was provided by Mr P Ramani (Ex National Semi Conducts),
who brought with him over 12 years of experience in the areas of architecture, design,
and development of integrated circuits for wireless applications.
o NT’s research was powered by Dr Gurusamy who had completed his PhD from IIT
Bombay and was also involved in the incubation unit of IIT Bombay. He was a former
director at Trellis Labs Private Ltd. Dr Gurusamy was a full time director with NT and
was responsible for all the research and development work the company was undertaking.
o The marketing team was led by Mr Kaushik Somanathan, who had an entrepreneurial
background. He had been involved in various startup ventures. NT was his third venture.
o Product development was bolstered by Mr Aman Bansal who joined NT directly after
finishing his Master of Sciences from the University of Southern California.
For core support, NT had a team of high calibre, certified professionals who had the requisite
expertise in implementing and supporting enterprise IT infrastructure with a wide range of
products and technology exposure.
AutomAtiC vehiCLe LoCAtioN1
AVL was a system that provided up to date location information for emergency vehicles, delivery
trucks, freight trucks, service vehicles, etc. The AVL system primarily consisted of a Global
Positioning System (GPS) receiver on the truck or vehicle, a communications link between the
vehicle and the dispatcher, web-based tracking software and a digital map. Communication
between the GPS receiver and the server could happen via a Global System for Mobile
1
Source: www.vehiclelocationsystem.com retrieved on April 5, 2008.
Novire Technologies: Automatic Vehicle Location 169
Various Kinds of GIS Control Location

Mobile Device server control and
instruction of
Mobile Station LTCS Server mobile stations
GSM
GPS
Antenna Site
Positioning
Satellites
Novire AVL Control Center
GPS GSM
Antenna Antenna
Internet
Novire
GPS-AVL
Device On-Line Map
Satellite GSM/GPRS
Customer’s Computer
Vehicle Novire Control
with Internet
Center
Web Browser
http://www.noviretechnologies.com/
Communications (GSM) or a Code Division Multiple Access (CDMA) network using Short
Message Service (SMS) or General Packet Radio Service (GPRS).
The prime advantages of AVL were:
o Ability to locate and send the nearest vehicle to the customer
o Greater number of pickups and deliveries per day
o Increased on time deliveries
o Increased number of vehicles that a dispatcher could manage
o Tracking report documentation
The beneficiaries of AVL were:
o Transportation: Real time fleet management services
o Emergency Vehicles: Law enforcement, fire and paramedic services
o Utilities: Locating nearest available vehicle to respond to a service
o Delivery services: Courier, newspapers and fast food where prompt customer service was
critical.
The Novire GPS AVL worked on simple network logic. A GPS tracking device was installed in
a vehicle and it was used to record the coordinates. The tracking device had a built in capability
to send messages over the GSM network to NT servers which in turn used the same data to
exhibit on a map. A customer simply needed to login to NT’s website with the unique username
and password to locate their vehicle.
the PiLot ProjeCt meetiNg
Place: Conference room, Time: 11:15 am

Mr Dhaval was sitting in the room accompanied by two executives from ABC, one from Logistics
and the other from Distribution. Mr Kaushik and Mr Aman entered the room.
Kaushik & Aman: Good Morning Mr Verma.
Dhaval: Good Morning!
Kaushik: Sorry for the delay. Mumbai traffic is hell! I can start the presentation right away.
(Mr Kaushik moved to the presentation area and connected his notebook to the
projection equipment. The screen glowed with the slide presentation.)
Kaushik: Well, firstly I would like to congratulate Mr Bansal on the successful completion of the
pilot study conducted on the fleet of five trucks. We tracked five trucks of ABC using our
AVL system. This was done in accordance with the scope of work provided by ABC (shown
in Exhibit 2). In our previous discussions, we discussed the final deliverables and processes
provided (see Exhibit 3 for deliverables agreed by NT). Let me give you a quick overview
of the approach adopted by us while monitoring the fleet.
(Exhibit 4: Approach for the AVL system, on the screen)
It can broadly be categorized under the following heads:
o Identification of the time spent by the truck in the parking bays
o Identification of the time spent inside the plant area
o Understanding the driving pattern of a driver
o Capturing delivery compliance
We tracked five trucks out of which three were bulk trucks and remaining two were bag
trucks.
(Exhibit 5: Analysis of Fleet Utilization, on the screen)
The average utilization of the trucks was close to 20%. Analysis of fleet utilization indicates
a lot of idling time.
Dhaval: May I know what this idle time means? I mean, is it included in the trip or not?
Kaushik: Idle time is the time during which the truck was stationary. So part of idle time is in
the trip i.e. wait at octroi check post, traffic signals, etc. and part of it signifies the time
between trips. It also includes loading and unloading time.
Dhaval: That clarifies it. Thank you!
Kaushik: While the overall utilization is low, for bag trucks, it is even lower.
(Exhibit 6: Trip Analysis, on the screen)
Kaushik: All the trucks were tracked as per the trips and here we see the trip times which are quite
high for bag trucks indicating longer trips or actually more time per trip. Trips/day for
bag trucks are also very less.
Dhaval: Pardon me! The average trip time for bulk truck 764 is 12.28 hrs, while the median is
2.38 hrs. Can you please explain this variation?
Kaushik: This was because the truck took numerous short trips and a few long trips.
Dhaval: Interesting, since we try to avoid using bulk trucks for delivering into the city.
(Exhibit 7: Idle Time Snap Shot, on the screen)
Kaushik: The bar diagram clearly indicates that the idle time for bag trucks was more when compared
to bulk trucks, particularly in the case of bag truck 9778 which had a maximum idle
time of 805.4 hrs, which is mere 13% utilization.
Dhaval: Can you throw some light on the causes behind this observation?
Kaushik: Bag vehicles are responsible for delivery towards south Mumbai customers due to which
they have to follow city driving regulations and cannot move the vehicle at certain times
during the day.
(Exhibit 8: Idling Frequency Analysis, on the screen)
Kaushik: As you can clearly see, around 44% of the idle time is at a single location only.
(Exhibit 9: Locations with Highest Idling, on the screen)
Kaushik: This location was the ABC Bulk Terminal itself. Idling at RMC plants was also significant
and surprisingly, the total idling time in transit was very less. The contribution of all
RMCs was close to 40%.
Dhaval: That’s a finding for sure. We have been blaming the traffic congestion for poor utilization
of our fleet and now I see that the major idling is at the terminal itself.
(Exhibit 10: Time-wise Idling, on the screen)
Kaushik: Idling is maximum between 12 and 16 hrs and this idling is high across all the vehicles,
while the bulk cement vehicles do not enter the city limits. It also indicates that movement
is most optimized during the night and more movement should occur in the night.
(Exhibit 11: Novire Uptime Performance Review, on the screen)
Kaushik: We have been able to provide an uptime of 97.98% across the five vehicles and there were
no incidents of device failure or malfunctioning during this pilot phase.
(Mr Kaushik concluded the presentation, reinforcing the benefits of the AVL to
ABC.)
Dhaval: AVL is quite useful, but I was just wondering about the capital investment required. Do
you have some figures related to the required investment?
(Mr Kaushik searched through his notebook and opened a new presentation containing
cost figures.)
(Exhibit 12: Cost Data, on the screen)
Kaushik: As you can see, the system is not expensive. When we implemented this system on five
trucks, an investment of around `12.5 lakhs was made. If we increase the number of
trucks, we only need to put GPS equipment and a SIM card per truck. The infrastructure
and broadband connection specified will suffice for around 150 trucks.
Dhaval: Impressive and satisfactory. It’s a real value addition, I must say. What are the future
prospects? I mean how flexible is this system?
Kaushik: Well, this system can easily be integrated with other technologies. I think Aman can better
answer this question.
Aman: This system can be tailored to add upcoming technologies like Bluetooth, fuel sensors,
speed sensors and Geofencing at later stages (see Exhibit 13 for information on upcoming
technologies). These technologies can be applied for better utilization of trucks and following
traffic regulations.
Dhaval: That’s great! What about software requirements?
Aman: We supply all the modules and plugins required for the installed hardware. For instance,
we are already developing an application to define routes and enable a routing engine.
Dhaval: Yes. That’s essential for future expansions and optimization possibilities. I would like to
discuss this with my team and get back to you at the earliest.
Kaushik: Please let me know in case of any queries.
Dhaval: Yeah, sure.
(Mr Kaushik and Mr Aman bid adieu to Mr Dhaval after collecting their belongings
and left the room.)
After this session, Mr Dhaval continued the discussion with his executives, raising the following
questions:
o Has the data collected been satisfactory or do we need deeper insights? What additional
variables should be tracked and what additional information would be required by us?
o What more benefits could be drawn after implementing AVL?
o How flexible is the system in terms of upcoming technologies? How easily can new
technologies be integrated into the existing system?
o Has the pilot project on the five trucks been successful enough to implement the system
on the whole fleet?
Exhibit 1
Map of Mumbai Area
A ABC Bulk Terminal

D Deonar RMC
F Mankhurd Railway Station
H JNPT
K Kanjurmarg RMC, Kanjur Railway Station
M Mahul RMC
P Pawne RMC
T Thane RMC
V Vithalbhai Patel Road
Source: Company Data 2008

Exhibit 2
Scope of Work Defined by ABC
Scope of Work Deliverable Process Given Comments by Novire

(Yes/No) (Yes/No)
Turnaround time of a vehicle Yes Yes
Waiting time at yard Yes Yes Georeference
Waiting time within plant Yes Yes Radio Frequency Identifica-
tion (RFID) Suggested
Transit time Yes Yes Way Points
Dealer/depot reporting time Yes Yes Georeference
Dealer/depot release time No No More inputs needed
Return time Yes Yes
Comparison with predefined Yes No Report formats needed
benchmarks
Vehicle-wise summary Yes No Report formats needed
Kilometre reading Yes Yes Inaccuracy with GPS/digital
input
Geofencing facility Yes No
Transporters performance sum- Yes No Report formats needed
mary
Check on secondary diversion Yes No Not in scope for pilot
Provide online facility on location Yes Yes
of vehicles
Route creation and calibration Yes Yes Not in scope for pilot
Exhibit 3
Deliverables Agreed by NT for the Pilot
Deliverables Input Output

No. of trips made per day Define trips (start and end points) Trip-wise report
Define route Daily/Weekly/Monthly
Date/time Vehicle-wise report
Time taken per trip Trip details (start and end points) User defined report format
Details of time taken between Tracking points Time interval and reporting time
tracking points
Cumulative weekly, monthly and No input required. Weekly, monthly reports
up to date reports Data available for reports
Systems live on screen Date/Time/Latitude/Longitude Maps
ETA and route creation Define route Transit deviation in time and
distance
Waiting time in plant RFID based trigger for IN and In plant time sheet
OUT
Exhibit 4
Approach for the AVL System
Identification of the Time Spent by the Truck in the Parking Bay
NT understood from their meeting with ABC that the parking bay was not always part of the plant area;
hence usage of any RFID technology was not possible. What NT could do was Georeference the entire park-
ing bay taking into consideration a tolerance factor of 15%. This meant that if the vehicle was anywhere
around the parking bay + or – 15%, their system would identify the vehicle and tag the vehicle in the parking
bay.
Identification of the Time Spent Inside the Plant Area
Step 1
Despatch Center
In Gate Out Gate
Geo-referenced Parking Area
NT had two options,

a. Use the same Georeference option and mark the factory
b. Use RFID technology
They further analyzed and researched on this topic and found out that Georeferencing would not be a good
idea because a GPS receiver had an inbuilt deviation which meant that they would never have accurate infor-
mation of the vehicle entering their plant. Also, it could happen at times, that the vehicle was standing in the
parking bay but the system would report the vehicle in the plant.
To overcome this problem, NT suggested using RFID technology. Novire’s GPS equipment was inbuilt
with an RFID reader. In this scenario, when the vehicle entered the gate, an active RFID reader would capture
the details from the gate and send it to the control centre. This technology would always give them accurate
information about the truck’s IN and OUT time. They could use these readers from both the gates (if any).
(Besides, the system would automatically change the status of the vehicle from ‘Parked’ to ‘Plant’ once the
vehicle entered the plant, hence providing the logistics manager with absolute clarity.)
(Contd.)
Step 2
RFID
Reader
Understanding the Driving Pattern Step 3

of a Driver RFID Enabled
Out Gate
NT was able to understand all the given
routes for delivery and add way points
on these routes. Every time the truck
crossed this way point, they would get
an intimation in their system. This
would also help them understand the
time taken to travel between two way
points. They were also able to monitor
this data and improvise route/driver ef-
ficiency.
Georeferenced
Way-point
Capturing Delivery Compliance
NT suggested that ABC add their entire
dealer network in their Georeferenced
database. The moment the vehicle ap-
proached the dealer, their system would
identify the dealer and intimate them
Georeferenced
about the arrival. This system had to Dealer Area
be built with a certain amount of toler-
ance level and integrated with the order
system so that the system could wait till
the correct dealer name was thrown up
before it would release the alert.
Step 4
Georeferenced
Parking Area
Georeferenced
Way-point
Georeferenced
dealer Area

Exhibit 5
Analysis of Fleet Utilization
Vehicle Number 764 4202 4340 3890 9778 Total

(Bulk) (Bulk) (Bag) (Bulk) (Bag)
Time Tracked (hrs) 784.54 685.51 629.23 641.05 930.48 3670.81
Days Tracked 32.69 28.56 26.22 26.71 38.77 152.95
Idle Time (hrs) 656.01 470.33 509.04 496.22 805.40 2937.00
Running Time (hrs) 128.53 215.18 120.18 144.42 125.08 733.39
% of Daily Utilization 16.38 31.39 19.10 22.53 13.44 19.98
Total utilization % of Daily utilization
19.97 764
13.44 16.38
80 4202
19.1
31.39 3890
22.53
Idle 4340
Running 9778
Exhibit 6
Trip Analysis
Vehicle Number 764 4202 3890 4340 9778

(Bulk) (Bulk) (Bulk) (Bag) (Bag)
Total No. 48 62 55 20 33
Average (hrs) 12.28 4.04 6.25 22.59 10.42
Median (hrs) 2.38 3.09 2.16 19.45 10.33
Trips/Day 1.47 2.17 2.10 0.75 0.85
Total Trips
764
33 48 4202
20
3890
55 62
4340
9778

Exhibit 7
Idle Time Snapshot
900
805.4
800
700
656.01
600
496.22 509.04
500 470.33
Hrs
Idle
400
Running
300
215.18
200
128.53 144.42
120.18 125.08
100
0
764 4202 3890 4340 9778
Vehicle Number
Exhibit 8
Idling Frequency Analysis
Time No. of Locations Time Spent %

0-20 mins 200 22.05 0.75
20 mins–1 hr 36 23.08 0.79
1–2 37 51.52 1.76
2–4 18 50.34 1.72
4–6 12 54.21 1.85
6–10 13 100.39 3.43
10–50 9 246.40 8.41
50–100 9 1089.37 37.18
100 and above 1 1292.59 44.12
Total 2929.95
Exhibit 9
Locations with Highest Idling
Location Total Time Spent (hrs)
Thane RMC 52.13
Vithalbhai Patel Road, Span Cement 53.28
Kanjurmarg RMC 54.37
Deonar RMC 61.14
Pawne RMC 83.26
Mahul RMC 123.51
Mankhurd Railway Station 127.32
JNPT Port 165.24
Kanjur Railway Station 367.50
ABC Bulk Terminal 1292.59
Total 2380.34
Exhibit 10
Time-wise Idling
(Percentage)
Hrs 764 3890 4202 4340 9778 Average
0–4 7.32 14.72 13.19 8.40 6.72 9.54
4–8 4.15 13.54 11.92 5.39 10.42 8.92
8–12 6.53 11.97 16.38 15.60 20.83 14.52
12–16 63.52 20.92 15.95 31.96 37.92 36.22
16–20 6.56 16.94 17.65 21.02 16.89 15.42
20–24 11.93 21.91 24.90 17.63 7.23 15.39
Total 100 100 100 100 100 100
Idle %
0–4
4–8
8–12
12–16
36.22
16–20
20–24
Exhibit 11
Novire Uptime Performance Review
(Percentage)
Data Polling Interval (min) 764 4202 4340 3890 9778
0–5 95.01 98.42 98.27 98.53 99.71
5–10 3.26 1.00 0.81 1.01 0.22
10–20 0.83 0.25 0.18 0.20 0.01
>20 0.88 0.31 0.72 0.24 0.03
Performance
0–5
5–10
10–20
97.98
>20
Exhibit 12
Cost Data
Type Cost (`)
A GPS equipment 18,247
B Digital map 500,000
C Broadband connection 10,000
D Infrastructure (upto 150 trucks) 552,500
D.1 Air Conditioner 20,000
D.2 Servers (3 are required) 300,000
D.3 UPS 76,000
D.4 Computer 30,000
D.5 Software 120,000
D.6 Switch 6,500
E Cost of buying spares (initially) 150,000
(Contd.)
Type Cost (`)

F Monthly costs
F.1 Broadband charges 2,000
F.2 SIM Charges (per truck) 100
F.3 Salary (4 persons are required) 40,000
F.4 Inventory 3,000
(The above figures do not include the cost of Civil Engineering)

On road cost of truck with a payload of 24 tons = `12 lakhs
On road cost of truck with a payload of 10 tons = `7 lakhs
Exhibit 13
Upcoming Technologies
o Bluetooth: Bluetooth is a wireless protocol utilizing short range communications technology facilitating
both voice and data transmissions over short distances from fixed and/or mobile devices, creating
wireless personal area networks. Bluetooth provides a way to connect and exchange information between
devices such as mobile phones, telephones, laptops, personal computers, printers, GPS receivers, and
digital cameras over a secure, globally unlicensed industrial, Scientific, and Medical 2.4 GHz short
range radio frequency bandwidth.
o Fuel Sensors: These sensors sense the level of fuel in the vehicle and thus can indicate current fuel
levels and fuel consumption over a period of time.
o Speed Sensors: Speed sensors are machines used to detect the speed of an object, usually a transport
vehicle. They include Wheel speed sensors, Speedometers, Pitometer logs, Pitot tubes, Airspeed
indicators and Piezo sensors.
o Geofencing: Geofencing refers to the practice of limiting mobile employees to a specific geographic
location by tracking their whereabouts via the technology of GPS. The premise of geofencing is to
make sure a company’s mobile employees, or rather those that travel locally or drive company vehicles
as part of their job, stay within the boundaries the company deems productive. Companies who
have fleets of company vehicles available to employees are the most likely to employ the concept of
geofencing. Delivery drivers, service technicians, and outside sales representatives are examples of jobs
where geofencing may apply. For geofencing to work, the company’s vehicles must be fitted with a
GPS tracking unit or the employees themselves must carry a wireless phone or other device equipped
with GPS technology. Whenever a given person or vehicle goes somewhere off limits, an alert is sent
back to the company’s monitoring headquarters.
SUGGeSTeD QUeSTIONS
1. Has the data collected through AVL been satisfactory or do we need deeper insights?
What additional variables should be tracked and what additional information would we
need?
2. What would be the additional benefits after implementing the AVL?
3. How flexible was the system in terms of upcoming technologies? How easily can new
technologies be integrated into the existing system?
4. Has the pilot project on the five trucks been successful enough to implement the system
on the whole fleet?
A P P r O A C H f O r A N A LY S I S
The data collected through AVL helped Novire Technologies’ customer, ABC Private Ltd.
(ABC) to determine the average fleet utilization, the location-wise idle time and the time
of day-wise idling. Whether the data available is sufficient or not, however, depends on the
decisions to be made. ABC would ideally like to decide on the route structure, allocation of
truck sizes to a route and the timing of the route. It would also like to monitor the loading
time at the plant and the unloading time at various destinations. Towards this, road segment-
wise time monitoring and time of day-wise travel would be important.
Apart from planning related applications, there would be scope to support such movements
at an operational level through better online coordination. Systems for this need to be
thought through.
To integrate with new technologies, it would be useful to think of all upcoming technologies
and the potential application areas for better decision making. Examples of such technologies
could be Bluetooth, Fuel sensors, Speed sensors, Geofencing, etc.
To work out the implementation feasibility of the system, it would be useful to evaluate the
returns on the investment in the AVL. The analysis would require careful thought on the
relevant revenue and cost additionality.
C as e
8
case conteXt
W ith the expansion in the scale of business operations of its express cargo/
logistics business, Instant Transport Solution Private Limited (ITSPL) was
looking for an IT solution to support its managerial decisions. Initially, ITSPL had
maintained the data pertaining to vehicle tracking, availability of vehicle, location-
wise profit and loss and speeding reports in Excel. However, the data in Excel
could not be integrated with the global positioning system (GPS) and payments
from/to the clients. There was a high possibility of error at the time the data was
entered. Further, the security of data was also a major concern. Considering the
lack of informational support available from the current methods of storing data,
ITSPL was looking for an integrated solution for all its data requirements.
Instant Transport Solution Private Limited
IntroductIon
Instant Transport Solution Private Limited (ITSPL) provided transport solutions in the Express
cargo/logistics segment. Rajbir Singh Chaudhary and his partner started the company with just two
trucks in 2003, which increased to ten trucks in a year. However, the partnership failed in 2005.
Chaudhary continued on his own and between 2005 and 2008, acquired more than 40 trucks. In
2011, Rajbir’s brother, Jasveer Singh joined the company as the CEO. Over the next three years,
from 2011 to 2014, the brothers expanded the number of vehicles to 300 including trucks and
trailers. In 2014–15 they bought another 100 trucks and now wanted to review their operations
in a holistic way to facilitate future growth. While they had largely used a manual system to
manage their operations, some of the information was now available to them on Excel and GPS.
However, with the increase in operations, Jasveer was feeling the pressure of not being able to
keep track of cash flows and the management of truck operations. He wondered whether the
Excel based system was good enough going forward. There were a number of questions that he
had in his mind. Which model(s) of truck had the lowest maintenance cost? Which driver had
the best safe driving record? Which of the clients had a good repayment history? He was not sure
if the current system could answer these questions. These apprehensions were primarily related
to Location, Markets and Customers, Employees, Finance and Operations.
Locations
ITSPL had offices in Chennai, Pantnagar, Bangalore, Pune, Saharanpur, Bilaspur and its head
office in Delhi. Dharuhera and Manesar were its major trucking hubs, especially for trucks going
out of Delhi. 60 per cent of ITSPL routes were major truck routes whereas 40 per cent were local.
Most trucking companies were either in the local or long haul segments, but ITSPL was in both.
Long haul consisted of routes across major cities. Material delivered within the city or deliveries
to and from Delhi to nearby locations covering a radius of nearly 250 kms, such as Meerut and
Ambala were considered local haul.
Prepared by Professor Rekha Jain, Indian Institute of Management, Ahmedabad.

Research support provided by Ms Ajita Shukla and Ms Akshara Anand is acknowledged. The author may have disguised
certain names and other identifying information to protect confidentiality.
Case material of the author is prepared as a basis for class discussion. It is not designed to present illustrations of either
correct or incorrect handling of administrative problems.
Copyright © by Rekha Jain.
Markets and Customers

ITSPL provided all types and sizes of containers to their clients on fixed routes at fixed costs. They
were known for on-time delivery of cargo. The company provided consultancy on distribution/
delivery management, fleet management, load consolidation management, operational cost
handling, etc.
Its clients included express delivery and other companies who supplied components to firms in the
auto sector such as TVS and Nippon. In the express segment, its clients included several leading
logistic companies. The auto companies that TVS and Nippon supplied to were Nissan, Ford,
Yamaha and Bajaj. Most of the companies in the auto sector were Japanese. These companies
gave global contracts for logistics, sometimes including warehousing and transport, to specific
companies, who then worked with domestic companies to provide the logistics. ITSPL worked
as a part of the set of such domestic companies. When these companies expanded, ITSPL’s
business also expanded.
When Jasveer joined the company, the turnover of ITSPL was `5 crore. It was able to grow at
100 per cent every year even when the market was down. This growth could be attributed to
both the brothers who worked hard.
Apart from being reliable, the company had been loyal to its customers. It gave exact information
to its customers about the location of the vehicle when the vehicle was late. This was in a
situation where many truckers either did not have GPS that would enable them to provide
this information or felt that the customer should not be informed when the vehicle was
late.
ITSPL felt that it got good contracts and good companies to work with because of its professional
attitude which was unlike other trucking companies. Many of the trucking companies did
not have educated people to interact with the client. Since a large number of customers were
companies with educated professionals, this lack of education/training made it difficult for ITSPL
to win contracts.
ITSPL claimed that they had maintained their service levels on a continuing basis. Blue Dart
Express informed the case writer that they were very comfortable working with ITSPL. The
placement of vehicles was on time and they were very prompt in their response. The selection
of people for field duty was based on their ability to be responsive to Blue Dart’s needs. The
Blue Dart representative also mentioned that they did not have to seek any tracking information
themselves since ITSPL provided it proactively. ITSPL had a strong maintenance record and
treated their drivers well.
ITSPL always deployed two drivers in each vehicle as per the norms of its clients. Furthermore,
the drivers were not allowed to drive at night and worked only for a specified number of hours.
The Japanese companies were very particular about following norms. For example, if the ITSPL
Instant Transport Solution Private Limited 189
vehicle reached earlier than expected, they were questioned as to how they were able to do so, and
were asked to clarify whether or not any unsafe practices, such as overspeeding or taking short
cuts, had been adopted. On the other hand, courier companies wanted more efficient deliveries
and would be happy if ITSPL could deliver the consignments to them before time.
Employees
ITSPL had staff of 80 people and 500–525 drivers. They had established a customer care centre
and a national number from where the live tracking data and daily MIS were generated. With
the setting up of the HR function formally, ITSPL was required to provide for provident fund,
ESI and GIC. This would lead to an increase in costs. Jasveer felt that this would increase the
prices ITSPL charged its customers.
Finance
ITSPL needed cash every day to buy diesel and pay its drivers for expenses on journeys. For
example, each day, on an average, it bought diesel worth `10 lakhs and spent about `4 to 5
lakhs. ITSPL was a young company and most of the vehicles were still paying EMIs. Jasveer
wanted that payments from the clients and the EMIs should converge for him to manage his
business properly.
Operations
While recruiting its drivers, ITSPL asked them to fill a “joining form” that had basic information,
such as the driver’s name, date of joining, license details, guarantor, etc. Since drivers were selected
by existing drivers who knew them, ITSPL made sure of the credentials by having a guarantor.
After that the truck driver was allocated a truck. The driver was then provided training on how
to drive safely.
Based on their needs, clients indicated their daily requirement of trucks to ITSPL. One staff
member was designated to manage the operations of a single client. Before starting on a trip, the
driver took the truck to a designated petrol-pump from where he got the fuel for the journey.
ITSPL also gave him a pre-decided cash advance for the journey. The cash was required for
incidental expenses and for the payment of various road and freight taxes en route. ITSPL had
designated petrol pumps whose owners/staff were informed about the requirements by telephone.
The amount of diesel for different routes at various petrol pumps had been worked out and was
used to fill the trucks when they arrived.
The petrol pump owner prepared a receipt in triplicate mentioning the cash advance and the
amount of fuel. One copy was retained by the petrol pump owner, the second by the driver and
the third was sent to ITSPL. The petrol pump owner sent an excel sheet with the above details
along with a signed hard copy to ITSPL.
With the increase in its fleet size, ITSPL had set up a workshop for repairing and maintaining
its trucks. Since the information about parts in the workshop was not electronically maintained,
it was difficult to track the availability of parts. Often it bought a part only to find that it was
available on location. The physical stock verification was done once a month.
Jasveer benchmarked the performance of his routes based on the total to and fro distance of
various locations and the total number of trips done. This gave an idea about the distances a
truck could ideally cover. Exhibit 1 shows such a benchmark for the Delhi–Bengaluru route.
Jasveer negotiated the per trip freight price based on a per trip cost based on the above.
A large part of the operational information was stored manually. In addition, ITSPL had GPS
systems that gave the location of the trucks, monitored fuel use and provided information about
overspeeding. ITSPL had acquired a variety of GPS equipment from different vendors. These
were stand-alone systems. Based on a pilot project, ITSPL was able to obtain information from
the overspeeding dashboard and late vehicle information electronically. ITSPL used Tally for
accounting. It stored the following operational information in Excel sheets:
1. Tracking Management System: It stored details ranging from the vehicle number, the driver’s
name to the departure details (Exhibit 2).
2. Daily Vehicle Availability across all Locations: The status and the destination of vehicles on
a particular date were stored (Exhibit 3).
3. Profit and Loss across All Locations: The vehicle-wise monthly expenses and revenue for cal-
culating the profit or loss for the month is shown in Exhibit 4.
4. Overspeed Report: The speed and other details of the vehicles across all locations where they
had oversped were stored (Exhibit 5).
drawbacks of the current system
Jasveer felt that there were several problems with the way he was currently using IT.
The Tracking Management system in Exhibit 2 did not integrate with the GPS. Further, it was
difficult to consolidate and analyse information across various time periods, clients, expected and
actual time of arrival, drivers, trucks, fleet type, etc. This was also not linked to the payments
due or received from clients.
While Exhibit 3 captured the Daily Vehicle Availability at various locations, Jasveer could not
easily consolidate this information across vehicles or locations to find out which of his trucks
spent how much time for loading after unloading, which locations had higher time for loading
after unloading, were there periods during the month/year where the time between unloading
and loading was higher, were there trucks/drivers that had higher time between unloading and
loading and so on.
He was not able to get an overall perspective on the profitability of his operations. While
Exhibit 4 gave him the truck-wise profitability on a monthly basis, he was not able to compare
this on the basis of routes, clients and the age of the truck. It did not give him information
about the maintenance expenditure across trucks and whether long or short haul was more
profitable. He was also not able to match payments received against those due, as clients would
sometimes club two or more payments or pay in parts carrying over the amount due to the next
payment.
Even with the overspeed report (Exhibit 5), he was not able to get the driver-, route- or client-
wise information on overspeeding.
Additionally, these were some other problems he encountered:
o The system used Excel as the database software, where the data was not completely secure.
It did not allow simultaneous multiple user access, and the data was not safeguarded
against erroneous entries.
o It did not keep track of the tyre life cycle.
o Often the data entry was erroneous, repetitive or incomplete or there was missing
information (as shown in Exhibit 2, which had missing information in the Driver column
and Loading Details columns). Similarly, in the overspeed table (Exhibit 5), information
was repeated in rows and was redundant.
o The drivers indicated the kilometres travelled and the expenses incurred, which were
manually entered into a register.
Planned Software
To overcome the above problems, Mr Jasveer planned to obtain new software from a company
known as G-fleet system. The cost was `25,000 for service and installation, `30,000 for
software and hardware cost per location and `125 per month per vehicle for running expenses.
The company would provide a month’s training to the staff and visit weekly for resolution of
problems. This software would also cover the tyre management and maintenance and stock
keeping applications. This requirement had become important especially as ITSPL has also
opened its own workshop and therefore needed to worry about inventory and stock management.
Furthermore, ITSPL had GPS equipment from two different companies which it needed to
integrate. A company called Sobhagaya Enterprises had been able to integrate the fuel sensors
with one of their existing GPS systems. For the old GPS, the payment was `550 per device
per month including service tax. ITSPL did not have to pay any installation charges as they
had negotiated hard. For the new GPS, the price was `3,500 per device + `350 as the service
part.
Before finalizing the details, Mr Jasveer wanted to ensure that G-fleet had understood the data
capture and data flow requirements properly. He wanted the software company to come up
with a broad design of the system in terms of the data to be captured, the processes to be used
and to identify who would be responsible for the data at each stage of the process. Once he had
verified this, he would focus on the workshop computerization.
Exhibit 1
Delhi–Bengaluru Analysis
Total to-and-fro distance

Delhi–Bengaluru 4400 km
Transit time 84–96 hours one way – say 96 hours
Loading time 24 hours (say)
Unloading time 24 hours (say)
Thus, a to-and-fro trip takes 10 days.
Taking 30 days in a month, a truck on this route could cover 3 to-and-fro trips. Since each trip is
approximately 4,400 km, total distance a truck should cover 3*4400 km is 13,000 km.
Source: Internal company documents
Exhibit 2
Tracking Management System
Vehicle Details Loading
Details
Sr. Vehicle Driver Mobile Type Model Fleet From To
No.
1 HR 55 F 3432 THAIR 9730110791 28 FEET MXL LEYLAND STONESYSTEM
2 HR 55 F 3560 NARESH 9818312989 28 FEET MXL LEYLAND STONESYSTEM D.T.S CHN
3 HR 55 F 6596 SHOKIN 9529110818 28 FEET MXL LEYLAND STONESYSTEM
4 HR 55 F 6598 NASHIR 9541229721 28 FEET MXL LEYLAND STONESYSTEM
5 HR 55 N 9179 SANTOSH 9766773764 32 FEET MXL EICHER STONESYSTEM CHN B.K.I 2 POINT
GGN
6 HR 55 N 9180 JAHUL 9649108217 32 FEET MXL EICHER STONESYSTEM CHN FARUK-
N.S.K NAGAR
7 HR 55 N 9181 KHURSHED 9772555761 32 FEET MXL EICHER BRL HOSUR NALAGARH
8 HR 55 N 9182 JAMIL 8890727786 32 FEET MXL EICHER STONESYSTEM TVS JMPL HOSUR
9 HR 55 N 9183 32 FEET MXL EICHER BRL
10 HR 55 P 1572 MANNAN 9813237191 32 FEET MXL EICHER STONESYSTEM CHN T.S D.T.S
11 HR 55 P 1573 ALIM 9772287073 32 FEET MXL EICHER BRL
12 HR 55 P 1574 IKBAL 8502801219 32 FEET MXL EICHER STONESYSTEM TVS JMPL CHN
13 HR 55 P 1575 ARSHAD 9928479910 32 FEET MXL EICHER BRL CHN B.K.I GGN
14 HR 55 P 1576 RAZAK 9813256858 32 FEET MXL EICHER BRL
15 HR 55 P 5729 SHER .MO. 8607436436 32 FEET MXL EICHER STONESYSTEM
16 HR 55 P 5730 GULMUDEEN 9813614935 32 FEET MXL EICHER STONESYSTEM CHN T.S D.T.S
17 HR 55 P 5731 VIKRAM 9017898516 32 FEET MXL EICHER BRL CHN REWARI +
PAND- JMPL
CHERI
HR55 Q 9138 KARTAR 32 FEET MXL EICHER BRL
18 HR 55 Q 9139 SOMASH 9536255053 32 FEET SXL EICHER BRL CHN T.S D.T.S
HR55 Q 9140 NIRANJAN 32 FEET SXL EICHER BRL TVS JMPL CHN
19 HR 55 S 3801 NUR MOH. 8955027109 32 FEET SXL EICHER STONESYSTEM D.T.S CHN
20 HR 55 S 3802 ABDUL 9828121283 32 FEET SXL EICHER STONESYSTEM CHN BAWAL +
FORD JMPL
21 HR 55 S 3803 SAHUHN 32 FEET SXL EICHER PANDA HONDA PATAUDI
22 HR 55 U 0607 JUBER 24 FEET SXL LEYLAND ADL NOIDA PUNE

23 HR 55 U 4144 HASAN 32 FETT MXL MAHINDRA ADL
MOHAMAD

Depart Arrival Time 5:00 AM Location Load/Unload

Date Time Date Time Given Current Remaining At 9 AM Status Remarks Follow
Hrs Hrs Hrs 9 AM Up
(from GPS) BLSP UNLOAD ANURAG
25-Feb-15 9:00 PM 02-Mar-15 9:00 PM 120 8 112 JAIPUR ANURAG
(Trip sheet) 0 CHN T.S NOT UNLOAD ANURAG
0 HOSUR UNLOAD ANURAG
24-Feb-15 5:00 AM 28-Feb-15 9:00 AM 100 48 52 JALGAON ANURAG
22-Feb-15 1:00 AM 27-Feb-15 1:00 AM 120 100 20 BLSP ANURAG
21-Feb-15 7:00 PM 27-Feb-15 5:00 AM 130 106 24 JIND ANURAG
26-Feb-15 5:00 AM 02-Mar-15 9:00 AM 100 100 BAWAL ANURAG

0 CHN FORD NOT UNLOAD ANURAG
26-Feb-15 9:00 AM 03-Mar-15 9:00 AM 120 120 CHN ANURAG
0 CHN UNLOAD ANURAG
25-Feb-15 3:00 AM 29-Feb-15 7:00 AM 100 26 74 CHITORGARH ANURAG
24-Feb-15 4:00 PM 28-Feb-15 8:00 PM 100 37 63 HINGOLI ANURAG
0 CHN ON LOADING ANURAG
0 BLSP ON LOADING ANURAG
23-Feb-15 8:00 PM 28-Feb-15 8:00 PM 120 57 63 SENDHWA ANURAG
25-Feb-15 1:00 AM 29-Feb-15 5:00 AM 100 28 72 NANDED ANURAG
0 CHN FORD ON LOADING

26-Feb-15 3:00 AM 03-Mar-15 3:00 AM 120 2 118 NELLORE ANURAG
24-Feb-15 2:00 PM 28-Feb-15 6:00 PM 100 39 61 JALGAON
22-Feb-15 5:00 PM 27-Feb-15 5:00 PM 120 84 36 BIJAPUR ANURAG
25-Feb-15 1:00 PM 01-Mar-15 5:00 PM 100 16 84 NALGONDA ANURAG
LOCAL 0 BLSP ANURAG

TRIP
0 PUNE ANURAG
0 CHN ON LOADING ANURAG
Exhibit 3
Daily Vehicle Availability across all Locations
Sr. Date Current Vehicle No. Status

No. Location
1 01-Jan-15 Bilaspur HR55S5081 ON MAINTENANCE (ACCIDENTED)
2 01-Jan-15 Bilaspur HR55S5192 NOT UNLOAD REWARI
3 01-Jan-15 Bilaspur HR55S9684 NOT UNLOAD JAMALPUR
4 01-Jan-15 Bilaspur HR55S9905 NOT UNLOAD SEC 37 BREAKS INDIA
5 01-Jan-15 Bilaspur HR55S9906 NOT UNLOAD REWARI
6 01-Jan-15 Bilaspur HR55P1574 ON LOADING JAMALPUR FOR FORD
7 01-Jan-15 Bilaspur HR55N9179 ON LOADING DHARUHERA T.S
8 01-Jan-15 Bilaspur HR55P5729 ON LOADING DHARUHERA T.S
9 01-Jan-15 Bilaspur HR55F6596 ON LOADING DHARUHERA T.S
10 01-Jan-15 Bilaspur HR55R2963 UNLOAD BILASPUR HONDA PROJECT
11 01-Jan-15 Bilaspur HR55F4669 UNLOAD BILASPUR HONDA PROJECT
12 01-Jan-15 Bilaspur HR55S3803 UNLOAD BILASPUR GATI PROJECT
13 01-Jan-15 Bilaspur HR55U0607 UNLOAD AT HOME NUH DHL PROJECT
14 01-Jan-15 Bilaspur DL1GC3408 UNLOAD BILASPUR DHL PROJECT
15 01-Jan-15 Bilaspur DL1GC3422 UNLOAD BILASPUR DHL PROJECT
16 01-Jan-15 Bilaspur HR55T9391 ACCIDENTED (REPAIR WORK GOING ON)
17 01-Jan-15 Chennai HR55S5079 NOT UNLOAD CHENNAI NISAN
19 01-Jan-15 Chennai HR55S5090 NOT UNLOAD CHENNAI FORD
21 01-Jan-15 Chennai HR55S5092 ON LOADING LUKAS FOR PANTNAGAR
22 01-Jan-15 Chennai HR55S5094 ON LOADING PONDICHERI
23 01-Jan-15 Chennai HR55S5193 ON LOADING PONDICHERI
25 01-Jan-15 Chennai HR55S9683 ON LOADING BKI 2ND POINT
26 01-Jan-15 Chennai HR55S9685 ACCIDENTED
30 01-Jan-15 Chennai HR55P1572 UNLOAD CHENNAI T.S
Sr. Date Current Vehicle No. Status

No. Location
31 01-Jan-15 Chennai HR55U7797 NOT UNLOAD CHENNAI NISAN
34 01-Jan-15 Chennai HR55T7406 NOT UNLOAD CHENNAI T.S
35 01-Jan-15 Chennai HR55T9702 NOT UNLOAD CHENNAI FORD
36 01-Jan-15 Chennai HR55T7538 UNLOAD CHENNAI
37 01-Jan-15 Chennai HR55T6747 LOADED FOR PUNE/ SERVICING GOING ON
38 01-Jan-15 Hosur HR55F3432 UNLOAD
39 01-Jan-15 Hosur HR55F3560 NOT UNLOAD HOSUR FEEM COMPANY
40 01-Jan-15 Hosur HR55T9787 UNLOAD
41 01-Jan-15 Hosur HR55T8175 NOT UNLOAD TVS MOTORS
42 01-Jan-15 Hosur HR55T2990 NOT UNLOAD TVS MOTORS
43 01-Jan-15 Hosur HR55U6249 UNLOAD
44 01-Jan-15 Nalagarh HR55U6198 LOADED FOR NALAGARH NOW AT
BILASPUR DUE TO HOLIDAY
46 01-Jan-15 Nalagarh HR55T8869 NOT UNLOAD NALAGARH
47 01-Jan-15 Nalagarh HR55T8454 LOADED FOR NALAGARH NOW AT
49 01-Jan-15 Nalagarh HR55U7591 NOT UNLOAD NALAGARH
51 01-Jan-15 Nalagarh HR55T7728 LOADED FOR NALAGARH NOW AT
53 01-Jan-15 Other HR55S9682 WAITING FOR LOAD IN BANGLORE DHL
54 01-Jan-15 Other HR55U4144 WAITING FOR LOAD IN BANGLORE DHL
55 01-Jan-15 Other HR55U4656 NOT UNLOAD IN BALLABGARH DHL
56 01-Jan-15 Other DL1GC3416 NOT UNLOAD IN BALLABGARH DHL
57 01-Jan-15 Other DL1GC3417 NOT UNLOAD IN BALLABGARH DHL
198
Exhibit 4
Profit and Loss
Fleet 6 chakka
Date From To Total Frieght Cash Cash DSL DSL DSL Mainte- Salary Paper Tyre Entry + Service Remark
Km RSB CHN Bawal Balaji Amount nance Expense Challan
Expense Expense
16050 352870 107600 0 3398 100 201461 6000 0 0 0 8400 24514
15950 328460 76300 10000 2023 120 123717 0 94900 0 33600 5600 0
15750 352870 112000 0 3470 100 205598 0 0 0 0 0 7950
Trucking Business Management
16200 306000 51300 0 1282 50 76774 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 12000 0 0 0 0 3366
Total 63950 1340200 347200 10000 10173 370 607549 18000 94900 0 33600 14000 35830
179121 EMI 232075
PNL -52954
Exhibit 5
Overspeed Report on Daily Basis
Vehicle Tracking Time Address Speed
Number (km/hr)
HR-55-F-6596 Feb 11 2015 4:24AM SH2-Narkatpalli-Addanki-Medarametla Road 96
(State High Way) Guntur Andhra Pradesh India
HR-55-U-4144 Feb 11 2015 7:40AM NH 48 Chitradurga Karnataka India 81
HR-55-U-4144 Feb 11 2015 7:40AM NH 48 Chitradurga Karnataka India 81
HR-55-U-4144 Feb 11 2015 8:10PM National Highway 7 Krishnagiri Tamil Nadu India 86
HR-55-U-3748 Feb 11 2015 1:49AM National Highway 7 Krishnagiri Tamil Nadu India 89
HR-55-P-5731 Feb 11 2015 1:48AM National Highway 7 Krishnagiri Tamil Nadu India 91
HR-55-S-5093 Feb 11 2015 2:23PM National Highway 3 Palasner Dhule Maharashtra India 87
HR-55-S-5093 Feb 11 2015 2:24PM National Highway 3 Palasner Dhule Maharashtra India 81
HR-55-S-5094 Feb 11 2015 6:04AM National Highway 7 Krishnagiri Tamil Nadu India 82
SUGGESTED QUESTIONS
1. What are the data requirements and process flows that Instant Transport Solution
Private Limited (ITSPL) needs to answer the managerial decision questions that it
faces?
2. What factors does ITSPL need to consider before investing in a software solution?
A P P R O A C H F O R A N A Ly S I S
Apart from maintaining the data for tracking/availability of a vehicle, ITSPL needs to have
information to support various business decisions, such as – which model(s) of truck had
the lowest maintenance cost? Which driver had the best safe driving record? Which of the
clients had a good repayment history?
To get this data for operations, it is necessary to come up with a broad design of a system.
For this purpose, it may be necessary to identify the details of one time data and per trip
information. Unlike per trip information, one time data usually changes less frequently and
would include details of the truck, the driver and the customer. The trip information includes
all the details at the loading point, during the trip and at the unloading point.
The information necessary would also include: who would capture the data, at what point
in the operations should the data be input and what should be the device capabilities at the
point of capture? For example, if a driver is responsible for capturing data at the loading and
unloading point, then it is important that he must have a handheld device. Also, at the least,
this device must have the capability to download the data periodically to the main system.
For example, while GPS will provide real-time information regarding the location and other
details of the vehicle, details of taxes paid during the trip may be downloaded at the end of
day. It would be necessary to develop the flow of information along with the source (one
time or per trip) for different types of data, to generate the reports which might enable
decision-making.
While analyzing the choice of software, it is critical to highlight that using Excel for generating
reports may not be appropriate as it is not easy to review/compare the data stored in an
ad-hoc way, across different categories such as trucks, trips, customers. Data in Excel is also
not completely secure. It does not support multiple users and the data is not safeguarded
against erroneous entries (as mentioned in the case).
Additionally, the choice of new software should be guided by the total cost of acquisition
(Capex and Opex) and its ability to integrate data with the GPS data and fuel sensor, take
data from a variety of devices including mobile and handheld devices, generate responses to
ad-hoc queries and provide a secure environment for updating data.
C as e
9
CAse ConteXt
T his case focuses on the issue of additional fleet acquisition by Ispaat Parivahan
Limited (IPL) for its contract obligation fulfilment with Solid Steel Limited.
As per the contract, IPL was to transport overall 15,000 tons per month (tpm)
till July 31, 2015 to the North and West India. But IPL failed to uphold its part of
the contract and fell short of the target for the North. IPL could transport only
12,800 tpm, leading to a penalty payment. To avoid this, the company proposed the
acquisition of more fleet. One of the issues was the additional time due to return
loads. The Board wanted IPL to assess scenarios with and without return loads.
Ispaat Parivahan Limited: Additional Fleet Acquisition
It was September 30, 2014. The Board of IPL was mulling over the purchase of 45 new special
vehicles (Tata LPS 4923) for deployment with Solid Steel Limited (SSL). The capital expenditure
(capex) requirement was `19.44 crore.
IPL was an Indian end to end transport and logistics company, earning revenue of `1712 crore
in 2012-13 from all its operations in India. SSL, an Indian steel manufacturer, had one existing
steel plant at Jamshedpur, Jharkhand which manufactured 9.15 million tons in 2013-14. SSL
had another steel plant, of 6 million tons, scheduled to commission its first phase by March
2015 at Kalinganagar, Odisha.
As per the contract (Exhibit 1) between IPL and SSL, IPLwas to transport steel by road from
Jamshedpur to Delhi, Ghaziabad, Faridabad, Gurgaon and Kushkhera in the North, and Nagpur
in the West, till July 31, 2015. The total steel to be transported was 15,000 tons per month
(tpm). Of this, 12,500 tpm was to be transported to the North and 2,500 tpm to the West.
It was estimated that IPL would earn revenue of around `70 crore per year from the contract
fulfilment. According to company data, as on August 31, 2014, the IPL fleet towards the SSL
contract fulfilment numbered 174 special vehicles, for both the North and West. Out of this,
89 were Tata LPS 4018 (Exhibit 2), having a payload of 24 tons, and 85 were Tata LPS 4923
(Exhibit 3), having a payload of 30 tons. With this fleet, IPL transported 10,300 tpm to the
North and 2500 tpm to the West, resulting in a shortage of 2,200 tpm to the North
As per the contract, the maximum permissible weigh scale (PWS) variation was 0.2% of the
assigned load. The shortage being well above the maximum PWS variation, IPL had to pay a
penalty to SSL at the rate of 1.5 times the freight rate mentioned in the invoice document. The
freight rate in September 2014, as per the price variation clause, was `4110 per ton for the North
and `3238 per ton for the West.
In order to avoid the penalty, the proposal (Exhibit 4) to acquire additional fleet was put
forward. Exhibit 4 gives the approval note as an agenda item placed before the Board Meeting
Prepared by Professor G Raghuram, Indian Institute of Management, Ahmedabad and Mr Souhardhya Chakraborty.
The authors gratefully acknowledge assistance provided by IPL (name changed) and its Board while providing the
necessary information pertaining to the case.
© 2015 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/QM0276) has been reproduced with
permission from Indian Institute of Management, Ahmedabad.
of September 5, 2014, followed by the minutes on this item, and subsequent questions raised
by an Independent Director with the answers provided by IPL.
Some salient features of the contract (Exhibit 1) were:
(i) “IPL is free to operate with/without backhaul for the specialized vehicles deployed for SSL
transportation job subject to fulfilment of service level requirement of SSL.
(ii) The volume mentioned is indicative volume and does not amount to any commitment from
SSL.
(iii) An average payload of 28.5 tons per trip per vehicle would be carried.
(iv) In the event that a new destination, other than the destinations mentioned above, is requested
by SSL, IPL will arrange the movement, maximum within one month time after completion
of all necessary formalities/establishments.
(v) A penalty would be charged for late delivery and weigh scale variation of the consignment.”
IPL and SSL first entered into a contract on May 1, 2010, valid until July 31, 2013 for
transportation of 10,000 tpm. Before the extension of the contract from August 2013, the load
of 10,000 tpm was being comfortably transported with the fleet of 174 special vehicles. Since
August 2013, IPL allocated 45 special vehicles for the West and 129 special vehicles for the
North. Of the 45 vehicles for the West, 32 vehicles carried a return load (RL), and out of the
129 vehicles for the North, 48 vehicles carried an RL. (An RL did not necessarily have to be
from the specific destination to the specific origin. It could also be in the general return direction
from locations near the destination and similarly to locations near the origin.) The performance
with this fleet allocation suffered in the North, where the actual transport fell short of the target
by around 2,200 tons. Exhibit 5 gives details of the load transported from April to July 2014.
All the loads from Jamshedpur in the recent past had been for Faridabad and were expected to
be so in the future also.
IPL had been catering to four RL routes (Exhibit 6) while servicing the North:
(a) Jamshedpur-Faridabad-Rudrapur-Jamshedpur,
(b) Jamshedpur-Faridabad-Rudrapur-Kolkata-Jamshedpur,
(c) Jamshedpur-Faridabad-Panipat-Kolkata-Jamshedpur,
(d) Jamshedpur-Faridabad-Gurgaon-Kolkata-Jamshedpur.
Based on experience, IPL felt that there was an equal chance of getting any of the above RLs.
The company further felt that at least one of the RL possibilities would materialize on each
occasion. From each of these locations, an RL of 30 tons per trip per vehicle (Tata LPS 4923)
was expected. The average rate for RL was `2600 per ton.
Exhibit 7 gives a route map with the locations. Exhibit 8 shows the monthly gross margins
earned on the four routes after deducting variable costs. Exhibit 9 gives the other semi variable
and fixed costs of operation for plying the vehicles.
Ispaat Parivahan Limited: Additional Fleet Acquisition 205
It was expected that one special vehicle would make two round trips per month to the North
with an RL, carrying 30 tons per trip. Based on this, 37 special vehicles (Tata LPS 4923) would
be required to overcome the shortage of 2200 tpm. Keeping in view any other contingencies, IPL
proposed to acquire 45 special vehicles. Capex required per vehicle was `42 lakh for purchase
and `1.2 lakh for insurance and registration. At `43.2 lakh per vehicle, the total capex required
was `19.44 crore for 45 vehicles.
However, the Board Members wanted IPL to assess the following:
(i) Estimation and consequences of the penalty being paid
(ii) Impact of increasing the number of trips per month of each vehicle
(iii) Impact of purchasing new special vehicles which returned to Jamshedpur, with an NRL
(iv) Impact of purchasing new special vehicles which returned to Jamshedpur, with an RL
Based on this, the IPL Board wished to deliberate on the capex requirement, while being
concerned about the performance of the overall fleet.
Questions
1. Which option would you recommend for IPL (including any other you may wish to con-
sider)? Please provide the various item-wise financial implications, including scenarios as
relevant, for the options.
(i) All the vehicles would be plied on a no return load (NRL) basis in an attempt to over-
come the shortage in delivery with the existing fleet.
(ii) Existing fleet continues the pattern of its transportation, and to overcome the shortage
in delivery, new vehicles would be purchased which would be run on NRL basis.
(iii) Existing fleet continues the pattern of its transportation, and to overcome the shortage
in delivery, new vehicles would be purchased which would be run on RL basis.
(iv) The entire existing fleet would be plied on an RL basis, and to overcome the shortage
in delivery new vehicles would be purchased which would also be run on RL basis.
2. Are there assumptions made by IPL that you would like to question?
3. What are the risks and long term considerations while examining the options?
4. Are there specific changes in the clauses of the contract that you would like to propose for
the future?
Exhibit 1
Contract between IPL and SSL
The ‘Operational Terms and Conditions’ and ‘Commercial Terms and Conditions’ of this Contract have
been accepted as set forth hereunder as Part A and Part B.
Scope of Work
This contract is valid from August 01, 2013 to July 31, 2015, for the transportation of Steel by road from
our Jamshedpur Works and Jamshedpur/Adityapur based External Processing Agents (EPAs) to destinations
Delhi, Ghaziabad, Faridabad, Gurgaon & Kushkhera in North region and Nagpur in West region.IPL service
will to transport Steel material for Solid Steel from their Jamshedpur Works to customers located at Delhi,
Ghaziabad, Faridabad, Gurgaon & Kushkhera in North and Nagpur in West. IPL will manage all aspects
of transport service, including supply of trailers, provide MIS reports, scheduling, day-to-day logistics and
supervisory function. IPL will restrain and secure load to the standards required and will conduct all loading
within the legal limits.
Validity
The new contract shall be valid for a period of 24 months from the date of August 1, 2013 until July 31, 2015
with a provision of extension for three years at mutually agreed terms and conditions subject to satisfactory
performance by IPL as per details mentioned in clause no. VI in Part A of this agreement.
Minimum Requirement of the Contract

(i) IPL will ramp up to achieve required volume within three months from the date of the receipt order.
(ii) IPL will submit a Demand Draft of `10 lakhs in favour of Solid Steel Limited before commencement
of the contract which may be forfeited in case of failure to fulfil vehicle commitment within three
months from the date of receipt of the order. If reasons of failure to fulfil the commitment are beyond
control of IPL, the same will be considered on case to case basis.
Transportation Rates
The transportation rates in ` per ton payable shall be as per the rates given below. The rates shall be fixed and
firm for entire period of contract except the revisions under clause nos. VI and X in Part A below. All payment
will be made in Indian rupees and will be payable in India from our Jamshedpur Office. The rate table is as
follows:
Jamshedpur to Delhi/Ghaziabad/Faridabad/Gurgaon/Kushkhera:
o Volume upto 8,500 tpm – `3,795 per ton (from August 1, 2013 till October, 2013)
o Volume 8,501 to 11,700 tpm – `4,230 per ton (from August 1, 2013 till October, 2013)
o Single rate effective post ramp up or three months (whichever is later) – `3,934 per ton
Jamshedpur to Nagpur:
o Volume upto 1,500 tpm – `2,723 per ton (from August 1, 2013 till October, 2013)
o Volume 1,501 to 2,300 tpm – `3,687 per ton (from August 1, 2013 till October, 2013)
o Single rate effective post ramp up or three months (whichever is later) – `3,134 per ton
The base freight rate as mentioned in Sl.No. 3 (`3,934 per ton for Delhi and `3,134 per ton for Nagpur)
are subject to revision as per the Price Variation Clause (PVC) as mentioned in Clause X below after ramp
up period.
Freight rate (`per ton) is based on the distance i.e., 1,375 Km for Delhi and 1000 km for Nagpur from
Jamshedpur to destination cities as mutually agreed by both parties.
IPL is free to operate with/without backhaul for the specialised vehicles deployed for Solid Steel’s transpor-
tation job subject to fulfilment of service level requirement of Solid Steel.
In the event that a new destination, other than the destinations mentioned above, is requested by Mar-
keting & Sales team of Solid Steel, IPL will arrange the movement maximum within one month time after
completion of all necessary formalities/establishments.
PART A – OPeRATIOnAL TeRMS And COndITIOnS
I. despatch Units
The Steel materials shall be transported direct to customers/stock-points/EPAs from Jamshedpur Works &
Jamshedpur based EPAs. It may be noted that new EPAs/stock-points may be added and existing ones may
be deleted depending upon company’s arrangements. Similarly, other destinations may be added to the list of
customers as and when required by Solid Steel.
II. Tonnage to be despatched

Expected average volume to be dispatched will be 12,500 tons per month (tpm) for Delhi/Ghaziabad/Farid-
abad/Gurgaon/Kushkhera (North) and 2,500 tons per month for Nagpur (West) respectively. The volume
mentioned above is indicative volume and does not amount any commitment from Solid Steel.
III. Fleet Requirement

Fleet requirement and load building for individual trip will be the responsibility of IPL to facilitate an average
payload of 28.5 ton. IPL will provide vehicles of different carrying capacities (Model 4923: 33-34 tons, Model
4018: 27-28 tons & Model 3516: 22-23 tons) to arrive at the desired average payload of 28.5 tons. IPL will
start deploying vehicles after receiving the order and will ramp up fully with additional vehicles which will be
adequate to dispatch minimum 15,000 tpm [12,500 tpm for North (Delhi NCR & Kushkhera) and 2,500
tpm West (Nagpur)] from date of receiving the order by three months. Till such time that the ramping up
of vehicle is not complete i.e., within 3 months of getting the order, IPL will forego the KPI review and any
amount payable to them by Solid Steel on account of KPI movement. The actual ramp up is to be initiated
after receiving due clearance from CSD-SSL.
IV. Transit Time
The allowed transit time from Jamshedpur to Delhi/Ghaziabad/Faridabad/Gurgaon/Kushkhera will be 4 days
and for Nagpur will be 3 days, which is sacrosanct and will not be considered as a negotiable factor. However,
performance of IPL in transit compliance would be reviewed against stipulated 3 days (refer Clause VI).
Transit times are arrived at by subtracting GRN date & time from the invoice date & time. The lorry arrival
date and the GRN date & time should be noted in IPL copy of lorry receipt by consignee representative.
Penalty for non-adherence to the transit time will be as per clause no. XI 1.
V. Service Level Requirements

1. 100% materials must be delivered within the specified transit time i.e., 4 days for Delhi/Ghaziabad/
Faridabad/Gurgoan/Kushkhera and 3 days for Nagpur.
2. IPL has to place the vehicles for loading within 24 hrs of issue of stock transfer order (STO)/delivery
order (DO).
(Contd.)
3. 100% materials must be transported in Prairie Wagons type trailer approved by Solid Steel and should
be fully covered during transit. Transporter shall follow the loading norms of Solid Steel and shall
maintain the load restrain as given in the SOP issued by CSD.
4. All vehicles will be equipped with GPS from Solid Steel approved service provider for online consign-
ment tracking.
5. Quality of service delivered should be such that the material delivered to Solid Steel’s customers/stock-
yard should be in the same condition as it was loaded at Jamshedpur.
6. IPL should ensure that materials are packed and covered as per norms defined by Solid Steel before
leaving the Works/EPAs until it reaches the consignee. Any deviation in product packaging during
loading at the loading points at Jamshedpur shall be brought to the notice of Head (Surface Transport)
Customer Service Division (hereinafter referred to as “Head (ST)”) immediately.
7. IPL shall comply with all statutory compliance including the loading of the vehicles in accordance
with the prescribed statutory limit or as notified from time to time under the Indian Motor Vehicles
Act and the rules made there under or any other applicable provision. IPL will be solely responsible for
any violation of the same.
8. Trans-shipment of any material enroute would not be allowed, unless a specific prior written approval
from Head (ST) is obtained.
9. IPL should ensure that their adequate numbers of representatives are available for co-ordination with
Solid Steel round the clock. Their representatives should be adequately trained and competent to carry
out the duties and perform the function in relation to the provision of the services in an efficient, safe
and environmentally conscious manner. Representative should collect the revised/latest Code of Con-
duct, safetynorms, loading norms, etc., from Head (ST) and ensure compliance to the same.
10. IPL will provide uniform and safety items to their drivers as per the safety norms of Solid Steel.
11. Unless specifically asked by Solid Steel, all coils have to be transported in eye-horizontal condition to
prevent edge damage during transit. Coils can be loaded eye-perpendicular to the trailer axles with
prior approval of Head (ST).
12. IPL shall inform Head (ST), as well as the consignee within 12 hrs in the event of enroute breakdown
about the nature of breakdown and likely number of hours of delay for further delivery of the consign-
ment. In case delay is expected to be more than 24 hrs, IPL shall arrange alternative vehicles at their
own cost for despatching the materials, subject to all service level requirements as per clause V.
13. Vehicles loaded with Solid Steel material shall not carry any other material/third party’s materials.
14. IPL shall provide information to Head (ST) about the incoming vehicle in next 48 hrs in advance.
15. IPL should comply with all Solid Steel’s operating requirements such as entry of vehicle details in
VTS, advance information of vehicles,delivery report, etc., as per the advice of Head (ST) from time
to time.
16. In case of product damage enroute, information should be given to Head (ST) immediately, and as per
his advice should be delivered to nearest stockyard. In no case damaged material should reach directly
to the customers.
17. All documents meant for customers should be carried properly in plastic folder.
18. Names, addresses, e-mail ID and contact phone numbers of the authorized representatives duly at-
tested by IPL shall be submitted to the Head (ST) & Head, Logistics & EPA-Commercial, Procure-
ment Division (hereinafter referred to as “Head (LEPAC)”).
VI. Key Performance Indicators & Performance Review

Performance of IPL will be reviewed jointly on a six monthly basis, based on the following Key Performance
Indicators (KPIs), which are segregated into two separate sets:
o Monetary KPIs – Performance variation from agreed target level for these KPIs will have monetary
impact on either IPL or Solid Steel.
o Non-Monetary KPIs – Performance variation from agreed target level for these KPIs will have no
monetary impact on either IPL or Solid Steel, but will be reviewed for the further course of action.
Till such time that the vehicle ramp up is not complete (six months from the date of receipt of the order),
KPI based performance review will be foregone by IPL.
1. Monetary KPIs
The parameters which will be considered as monetary KPIs, base target levels for those parameters,
monetary impact for performance variation & other details are given below:
(a) Daily lifting capacity: 500 tons (North – 415 tons & West – 85 tons)
o Daily lifting capacity for IPL would be 500 tons which will be applicable after three months
from the date of work order/LOI given to IPL or when IPL reaches full capacity as per ramp
up plan provided, whichever is later.
o If the material is not lifted within 24 hours after issue of STO/DO (within daily lifting
capacity, as per ramp up plan) would be penalized @ `40/ton/day for each incidence.
o Penalization for daily lifting capacity on the basis of 500 tons/day would start after 3 months
from the date of order/LOI or volume ramp up to 15000 tpm.
o Example: IPL lifts only 320 tons in a day after 6 months of starting the operation against
issued volume of 360 tons for the day. Balance 15 tons (= 335 - 320) has been lifted by IPL
after 3 days. So total amount to be deducted from freight bill of IPL for this incident = 15
x 40 x 3 = `1800. Additional volume issued to IPL for the day, i.e., 25 tons (= 360 - 335),
would be carried over to next day’s issued volume.
(b) Transit time (3 days)
o Though performance of IPL in transit compliance would be reviewed against stipulated 3
days (for all destinations mentioned earlier), however IPL would be penalized @ `40/ton/
day per incidence for late delivery beyond 4 days of transit period (through SAP system).
o Penalization for this KPI will start volume ramp up of 14000 tpm or 3 months from IPL
receive order for the contract.
o Example: For any incidence when material is delivered after 6 days, where stipulated transit
time is 4 days (without any specially assignable reasons beyond control), then total amount
to be deducted from freight bill of IPL = `40/tons/day x 31.87 tons x (6 - 4) days = `2,550,
where payload for that specific shipment is 31.87 tons.
(c) Average loading time (9 hours - base)
o The average loading time at various loading points inside Solid Steel works/EPAs under the
proposed contract will be 9 hours.
o This KPI will be monitored on a six monthly basis.
o Variation in freight rate due to variation in average loading time will be `9/ton/hr. Loading
time will be calculated from the time vehicle reported at the transport park/EPAs for loading
to vehicle exit from the gate after completing all formalities. The loading data may be verified
from GPS system.
o Compensation/penalization for this KPI will be start after vehicle ramp up period, i.e., after
three months of IPL receiving the work order/LOI. (Contd.)
o If average loading time for the past 6 months is found to be greater than 9 hours in the
half yearly review, then Solid Steel will compensate IPL by credit note. However, if average
loading time is less than 9 hours, then IPL would give rebate to Solid Steel and Solid Steel
will raise a debit note on IPL for the same. The debit/credit note would be based on new
rate and actual volume transported for the period. The compensation/rebate mechanism is
explained below with examples.
o Example: If IPL starts operation from August 1, 2013, then first six-monthly performance
review will be held in February 2014 for the six month period, August 2013 to January 2014.
Case I: If average loading time for the review period is found to be 9.5 hours against base average
loading time of 9 hours, then IPL would be compensated back by issuing credit note as per the
calculations given below:
Increase in average loading time over base loading time = (9.5 – 9) = 0.5 hours.
Adjustment in base freight rate for all destinations except Kushkhera for the next six months
= 0.5 x 9 = `4.5/ton.
Thus freight rate for review period (6 months) for Delhi NCR will change from `3934/ton to
`3939.5/ton.
Finally, Solid Steel to issue a credit note to IPL for the amount = 4.5 (`/ton) x Actual volume
dispatched (ton) in the review period.
Case II: However, if during review it was found that average loading time for the past 6 months
is 8.2 hours, then IPL would give rebate to Solid Steel for lower average loading time and a debit
note will be issued on IPL as per the following calculations:
Reduction in average loading time over base average loading time = (9 - 8.2) = 0.8 hours.
Adjustment in base freight rate for Delhi NCR for the next six months = 0.8 x 9 = ` 7.2/ton.
Thus base freight rate for next 6 months will reduce from ` 3934/ton to ` 3926.8/ton.
Finally, Solid Steel to issue a debit note to IPL for the amount = 7.2 (`/ton) x Actual volume
dispatched (ton) in the review period.
(d) Average Payload (26 ton to 28.5 ton)
o Base average payload will be 26 ton.
o There will be a dead band between quarterly average payload of >= 26 tons to <= 28.5 tons
for which no bonus-penalty provision will be applicable.
o Average payload will be reviewed on a six-monthly basis and if average payload is less than
26 tons, then IPL would be compensated back or if average payload is more than 28.5 tons,
then IPL will pay back to SSL through a mechanism of issuing debit/credit note based on
the following formula:
— For increase/decrease in average payload by 1 ton from base payload of 26 tons/28.5
tons, the transportation rate will increase/decrease by 4% of base rate or part thereof.
— Compensation/penalization for this KPI will start after vehicle ramp up period, i.e.,
after three months of IPL receiving the work order/LOI or volume ramp up whichever
is later. The following equation can be used for calculating impact of variation from
base level for avg. loading time and avg. payload:
R1 = R0 + [(L1 - L0) x 9] + [(W0 - W1) x 4% x R0],
where,
R0 = Base transportation rate (i.e., 3795 `/ton),
R1 = Revised transportation rate for the review period,
L0 = Base loading time (i.e., 9 hours),

L1 = Average loading time for the review period,
W0= Base average payload (i.e., 26 tons if W1 < 26 tons and 28.5 tons if W1 > 28.5
tons),
W1= Average payload for the review period.
2. Non Monetary KPIs
The parameter(s) which will be considered as non monetary KPIs, base target levels for those param-
eters & other details are given below:
(a) Average unloading time – 6 hours (base)
(b) Base average unloading time at stock points/customer premises would be 6 hours.
(c) Unloading time would be reviewed on a six-monthly basis.
(d) If average unloading time increases beyond 6 hours, then next course of action would be mutually
decided between Solid Steel & IPL.
VII. Basis of Freight
1. Unit for freight rates will be `/ton and would be inclusive of all applicable duties, taxes and levies/tolls,
insurance, permits, etc., except service tax. Service tax will be applicable as per law and Solid Steel shall
avail the cenvat credit. Freight rates have been derived on the basis of the KPIs detailed in clause VI
above which will be reviewed on a half yearly basis except transit time.
2. Loading and unloading of Steel material would be done by the consignor & consignee respectively. In
specific cases where IPL required undertaking the unloading of material at the stock yard or consignee,
payment of the unloading charges, if any, will be done by the office of Head (Sales & EPA Accounts)
of Solid Steel based on the certification of expenses by the respective Customer Account Manager
(CAM)/Hub Manager of Solid Steel/EPA Manager. IPL needs to submit all supporting documents
while claiming such expenses.
3. Any octroi payable for inward material to a hub/customer’spremises/EPAs shall be paid for by the
customer and shall be to the customer’s account. Wherever IPL is required to make payment for oc-
troi, the same shall be claimed by IPL from Solid Steel based on invoices raised by them enclosing the
original receipt issued by the octroi authorities (to be certified by the respective Hub managers/CAMs/
RFMs).
4. All transit risks shall be to the account of IPL.
VIII. Rates and Transit Times for new/Add on destinations

Rates and transit times will remain same for the destination falling within a radius of 50 Km from the destina-
tions mentioned in this contract subject to location of the new destination within the same state. The rates fi-
nalised shall be converted to ` per ton per Km and shall be used for calculation of rates for destinations beyond
50 Kms within same state. For destinations which are not in the same state, rate shall be finalized mutually.
IX. diversion/Change in destination as Mentioned in Invoice

Due to changed market conditions and/or any other unavoidable reasons, it might become necessary for
Solid Steel to divert a consignment moving towards any destination to an alternate destination. IPL shall ac-
cordingly ensure delivery to the revised destination. Based on the change of destination indicated, IPL shall
intimate Head (ST)/Regional Hub Manager regarding the revised destination and claim additional charges
for the revision in destination, which shall be settled in contract administration process. If at all, there are any
handling charges in such change over in destination, the same shall also be indicated by IPL duly supported
(Contd.)
by documentary evidence, for consideration. The concerned CAM has to certify the diversion as well as any
handling charges paid by IPL.
X. Revision of Freight Rates due to Price Variation Clauses (PVCs)

The negotiated base transportation rate (mentioned above) will be reviewed once in a quarter to adjust for the
variation of the price of High Speed Diesel (HSD). Transportation rate will also be reviewed once in a year
based on the variation of Wholesale Price Index (WPI). The details of both of these price variation clauses
are given in the subsequent sections. Revised transportation rate based on PVCs will be determined as per the
following formula: Revised Transportation Rate = Base Transportation Rate + Adjustment for diesel price
variation (quarterly) + Adjustment for WPI variation (annually).
1. Price variation clause for diesel
It has been agreed between Solid Steel & IPL that average diesel consumption factor for the vehicles
in the proposed contract will be 3.25 km/litre, considering both onward and return journeys. Base
average diesel price has been agreed to be `51.38/litre for Delhi & NCR and `54.05/litre for Nagpur,
which is simple average of the available high speed diesel (non-branded) prices at locations listed below
as on June 1, 2013 (Source: IOCL website, www.iocl.com as on June 1, 2013).
Base Diesel Price for North (Delhi & NCR and Kushkhera)
Ranchi - 52.50 `/litre
Lucknow - 54.42 `/litre
Delhi - 50.25 `/litre
Raipur - 55.59 `/litre
The mechanism for transportation rate adjustment based on diesel price variation has been explained
below:
o Transportation rates shall be reviewed every quarter and shall be made effective from the first
of the following months (April, July, October & January) for suitable adjustment based on the
actual price (increase/decrease) of diesel and diesel consumption at the end of the quarter. The
new rates would be rounded-up to the nearest whole number in `/ton and shall be made effective
from the first day of the month for the following three month period (i.e., for the quarter). The
new rates so finalized shall remain effective for a period of 3 months.
o In case there is no change in the actual diesel price for period under review, the rate review will
be done at the end of next quarter.
o For a distance of 1375 km, diesel consumption for onward and return journey with average diesel
consumption of 3.25 km/litre = 1375 x 2/3.25 = 846.15 litres.
o At `51.38/litre base diesel price, diesel cost for one round trip = 51.38 x 846.15 = `43,575.
o Diesel component in transportation rate considering average payload of 26 ton and base diesel
price of `51.38 /litre = 43,575 /26 = `1672 /ton.
o For Kushkhera, `135 /ton will be added to the freight rate obtained after adjusting for diesel
price variation to base freight rate.
o Example:
— Simple average of non-branded high speed diesel prices for Ranchi, Lucknow & Delhi as
on October 1, 2013 (sourced from IOCL website) is ` 55.05/litre (assumption).
— Thus diesel cost for one round trip for the quarter July–September 2010 will be = 55.05 x
846.15 = ` 46,581.
— Considering average payload of 26 ton, diesel component in freight rate will be = 46,581/26
= `1791.5 /ton, which is greater by (1791.5 - 1672) = ` 119 /ton from the base diesel cost
component. So the freight rate for Delhi will be ` 4053 /ton (` 3934/ton + `119/ton)
— For Kushkhera, effective transportation rate for the same period after adjusting for diesel price
increase will be (4053 + 135) = ` 4188/ton. These rates will be effective from November 1, 2013.
2. Price Indexation with WPI
The following cost drivers would get an annual increase/decrease based on the variation of Wholesale
Price Index (WPI) from a base WPI level:
(a) Tyre cost,
(b) Driver salary,
(c) Establishment & administrative expenses.
The above mentioned components constitute approximately 15% of the base freight rate i.e., `3934/
ton which would be subject to adjustment due to variation of WPI. Other details of this price variation
clause are given below:
o WPI in consideration is monthly WPI for “All Commodities”, published by the Office of the
Economic Adviser, Ministry of Commerce, Govt. of India (Website: http://eaindustry.nic.in/).
o WPI for the month of April 2013 will be considered as base WPI, which is 171.5 and this will
be considered as base reference figure during the entire tenure of the contract.
o Adjustment for WPI variation in transportation rate will always be done separately from the
adjustment for diesel price variation.
o It is to be noted here that for WPI adjustment, which will be done once in a year, calculation
will always be done considering ` 3934/ton as the base transportation rate for all destinations
during the tenure of the contract.
o Most recently published WPI that is available one month prior to the anniversary date of contract
will be considered for determining movement of WPI from the base WPI of 171.5 (WPI of
April 2013).
o Example:
— First anniversary of the contract started on August 1, 2013 would be on August 1, 2014.
— WPI for July 2014 is 180.41 (assumed).
— Percentage increase in WPI from base level = (180.41 - 171.5)/171.5 = 5.19%.
— Adjustment factor for variation in WPI from base in this case = 15% x 5.19% = 0.779%.
— Adjustment in transportation rate for WPI variation (over base transportation rate) = 0.779%
x 3934 = ` 30.65/ton.
— The revised transportation rate for all destinations (except Kushkhera) from August 2014
will be (3934 + 30.65 ) = ` 3965/ton.
— Revised transportation rate for Kushkhera from August 2014 = (3965 + 135) = ` 4100/ton.
XI. Penalty Provisions
The following penalty provisions will be in force during the tenure of the transportation contract.
1. Late delivery: For delay in delivery compared to the stipulated Transit time, unless the delay in delivery
arises from an event of force majeure or any other cause beyond the reasonable control of IPL, there
shall be a provision of penalty as mentioned in the table below:
Delay (in days) Late Delivery Penalty from the date of invoice
Beyond 4 days `40/- per ton per day for Delhi & NCR
Beyond 3 days `40/- per ton per day for Nagpur
2. Indemnification: IPL will be solely liable and responsible for any violation of any statutory provision
including that mentioned in the above clause V-8 as well as breach of any terms and condition of
this Agreement and shall indemnify Solid Steel against all claims, demand made and/or any penalty/
(Contd.)
interest imposed by any authority or claimed by any third party/customer on Solid Steel including all
expenses incurred or to be incurred or loss suffered by Solid Steel.
3. Solid Steel reserves the right to collect/gather information in any manner, which it may, deems fit and
monitor on a periodic basis towards the compliance of the above by IPL. In case of non-compliance
by IPL, Solid Steel may take appropriate action against any such breach/violation of the terms and
conditions of this Agreement, against IPL after serving due written notice in this regard.
4. Damage to consignment: In case of damage to all or part of the consignment, IPL shall compensate
Solid Steel for that damage up to a maximum of the invoice value of the consignment.
5. Lost consignments: Subject to clause 8 in relation to weigh scale variations, where part or all of a con-
signment is lost between the time of loading and unloading IPL shall compensate Solid Steel for that
damage @ 1.5 times of invoice value of the consignment.
6. Loss/wrong delivery of documents: There would be penalty of `2000/- for any instance of loss of
documents, wrong delivery of document (e.g., wrong vehicle no. in way bill and TC copy of other
party etc.). In addition, the excise value as appearing in the invoice would be recovered from the bills
of IPL till the revised documentation enables the consignee to credit to its account the relevant CEN-
VAT amount. Adequate care shall be taken by IPL to ensure cautious carriage of documents in transit
since these would be ownership documents along with excise documents, which are very important for
subsequent transactions.
7. Unauthorized trans-shipment: Unauthorized trans-shipment of material will attract a penalty of
`20000/- per incident.
8. Weigh scale variation: Permissible weigh scale variation shall be limited to a maximum 0.2%. For
shortages beyond permissible limits, the value of shortfall in tonnage at 1.5 times the rate mentioned
in the invoice document (CAI) plus the applicable taxes & duties and proportionate freight amount
shall be recovered from IPL’s freight bill.
9. Violation of safety COC and security norms: In case of violation of any safety/COC/security norms,
the penalties will be applicable as per the Solid Steel rules circulated from time to time and all subse-
quent updating.
10. Risk purchase: In the event of failure to place the vehicles for lifting the material issued to IPL as per
advance information, Solid Steel shall be at liberty to engage any other agency to transport the material
by any mode of transportation and recover the differential amount from IPL’s bill.
11. Third party’s material: In case vehicle loaded with Solid Steel material carry any other material/third
party’s material, in addition to the penalty for damage caused to the product, the freight bill for that
consignment will not be payable to the transporter.
12. Non use of GPS: In case of vehicle running without GPS, a penalty of `100/- per day shall be levied.
In case of break-down or non functioning of GPS, no complaint with regards to higher unloading time
and detention shall be entertained.
13. Improper/inadequate covering: Covering/collapsible hood should be in proper condition at all times.
Violation on this account will attract a penalty of `5000/- per incident.
PART B – COMMeRCIAL TeRMS And COndITIOnS
I. Certification of Receipt of Material

In case of direct dispatches to customers, the receipts will have to be certified by the customers and scanned
copy of LR will have to be sent to Customer Account Manager (CAM) through mail for approval. The Goods
Receipt Note (GRN) will be raised by the office of Head (Sales & EPA Accounts) based on the certification
of receipts by the customer. In case of stock transfer to the stockyards/EPAs, the transportation bills would
require to be certified on the bill format by the Hub Manager/authorized signatory of Solid Steel, who will
also raise the GRN.
II. Submission of Bills

Freight bills will be computed on the net weight of the consignment as mentioned in the CAI (Combined
Advice-cum-Invoice) except for Cold Rolled (CR) sheets/packets which would be paid on gross weight (i.e.,
inclusive of weight of packing material). The bills should be submitted to Head (Sales & EPA Accounts)
through Solid Steel web site along with scanned copy of the LRs and hard copy in the format finalized by
them or as directed by them.
III. Terms of Payment
Payments would be made within 15 days from the date of receipt of bills, duly supported by consignment
receipt note, to the office of Head (Sales & EPA accounts), Jamshedpur.
IV. Security deposit

IPL will arrange to furnish a bank guarantee (BG) of ` 25 lakhs or 1% of yearly order value whichever is higher
from any of the Nationalized bank/Scheduled banks (approved by RBI) in favor of Solid Steel Limited in the
format to be provided by Solid Steel, directly from their banker to be sent to Head (Sales & EPA accounts),
Solid Steel, General Office Building, Commercial Centre, Jamshedpur which should be valid till the validity
of contract plus six month claim period. In case of failure in respect to any of the terms & conditions, BG will
be forfeited in full or in part depending on the severity of failure as per Solid Steel’s discretion.
V. Contract Administration
Grievances for genuine claims pertaining to various operational issues such as waiver of penalty, deduction on
account of shortage, accidents, etc., shall be resolved on half yearly basis through a contract administration
committee defined as under:
1. SSL representatives – Chief Procurement, Chief CSD, Chief (MRO & SS), Head (LEPAC), Head
(ST), Head (SS)
2. IPL representatives – Director, Proprietor, Senior Executives of IPL must put their grievance in writing
to Head (ST), who would be the convener of the above committee, within one month from the date
of delivery otherwise their request will not be entertained. Decision of the committee shall be binding
on both IPL and SSL.
VI. Compliance to Safety, Security & Statutory norms
1. IPL must comply with the Solid Steel’s Safety, Security, and Statutory norms and abide by the same.
2. All representatives of IPL who enter Solid Steel premises should undertake appropriate induction and
training programs in respect of the relevant safety and Security and Statutory standards as may be
required from time to time.
3. All vehicles should comply with the safety and environmental standards as per statutory norms and as
defined by Solid Steel. Order Continuation Sheet
VII. Code of Conduct

IPL will sign the “Code of Conduct” formulated by Solid Steel. In case of violation, the penalties (including
suspension/blacklisting) will be applicable as per the Solid Steel rules and any subsequent updation for
performing contractual obligations under this contract. (Contd.)
VIII. Termination of Contract

1. Termination for cause: Solid Steel will monitor the performance of IPL against the Key Performance
Indicators (KPI’s) which shall be agreed by the parties from time to time. Where IPL fails materially
to meet the KPIs in any quarter (having regard to the frequency, impact and nature of the failures) the
parties agree to meet to discuss the reasons for the failures and the steps that can be taken to improve
compliance with the KPI’s. In the event that, subsequent to these discussions and implementation of
any agreed remedial steps, IPL fails to implement a performance improvement plan Solid Steel may
give IPL notice of termination for cause. Solid Steel will monitor the compliance to fundamental ser-
vice level requirement. On failure to adhere to fundamental service level requirement for two consecu-
tive reviews Solid Steel may give notice of termination for cause.
2. Termination for convenience: Solid Steel acknowledges that IPL will make a significant capital invest-
ment in order to provide services to Solid Steel pursuant to this contract. Where the scope of work
contemplated by this contract is affected by changes to the operations of Solid Steel such as the closure
or relocation of any plants or termination of contracts with Solid Steel customers, the parties will meet
and Solid Steel must provide alternate vehicle utilization within its business so that there is no detri-
ment to IPL.
3. Termination in case of bankruptcy/insolvency/winding up: If transporter becomes insolvent and
bankrupt, faces with winding up proceedings by appointment of official liquidator; Solid Steel is at
liberty to terminate the contract forthwith without assigning any reason. In such cases, Solid Steel shall
have the right to receive damage/compensation from IPL.
IX. Arbitration
1. All disputes and/or differences that might at any time arise by and between the parties hereto or in
relation to or touching upon any aspect of this agreement shall first be settled mutually by negotiations
between themselves.
2. In case no settlement can be arrived at within the period of 30 days from the date of raising the dispute
in writing by any party, the dispute or difference shall be referred to a Sole Arbitrator, if both the par-
ties agree upon the same. In case it is not agreed to, the dispute or differences will be referred to three
arbitrators, each party appointing one on its behalf and the two arbitrators so appointed by the parties
shall, before entering upon the reference, appoint the third arbitrator who shall act as the presiding
arbitrator. The provisions of Arbitration and Conciliation Act, 1996 and the amendments made from
time to time and the rules prescribed there under shall be applied. The venue of arbitration shall be at
Jamshedpur, Jharkhand, India.
X. Jurisdiction
Solid Steel and IPL hereby agree that any dispute or difference of any nature in this agreement, whether im-
plied or explicit, shall be adjudicated upon by a competent Court at Jamshedpur, in the State of Jharkhand.
The applicable laws of India shall be binding between parties.
XI. Force Majeure

The failure or delay to perform any obligations under this agreement by either party solely by reason of Act of
God, acts of government, riots, wars, revolts, fire, flood, sabotage, strike (including Bandh), lockout, closure of
plant (part or full) for economic or other reasons or other causes beyond its reasonable control (Force Majeure)
shall not be deemed to be a breach of this agreement. Either party failing to perform its obligation due to the
reason of Force Majeure shall serve notice in writing to other party of such Force Majeure as soon as possible
within 3 (three) days after its concurrence. Party failing because of Force Majeure to perform its obligation
will, upon the cessation of Force Majeure, take all reasonable steps within its power to resume, with the least
possible delay and comply with its obligations. If the Force Majeure continues for more than 180 days then
both the parties shall decide in writing to short close the contract settling their respective dues in terms of the
agreement.
XII. non Assignment and non Subcontracting
IPL shall not assign or sublet or subcontract this agreement or any part thereof or any of their obligations to
any other party without prior written approval obtained from Solid Steel. However the agreement between
IPL and Solid Steel is non exclusive and Solid Steel may assign its obligation under this contract or part thereof
to any other party due to financial reasons or unsatisfactory performance of IPL.
XIII. Consequential Loss

Neither party shall be responsible to other party towards any consequential, indirect loss or loss of profit under
this Agreement.
Contract Item Service Conditions:
Unit Price/Tons INR
Item Charges
Delivery Terms: For each unloading point you need to give separate challans.
Payment Term: 100% within 15 days of submission of Challan & Invoice to department head
Order Ceiling Value: 593,500,000.00 INR
Collection Centre :
To bring about improvements in the logistics system inside Works, and strengthening the road safety stan-
dards, following safety measures are implemented for any work inside the steel works, with effect from Sep-
tember 1, 2008:
1. All 4 wheelers must have seat belts on the rear seat, and persons sitting on the rear seats must fasten the
seat belts.
2. The speed limit on main roads reduced to 35 kmph. Accordingly, the speed monitoring camera shall
be set at 35 kmph. The existing speed limit of 16 kmph on the other roads shall remain unchanged.
Plant: 9000 Miscellaneous Plant
General Instructions: Sales tax in no case will be borne by the Steel Company.
SA8000 (Social Accountability) Norms: It is mandatory for you as Contractor/Transporter/Supplier/any
other kind of service provider to Solid Steel to comply with SA8000 norms as per the check list submitted by
you to us. Non-compliance of the same, detected at any point of time may lead to cancellation of order or any
other action or both as deemed fit by Solid Steel.
For Solid Steel Limited
Mr X; Authorised Signatory
Print Date: August 21, 2013
Source: Company data
Exhibit 2
Tata LPS 4018
engine
Model Tata Cummins B 5.9 BSIII
Max. Engine Output 179 HP @ 2500 rpm
Max. Torque 675 Nm @ 1400-1600 rpm
Clutch
Type Single plate Dry friction Push type
Size 380 mm Diameter
Gear Box
Model Tata G - 750 with Twin Synchro cone
No. of Gears 6 Forward, 1 Reverse
Rear Axle
Model Heavy Duty Single reduction Axle
Front Axle
Type Heavy Duty Forged I Beam, Reverse Elliot Type
Steering
Type Hydraulic assisted Power Steering
Ratio 20.2:1
Brakes
Service Brakes Full Air S Cam Brake System
Chassis Frame
Type Best-in-class ladder type Heavy Duty Frame with riveted/bolted cross
members
Size Frame 285 mm x 65 mm x 7 mm
Suspension
Front Semi Elliptical Leaf Spring
Rear Semi Elliptical Leaf Spring
Tyres
Size 10.00 R 20 - 16 PR Radial Tyres - Primover
Fuel Tank
Capacity 400 ltrs Single Rectangular Tank
Cabin/Cowl
Cabin All Steel Full Forward Control Sleeper Cabin
electrical System
System Voltage 24 Volts
Alternator Capacity 45 Amps
Performance
Max. climbing ability 19.69%
Max. speed in top gear 70 kmph
Weight
Max. permissible GVW 40200 Kgs
Vehicle Kerb Weight 14150 Kgs (Appox.): 24 Cum 15620 Kgs (Appox.): 28 Cum
Cost `34,00,000
Source: Retrieved from http://www.construck.tatamotors.com/tip-trailers/lps-4018.aspx on November 04, 2014

Exhibit 3
Tata LPS 4923
engine
Model Tata Cummins B 5.9 BSIII
Max. Engine Output 215 Hp @ 2400 rpm
Max. Torque 835 Nm @ 1300 -1500 rpm
Clutch
Type Single plate Dry friction Push type
Size 380 mm Diameter
Gear Box
Model Tata G - 1150 9 Speed Gearbox with CRAWLER gear
No. of Gears 9 Forward, 1 Reverse
Rear Axle
Model Heavy Duty Single Reduction Axle
Front Axle
Type Heavy Duty Forged I Beam, Reverse Elliot Type
Steering
Type Hydraulic assisted Power Steering
Ratio 20.2:1
Brakes
Service Brakes Full Air S Cam Brake System
Chassis Frame
Type Best-in-class ladder type Heavy Duty Frame with riveted/bolted cross
members
Size Frame 285 mm x 65 mm x 7 mm
Suspension
Front Semi Elliptical Leaf Spring
Rear Bogie Suspension
Tyres
Size 10.00 R 20 - 16 PR Radial Tyres - Primover
Fuel Tank
Capacity 600 Ltrs (2 x 300)
Cabin/Cowl
Cabin All Steel Full Forward Control Sleeper Cabin
electrical System
System Voltage 24 Volts
Alternator Capacity 45 Amps
Performance
Max. climbing ability 23.00%
Max speed in top gear 82.6 kmph
Weight
Max. permissible GVW 49000 Kgs
Vehicle Kerb Weight 17900 Kgs (Appox.): 28 Cum, 18320 Kgs (Appox.): 32 Cum
Price `43,20,000
Source: Retrieved from http://www.construck.tatamotors.com/tip-trailers/lps-4923.aspx on November 04, 2014

Exhibit 4
Proposal to the Board of IPL
(i) Approval note in connection with purchase of 45 new special vehicles to support return load
from delhi nCR to maximize the profitability
(Source: Annexure forming part of the Board agenda for the meeting dated September 5, 2014, IPL)
“Background: On May 1, 2010, we were awarded by Solid Steel to lift 10,000 ton through special vehicles.
This contract was valid upto July 31, 2013. This contract was renewed further upto July 31, 2015 for lifting of
15,000 ton per month. On past performance and with mutual understanding, it is agreed for further extension
of this contract for three more years with increased rate and quantity.
We had to lift 15000 ton per month but with existing 174 special vehicles we could only manage to lift
12800 ton (based on average from April 2014 to July 2014). To cope up with shortage of 2200 ton (15000 ton
– 12800 ton) we need more special vehicles. Presently we plan to go for 45 new vehicles and we may proceed
further with more buying considering the performance and handling pressure from Solid Steel.
An investment of `19.44 Crore is required to execute the project. To describe further, `18.90 Crore is
needed for purchase of vehicles and `54 lakh will be paid for Insurance & Registration of these vehicles.”
(ii) Proposal for purchase of 45 number of 4923 special vehicles with investment of `18 crores for
deployment with SSL to ensure maximum return load
(Source: Minutes of Board Meeting dated September 5, 2014, IPL)
“The Company Secretary apprised that the projection sheet has been deliberated to the Capital Expenditure
(Capex) Committee as well as to the Board Members. Capex proposal is the Reserved Board matter wherein
approval of Private Equity (PE) partner is required. The Board was apprised that the query has been raised by
Shri AB as to the past performance under the contract as compared to the projection, Project IRR, Payback
period, ROCE, Cash flow analysis, Debt Equity ratio post approval of the Capex. The Chairman desired that
there is the Work order term in the Work order issued by SSL wherein Company has to carry load of 15,000
tpm. However, due to inadequate fleet strength full load was not being carried resulting which Company has
to pay penalty on monthly basis.
The Company Secretary apprised that Capex Committee and the Board had already approved Capex in
last FY. However the same was not incurred due to recessionary trend and thereafter there was the discussion
in the Fleet Committee, Capex Committee and the Board to take decisions for new Capex post review of the
Fleet performance. The Chairman desired that apart from PE members, other members should share their
views to which Shri CD desired that the fleet data based on the project including consignment margin and
profit through hired vehicles as part of the work order should be shared. All Independent Directors shared
their views in favour of the proposal keeping in view the work order requirement; however desired that the
financial viability as sought by PE should also be evaluated. The Company Secretary was advised to share the
financial viability with the Capex Committee as well to the Board.
It was decided that the proposal of Capex will be put up in the next Board Meeting.”
----------------------------------------------------------------------------------------------------------------
After the aforementioned meeting on September 5, 2014, one of the Independent Directors asked the fol-
lowing questions (questions in bold and answers received in italics):
1. Basis for current fleet deployment of 174 vehicles, with planned time for each circuit. What is
the actual time for each circuit, with reasons for variation?
Reply: All these 174 vehicles are deployed on Jamshedpur to Delhi-NCR & Nagpur route. Month wise brief
description of vehicle’s deployment on these routes has been displayed in below chart. Scheduled time for each route
is fixed for 4 days. Based on above chart average Timely Delivery percentage for JMS - Delhi NCR route is 84% &
for JMS-NGP route is 68%.
Jamshedpur (JMS) to delhi nCR

Month Timely not Timely Total Timely
delivery delivered Consignments delivery (%)
April 2014 322 51 373 86
May 2014 271 38 309 88
June 2014 311 52 363 86
July 2014 291 68 359 81
August 2014 298 88 386 77
JMS to nagpur (nGP)

Month Timely not Timely Total Timely
delivery delivered Consignments delivery (%)
April 2014 100 20 120 83
May 2014 66 34 100 66
June 2014 60 28 88 68
July 2014 62 32 104 60
August 2014 60 34 94 64
2. Price we get from SSL, our operating cost on fleet and investment cost for the current fleet.
Reply: We are operating at two routes; detail for both the routes is as follows:
(i) JMS to Delhi NCR
— Price @ ` 4,110, Operating cost: @ ` 39,150 for 4018 & @ ` 44,550 for 4923
(ii) JMS to NGP
— Price @ ` 3,238, Operating cost @ ` 34,550 for 4018 & @ ` 39,550 for 4923
3. do we need more fleet to meet our commitment, even if we return empty?

Reply: SSL’s work order is manageable with 174 vehicles but we will have to compromise with empty return
resulting loss of ` 1.57 Crore.
4. If return load is an opportunity, what is the additional time for the circuits? Hence, additional
fleet required? Additional income, costs and investment?
Reply:
(i) Opportunities at Gurgaon, Panipat, Haridwar and Rudrapur.
(ii) As far as additional time is concerned, Panipat and Gurgaon will be managed on same day while Haridwar
and Rudrapur may take one day extra time. (Contd.)
(iii) Presently we are managing 174 vehicles doing 474 trips per month, of which 160 trips had a return load.
After addition of new fleet of 45 vehicles 4923), total vehicles will be 219. We plan to retain the 174 ve-
hicle’s schedule unchanged and 100% return load for 45 new vehicles.
(iv) Revenue generation, additional income, cost and investment for current and next FY (already circulated and
discussed in earlier meetings.
5. What are the risks on the return load assumption? Feasibility of guarantees?
Reply: Opportunities at Gurgaon, Panipat, Haridwar and Rudrapur was widely discussed in fleet meeting and it is
resolved that there is plenty of opportunity of getting full load every time.
6. Are there long term issues which will affect the vehicle productivity?
Reply: The prospects are positive:
(i) RTO issue might be sorted out soon.
RTOs will be scrapped soon, says Gadkari1

Posted on August 19, 2014 by TNN
PUNE: Union minister of road transport and highways Nitin Gadkari on Monday said the central govern-
ment was in the process of bringing in a law to scrap regional transport offices (RTO) and replacing them
with an efficient alternative system in the next few months. Gadkari, who was delivering the J. S. Karandikar
memorial lecture organized by the Pune Union of Working Journalists (PUWJ) here, said, “There are some
outdated laws and systems which need to be scrapped. Systems like RTOs will soon be abolished; there is no
need for RTOs. We have prepared a law which will be introduced soon to replace RTOs.” Alleging harassment
of citizens at the RTOs, Gadkari said, “Tithe Laxmi darshan acha khel chalto (money rules there).”
(ii) GST implementation would ease operations.
India makes progress on GST implementation2

Posted on August 22, 2014 by India Briefing
DELHI: India moved closer towards implementing a Goods and Services Tax (GST) with the conclusion of
the latest meeting by the Empowered Committee of State Finance Ministers this Wednesday. While numer-
ous hurdles remain, central and state Finance Ministers agreed on several important items that are expected
to speed up the implementation process. The proposed GST will replace several existing taxes, including the
central level excise tax and service tax, and state level VAT, entertainment tax, lottery tax and electricity duty,
with one single tax, thus facilitating the consolidation of a single market across the country and allowing for
greater supply chain efficiency and economies of scale. Full implementation of GST could raise India’s GDP
growth by 0.9 to 1.7 percent, according to the National Council of Applied Economic Research (NCAER).
1
Source: Excerpted from an article dated August 19, 2014 on the Times of India website -http://timesofindia.
indiatimes.com/india/RTOs-will-be-scrapped-soon-says-Gadkari/articleshow/40383360.cms - Retrieved on
November 6, 2014
2
Source: Excerpted from an article dated August 22, 2014 on the India Briefing website - http://www.india-briefing.
com/news/indian-gst-deal-paves-tax-reforms-8938.html/ - Retrieved on November 6, 2014
Exhibit 5
Load Transported by IPL
April to July 2014

destination Vehicle no. of Weight carried (per no. of trips Total weight
vehicles tripper vehicle) from per vehicle carried per
Jamshedpur (tons) per month month (tons)
RL
North 4018 10 24 2 480
North 4923 38 30 2 2,280
West 4018 31 24 2 1,488
West 4923 1 30 2 60
nRL
North 4018 35 24 3.4 2,856
North 4923 46 30 3.4 4,692
West 4018 13 24 3 936
Total 174 12,792
Hurdles to increasing the number of round trips in a month

(Source: Observations by IPL from daily tracking)
(a) On the trip up north, vehicle held and delayed by RTO at Uttar Pradesh.
(b) The route to the west passes through a hilly area, for around 250 km in Chhattisgarh, traversing which
causes delay.
(c) Night driving is avoided in Chhattisgarh because of Naxal threat.
(d) Drivers’ personal issues.
Exhibit 6
Route Details
Jamshedpur to Faridabad to Rudrapur to Jamshedpur

From To Load per vehicle (tons) distance (km)
JMS FBD 30 1350
FBD RDR 280
RDR JMS 30 1250
Total distance - 2880
Jamshedpur to Faridabad to Rudrapur to Kolkata to Jamshedpur
JMS FBD 30 1350
FBD RDR 280
RDR KLK 30 1375
KLK JMS 250
Jamshedpur to Faridabad to Panipat to Kolkata to Jamshedpur

JMS FBD 30 1350
FBD PNP 150
PNP KLK 30 1600
KLK JMS 250
Jamshedpur to Faridabad to Gurgaon to Kolkata to Jamshedpur

JMS FBD 30 1350
FBD GGN 80
GGN KLK 30 1550
KLK JMS 250
Source: Annexure forming part of the Board agenda for the meeting dated November 5, 2014, IPL
Exhibit 7
Route Map
F: Faridabad G: Gurgaon J: Jamshedpur K: Kolkata

Ispaat Parivahan Limited: Additional Fleet Acquisition
N: Nagpur P: Panipat R: Rudrapur

Source: Self compiled from Google Earth Map not to scale
227
228
Exhibit 8
Routewise Monthly Gross Margins
1 2 3 4 5 6 7 8 9 10 11
From To Load distance Freight Total freight Variable Total Gross no. of Monthly gross
carried (km) rate per trip (`) cost1 variable margin per trips margin per
per trip per (col 3 x col 5) per km cost (`) trip (`) per vehicle (`)
(tons) ton (`) (`) (col 4 x col 7) (col 6- col 8) month (col 9 x col 10)
Jamshedpur-Faridabad-Rudrapur-Jamshedpur
JMS FBD 30 1,350 4,110 1,23,300 33.0 44,550
Trucking Business Management
FBD RDR 280 21.5 6,020

RDR JMS 30 1,250 2,600 78,000 33.0 41,250
Total 2,01,300 91,820 1,09,480 2 2,18,960
Jamshedpur-Faridabad-Rudrapur-Kolkata-Jamshedpur
JMS FBD 30 1,350 4,110 1,23,300 33.0 44,550
FBD RDR 280 21.5 6,020
RDR KLK 30 1,375 2,600 78,000 33.0 45,375
KLK JMS 250 21.5 5,375
Total 2,01,300 1,01,320 99,980 2 1,99,960
Jamshedpur-Faridabad-Panipat-Kolkata-Jamshedpur
JMS FBD 30 1,350 4,110 1,23,300 33.0 44,550
FBD PNP 150 21.5 3,225
PNP KLK 30 1,600 2,600 78,000 33.0 52,800
KLK JMS 2,50 21.5 5,375
Total 2,01,300 1,05,950 95,350 2 1,90,700
Jamshedpur-Faridabad-Gurgaon-Kolkata-Jamshedpur
JMS FBD 30 1,350 4,110 1,21,500 33.0 44,550
FBD GGN 80 21.5 1,720
GGN KLK 30 1,550 2,600 78,000 33.0 51,150
KLK JMS 250 21.5 5,375
Total 2,01,300 1,02,795 98,505 2 1,97,010
1
Variable Cost includes fuel and expenses for driver.
Source: Annexure forming part of the Board agenda for the meeting dated November 5, 2014, IPL
Exhibit 9
Other Costs of Operation
Monthly route characteristic based semi variable cost per vehicle (`)
Vehicle Carrying destination no. of trips General Tyre Total
per vehicle expenses cost
4923 RL North 2 15,000 27,000 42,000
West 2 12,000 18,000 30,000
NRL North 3.4 15,000 30,900 45,900
West — 12,000 20,200 32,200
4018 RL North 2 15,000 20,000 35,000
West 2 12,000 15,000 27,000
NRL North 3.4 15,000 24,700 39,700
West 3 12,000 16,200 28,200
Monthly fixed costs per vehicle (`)

Vehicle driver Maintenance Insurance Tax Interest depreciation Total
salary cost
4923 20,000 15,000 5,600 4,200 22,750 42,000 1,09,550
4018 20,000 11,800 4,400 3,300 17,900 33,000 90,400
SUGGeSTed QUeSTIOnS
1. Which option of investment would you recommend for Ispaat Parivahan Limited (IPL)?
Please provide the various item-wise financial implications, including scenarios as relevant,
for the options.
2. Are there assumptions made by IPL that you would like to question?
3. What are the risks and long-term considerations while examining the options?
4. Are there specific changes that you would like to propose in the clauses of the contract
for the future?
A P P R O A C H F O R A n A Ly S I S
Optimizing the use of the truck for the return load would be an objective for IPL, while
the customer, Solid Steel Limited (SSL), would like to ensure a minimum throughput on a
fleet that they are familiar and comfortable with. While the contract penalizes a reduced
throughput, it is okay with IPL bringing return loads. In this context, it is important to decide
how much additional fleet IPL should acquire and what would be the expected returns.
A possible step-by-step scenario build up could be:
i. All the vehicles would be plied on a No Return Load (NRL) basis in an attempt to
overcome the shortage in delivery with the existing fleet.
ii. The existing fleet continues the pattern of its transportation, and to overcome the
shortage in delivery, new vehicles would be purchased which would be run on an NRL
basis.
iii. The existing fleet continues the pattern of its transportation, and to overcome the
shortage in delivery, new vehicles would be purchased which would be run on a Return
Load (RL) basis.
iv. The entire existing fleet would be plied on an RL basis, and to overcome the shortage
in delivery, new vehicles would be purchased, which would also be run on RL basis.
As per the above structure, it would help IPL first analyze the implications of plying the
current fleet on an NRL basis. This obviously comes at a revenue loss for IPL. On the other
hand, with the existing fleet continuing to operate the available return loads, the option
of purchasing additional fleet to take care of achieving the guaranteed throughput can be
assessed. This additional fleet could be run with or without a return load. Finally, the option
of the entire fleet (current and to be acquired) operating with a return load can be examined.
Apart from the revenues and costs it would be important to examine the risks in each of
the scenarios. The analysis gets more involved since (i) there are two destinations to which
SSL is sending the goods, (ii) there are two types of trucks, and (iii) the cost structure has
fixed, semi-variable and variable costs.
It would help to develop a spreadsheet model that can support the analysis of the scenarios.
Going forward, it is important to recognize that SSL is expanding and hence offers an
opportunity for more traffic. At the same time, it may be important to consider what clauses
of the contract need to be negotiated better for a win-win situation.
C as e
10
CASE CONTEXT
X YZ Trucking Company is one of India’s largest transport and logistics

companies with a geographically spread business. The company has branches
at various locations including major industrial towns and port cities of India. A case
of misappropriation of funds came to light at the Koraput branch. The management
quickly followed up with an investigation, both internally and through an external
professional auditing company. The matter was reported to the Board. With the
help of Board Minutes, the case describes the events that follow this discovery
of misappropriation of funds at the Koraput branch. The Board and management
were concerned in terms of the actions to be taken, both with specific reference to
this misappropriation and to evolve systems that would prevent such occurrences
in future.
XYZ Trucking Company:
Misappropriation of Company Funds
XYZ Trucking Company was one of India’s largest transport and logistics companies. The
company had a fleet of 400 owned vehicles and access to over 80,000 trucks through a network
of reliable vendors. Its turnover for FY 2011–12 was around `1,200 crore. The company head
office was located at Manesar in Haryana.
The company was keen to have good corporate governance practices and professionalize its
management. Given the nature of a geographically spread business and empowerment at the
local level, there had been occasional instances of misappropriation of funds. With a focus on
transparency, the company Board was finalising an explanation regarding the misappropriation
of funds to be mentioned in the 2011–12 Directors’ report to the shareholders. Exhibit 1 gives
the minutes of the 177th Board Meeting on this matter.
On 8 May, 2012 another case of misappropriation came to light. An email was sent by the
Executive Director (ED) to all the Directors and the top management on Tuesday, 9 May,
2012 as below:
“From: TS Radhakrishnan [tsr@xyz.com]
Sent: Tuesday 9 May 2012 7:24 am
To: All the Directors and Top Management
Subject: Koraput fraud, running to several lakh may touch over a crore?
Matter needs to be examined in depth as to our systems and controls. Koraput Branch booking,
remittance of funds, systems and procedure. Mr Raj who is on the run, whom was he reportable?
What kind of smell test was applied by his reporting authority? Checks on lorry hire and balance
hire (from same branch ratio). Do we think that a guy who draws less than `10000 pm is the only
one? Can there be others involved? What was his behaviour or spending pattern and what kind of
mechanism we have to check conduct? An indebted man is target for corruption and malpractice!!!
Internal control mechanism and independent inspection audit and quality cell needs to be in
place. A team needs to be put in place from corporate office to control. The Auditing Company
(TAC) or others to be contacted for ANTI FRAUD detection. Even a team of 20–25 with process
Compiled by Professor G Raghuram, Indian Institute of Management, Ahmedabad.

Assistance provided by Mr Vijay Magdum is acknowledged. All names, locations and some of the data have been
masked to protect sensitivities.
Case material of the author is prepared as a basis for class discussion. It is not designed to present illustrations of either
correct or incorrect handling of administrative problems.
Copyright © by G Raghuram.
plan to control and mitigate these risks is worthwhile. Initially external independent agency to
be hired in the best interest of stakeholders and report of any smell test and system lapses, loose
controls should be documented to Chairman and Managing Director (CMD) and AUDIT
COMMITTEE. A seamless process is recommended with no interference or overbearing approach
by any official regardless of level. Please send your views to CMD directly.
Business Units (BUs) have their limitations beyond a point, and hence endeavour should be to
facilitate from CORP/HEAD OFFICE.
Maybe a buy in from BU be required and we need to think beyond the ‘know all syndrome’.
Corporate office under directions of CMD will have to deal with this hands-on without fear or
favour. Size of company today is too large and you can see the receivables.
This, hopefully, is not the tip of iceberg.
I am aware that more than me the Whole Time Directors (WTDs) would be concerned and
would favour their kind and thoughtful advice.
Sincerely yours,
TS Radhakrishnan
EXECUTIVE DIRECTOR, XYZ Company”
On the same day, the CMD appointed an Inquiry Committee headed by Vishnu Vardhan, Vice
President (VP) (Operations) to investigate the matter. Accordingly, the agenda for the 177th
Board Meeting to be held on 29 June 2012 was sent as below.
177th Board Meeting Agenda, Dated 29/6/2012

“To apprise on fraud at Koraput branch and action taken by the management so far:
Explanation: As apprised the Board members vide mail of CMD and ED dated 09.05.2012,
a fraud was noticed at Koraput branch in Orissa with respect to lorry hire payment.
Fraud is estimated to be touching over a crore (cr) as per verbal discussion and appraisal
of director overseeing. Checking process is continuing as learnt. Earlier, it was hovering
around `14.8 lakh. FIR got lodged. As per CMD’s directions, matter is getting investigated
from various angles and pursued by all concerned for further action as per law in making
amends to FIR and on jurisdiction of police station for speedy investigation and nabbing
the culprit(s). CMD has also appointed an inquiry committee of senior officials headed
by Mr Vishnu Vardhan, VP, to understand to the modus operandi for further internal
management controls besides bringing culprit(s) to book.
XYZ Trucking Company: Misappropriation of Company Funds 235
The investigation is still on and CMD will apprise on the status during the meeting.”
On 17 June, 2012 the Investigation Committee submitted its report to the Management (Exhibit
2). This matter continued to be discussed until the 180th Board Meeting. The extracts of the
relevant agenda and minutes of the 177th, 178th, 179th and 180th Board Meetings are presented
below.
177th Board Meeting Minutes, Dated 29/6/2012

“Appraisal on fraud at Koraput branch and action taken by the management so far:
Explanation: The Board was apprised that the investigation into the acts of misappropriation,
embezzlement of company funds and siphoning out funds from company accounts by putting
through fictitious vehicle hiring/deployment vouchers in the system by Mr Raj Kumar during his
posting as branch in-charge at Koraput branch has been conducted, and abridged report based on
investigation made by the team headed by Mr Vishnu Vardhan, VP, on instruction of CMD was
placed on the table. Board took note of the fraud amounting to `1.07 cr as summarized below:
No. Particulars Amount (`)

1. Fake Lorry Hiring 87,45,850
2. Cash Embezzlement 19,35,791
3. Manipulation of Expenses/Fixed Assets 31,661
Total 1,07,13,302
Board was further apprised that Koraput branch is functioning under the control of
Vishakhapatnam Regional office and mainly caters to transportation needs of Rayagada Industries
Ltd (RIL). Mr Raj Kumar joined the company as loading supervisor on 01.05.2008 at Raipur
branch at a monthly CTC of ` 4000 but was shifted within 15 days to Koraput branch where
he has been working since 16th May 2008. Mr Raj Kumar was promoted as branch in-charge,
within less than 2 years wef 1st April 2010. His last drawn net salary was `10,000 and he was
granted annual increment of `1500 wef 1st April 2012. As per the report, Mr Raj Kumar was
also handling cash in addition to engaging of vehicles through truck unions and other brokers
and supervising loading as well. The feeding of vouchers into the system was done at Rayagada
branch but the billing, etc., was being done by Mr Raj in connivance with Mr Sridhar Reddy, SAP
Operator. Holding independent charge of the branch without much experience and performing
all job single handedly, with no one to supervise his day-to-day activities; he was tempted to
commit all these irregularities which went on unchecked for undue long period resulting into
substantial loss to the company.
Board was further apprised that besides the involvement of 3 staff members of Koraput/Rayagada
branch as per the report, around 10 outsiders were also involved in this fraud, as the amount
has been routed through their accounts, as per the report. CMD observed that FIR has been
lodged and efforts are on with the police authorities to trace the culprit.
Board members deliberated on the root cause of such a major fraud requiring immediate steps
to review the internal control system in the company. Mr RK Singhal desired that the concerned
BU head should take reasonable steps for recovery of the fraud amount and put the persons
behind bars. While deliberating the root cause of the fraud, independent directors requested the
WTD to ensure the following:
o Surprise Cash Verification must be done on periodical basis, every quarter. Cheque
operation at all branch account should be done on joint operation with signature of 2
persons.
o Maker-checker concept should be introduced and single cash operation should be avoided.
o Fidelity insurance should be comprehensively covered so that fraud amount could be
recovered from the insurance company.
After deliberation, it was decided that the WTD, namely, Mr RL Mittal and Mr NK Mittal will
study the investigation report and will submit the report to the Board in 3 months’ time with
steps taken to recover the amount.
While discussing the matter, Mr Ganesh Kumar observed that the Board should also be apprised
on missing consignment details periodically. Company Secretary was advised to ensure the same.”

Explanation: The Board was apprised on the matter of fraud during its last meeting. The vigilance
team has conducted the enquiries. Apart from internal enquiry, forensic team of the third party
reviewer (TAC) has been appointed to investigate the fraud. The first cut report from TAC team
is expected by 31.12.2012, which will be circulated to the Board.”

Explanation: The Board was apprised that further to the investigation into the acts of
misappropriation, embezzlement of company funds and siphoning out funds from company
accounts by putting through fictitious vehicle hiring/deployment vouchers in the system by Mr
Raj Kumar during his posting as branch in-charge at Koraput branch having been conducted by
the in-house team, the forensic team of TAC was also engaged to investigate the fraud, and to
determine if there is evidence to confirm the embezzlements identified in internal investigation
report. Scope also includes determining the nature and extent of the misconduct and identifying
the modus operandi adopted. Besides, it attempts to identify additional person(s) involved in
perpetration of such misconduct, and, identify weakness in the existing control environment
and potential areas of improvement with recommendations.
The Board members enquired that the WTD, namely, Mr RL Mittal and Mr NK Mittal were
advised to study the investigation report to the Board in 3 months’ time with steps taken to
recover the amount. In this connection, Mr NK Mittal observed that as TAC has been appointed
and they are already investigating the matter, once the report comes from TAC, they will study
and submit to the Board. The Board members enquired on the status of FIR lodged by the
company to which Mr NK Mittal replied that no accused have been arrested till date. CMD
observed that contact details of all accused were provided in the FIR and as the accused are
yet to be arrested, the officials of the company have been asked to dedicatedly pursue with the
police officials. Mr RL Mittal observed that ED/CS should make continuous follow-up with
the WTDs to whom the Board has assigned the responsibility. Mr NK Mittal observed that key
decisions being taken at the corporate office should be brought to the notice of WTDs, which
was appreciated by CMD and he assured that the same will be ensured.
The Board was further apprised on the first cut report from TAC team based on which their
key findings/observations are as under:
o Cash withdrawal not accounted in the book
o Cash embezzlement
o Fake invoices issued on biggest customer ‘RIL’
o The balance confirmation/ledger details for other major customers for Koraput branch
is still pending.
The Board was apprised on the potential control weakness as per the initial report of TAC, as
under:
o In December 2011 and January 2012, Koraput branch maintained average cash balance
of `10 lakh to `12 lakh. However, no request was made to branch office for deposit of
excess cash in bank account.
o It was noticed that cheque deposited in bank in the beginning of July 2012 continued to
appear as outstanding entries in July 2012 and August 2012 bank reconciliation. Timely
bank reconciliation would have helped in identifying such fictitious transactions.
o Daily cash requirement is given by branch manager and no supporting documents are
provided for estimation of expenses (No sales order or confirmation from customer sent
to HO for cash requirement).
o Customer orders are received by branch manager over the phone only, no formal process
of receipt of customer orders is in place. No tracking mechanism to identify any potential
fictitious sales orders.
o Sourcing of lorry is done by branch manager; rates are though decided by union (Fixed
Rates). However, no control over charges paid to driver for lorry hire or unloading.
o Payment to lorry provider is not supported by third-party evidence. Even receipt of money
from union was also not enclosed with challans.
o At the time of updation of work order issued by customer to XYZ in SAP, contract value
and quantity was not entered into SAP.
o No formal process of account/debtor reconciliation in places.
o Copy consignment notes acknowledged by consignee were available in 30 per cent cases
only.
Mr AK Upadhyaya observed that nothing new has come in the present report and once the
final report/recommendation comes, the Board should review the same. It was decided to make
collaborative exercise and improve the internal control to avoid such incidents in future.”

Explanation: The ED Mr TS Radhakrishnan visited Koraput on 18.01.2013 on advice of CMD
and met Deputy Inspector General (DIG) along with the company officials. The fraud case
and remittances by Raj Kumar was explained in detail to the DIG. The DIG was requested to
depute a police investigation team from Koraput for arrest of accomplices in close cooperation of
Haryana police (Bhiwani) to yield the desired results in unearthing the nexus in such magnitude
of massive fraud and cheating and bring culprits to book. The DIG assured that he would refer
and lodge complaint with Economic Offence Wing (EOW) Bhubaneswar on this as the crime
is an economic offense under their purview beyond one crore and would explore possibility of
sending members of Koraput police team. The Chief Vigilance Officer of our company is co-
ordinating for the same and will be apprised on the latest status report during the meeting.”

Explanation: Mr TS Radhakrishnan, ED apprised the board that he visited Koraput on 18.01.2013
on advice of CMD and met DIG along with the company officials and the fraud case and
remittances by Raj Kumar were explained in detail to the DIG. The DIG was requested to depute
a police investigation team from Koraput for the arrest of accomplices in close cooperation of
Haryana Police (Bhiwani) to yield the desired results in unearthing the nexus in such magnitude
of massive fraud and cheating and bring culprits to book. The DIG assured that he would refer
and lodge complaint with Economic Offense Wing (EOW) Bhubaneswar on this as the crime
is an economic offense under their purview beyond one crore and would explore possibility of
sending members of Koraput police team. The Chief Vigilance Officer of our company is co-
ordinating for the same.
CMD observed that regular follow ups with the police authorities are required and action plan
for the same will be put up in the next board meeting for discussion.”

Explanation: TAC has submitted its final report. As per the report, they have observed that on
scrutiny of documents, records and review of cashbook maintained at branch and bank statement
for Koraput Branch, funds amounting to `106.80 lakh were fraudulently misappropriated by
suspected employee. The break-up of total funds embezzled by the suspected employee is under:
o Physical cash balance, lying at branch as on 31 July 2012 amounting to `7.45 lakh, was
embezzled by suspected employee.
o Suspected employee fraudulently made withdrawals from the bank between 31st July 2012
and 13th August 2012 amounting to `11.90 lakh. It appears that these cash withdrawals
were intentionally not even recorded in cashbook at branch and were subsequently
embezzled by the suspected employee.
o Suspected employee recorded fictitious revenue for key customer ‘RIL’ and against these
sales invoices he recorded fictitious expenses in relation to vehicle hiring, unloading
expenses and detention charges in branch books amounting to `87.90 lakh. He
misappropriated the cash generated against payments for these fictitious expenses.
Final report has been received last week and based on their key findings, discussion with CMD and
WTDs will take place on the corrective action to be taken, which the Board will be apprised of.”
Exhibit 3 gives the summary of observations of the TAC report.

Explanation: Mr TS Radhakrishnan, ED apprised the board that TAC has submitted its final
report. As per the report, they have observed that on scrutiny of documents, records and review
of cashbook maintained at branch and bank statement for Koraput branch, funds amounting to
`106.80 lakh were fraudulently misappropriated by suspected employee.
The break-up of total funds embezzled by the suspected employee is as under:
o Physical cash balance lying at branch as on 31 July 2012 amounting to `7.45 lakh was
o Suspected employee fraudulently made withdrawals between 31st July 2012 and 13th
August 2012 amounting to `11.90 lakh from bank. It appears that these cash withdrawals
were intentionally not even recorded in cashbook at branch and were subsequently
o Suspected employee recorded fictitious revenue for key customer ‘RIL’ and against these
sales invoices he recorded fictitious expenses in relation to vehicle hiring, unloading
expenses and detention charges in branch books amounting to `87.45 lakh. He
misappropriated the cash generated against payments for these fictitious expenses.
He further apprised that the matter is being followed up through all concerned. TAC report and
earlier advice of audit team are being followed by governance and finance in close coordination
with IT for leveraging IT on line. BUs can introspect and finance requires closer scrutiny with
checks inbuilt in the system.
Mr RK Singhal raised his serious concern on the fraud that no accurate action has been taken so
for ED agreed that there had been control lapses in the system. With effective due diligence, the
fraud of such gravity would not have taken places. CMD advised to make best possible efforts
to punish the culprits.”
The meeting ended with the Board asking for a report from the management for actions they
would take specific to this incident, and to prevent any such occurrences in the future.
Abbreviations
BU Business Unit
CMD Chairman and Managing Director
CS Company Secretary
CTC Cost to Company
DIG Deputy Inspector General
ED Executive Director
ERP Enterprise Resource Planning
HO Head Office
RIL Rayagada Industries Limited
SAP System Application Products
TAC The Auditing Company
VP Vice President
WTD Whole Time Director
Exhibit 1
“The staff at three branches of XYZ Company has misappropriated funds amounting to `7,99,032 during
the year under audit. It was decided to mention the following explanation in the Directors’ report to the
shareholders.
Explanation: During the year under report, few instances have been noticed to the management pertaining to
the theft and embezzlement. As your company has switched over to SAP ERP during the FY 2011–12, some of
the validation tool was under testing phase leading to delay in reporting to the management on the fraudulent
activity by some of the staff member leading to embezzlement. While action has been taken by terminating
the concerned employee and efforts are being made to recover the amount stolen or pertaining to fraud/
embezzlement from the concerned employee/insurance agencies, management has taken it very seriously and
has been taking the corrective steps in this regard. Internal control system is being strengthened by making
strict control through SAP ERP. Validation tools are being monitored by corporate IT team on regular basis
through exception reports and required validation is being placed. Branch audit is already in places as a part of
internal audit at the major locations and branch auditor has been advised to make periodical audit as deterrent
measures. Surprise visit by the management and senior officials at the branches and checking of cash and
updation of cash and equivalent transactions.”
Exhibit 2
Investigation Committee Report
1. FrAuDs AllegeDlY CoMMiTTeD BY Mr rAj KuMAr,

BrANCh iN-ChArge, KorAPuT BrANCh
The investigation into the acts of misappropriation, embezzlement of company funds and siphoning out funds
from company accounts by putting through fictitious vehicle hiring/deployment vouchers in the system by Mr
Raj Kumar during his posting as branch in-charge at Koraput branch has been conducted by the undersigned
in compliance with the instructions received from Chairman and Managing Director (CMD).
1.1 Focus of the investigation
(i)Modus operandi adopted by the employee(s)
(ii)Crystallizing the amount of fraud
(iii)System failures resulting in late detection of frauds committed by him over a period of time
(iv) Identification of loopholes in the system which facilitated and tempted the employee to go ahead with
his nefarious acts without being detected
(v) Identification of the culprits who shared the loot and joined hands with the employee
(vi) Outlining the suggestions for consideration of the management to plug these loopholes to the extent
possible which coupled with preventive vigilance to be exercised by supervisors at all levels to avoid
recurrence of such frauds.
(Contd.)
1.1.1
Apart from the above, another aspect of the fraud noticed during investigation has also been looked into
to crystalize the amount of loss sustained by the company due to siphoning out of amounts on fictitious
consignments where bill payments were shown to have been received in cash at Koraput and/or other places.
This amount does not include the interest loss suffered on the amounts temporarily misappropriated out of
cash in hand (as the same cannot be detected now).
1.1.2
During the course of investigation, the following reports were generated from the system and physical records
available at HO Manesar and Koraput branch were used:
(i) List of 282 fake consignments
(ii) List of 148 fake challans
(iii) List of 26 bills outstanding
(iv) List of bills where payment advices were fake
(v) List of bills where cash payments were received from consignees.
1.1.3
In addition to it, the following members of the staff and outsiders are connected with the case who remained
in touch with Raj for facilitating the fraud as evident from call details and their banks accounts having cross
entries from each other accounts as discussed elsewhere in this report:
(i) Staff:
1. Mr Ramesh Kumar, Branch In-charge, Rayagada
2. Mr Mukesh Kumar, Loading Staff, Koraput Branch
3. Mr Sridhar Reddy, SAP Operator at Rayagada
(ii) Outsiders:
1. Mr Amit Soni
2. Mr Sohil Singh
3. Mr Dharmender
4. Mr Ranveer Kumar
5. Mr Raj Kumar
6. Mr Rajesh Kumar
7. Mr Sanjay Mehta
8. Mr Puneet Kumar
9. Mr Pradeep
1.2 Brief history

The Koraput branch is functioning at MG Road, Koraput, District Koraput in Orissa, under the control of
Vishakhapatnam Regional office and mainly caters to transportation needs of Rayagada Industries Ltd.
Mr Raj Kumar joined the company as loading supervisor on 01.05.2008 at Raipur branch on the
recommendations of Mr Dinesh Kumar and reference of Mr Dharmender Singh (Raj’s brother) at a monthly
CTC of `4000 but was shifted within 15 days to Koraput branch where he has been working since 16th
May 2008. His bio-data and joining applications are placed below. Mr Raj Kumar was promoted as Branch
In-charge, within less than 2 years wef 1st January 2010. His last drawn net salary was `10,000 and he was
granted annual increment of `1500 wef 1st January 2012.
Mr Mukesh Kumar was posted to assist him in Feb 2011 and both these employees continued to work
together up to December 11. Thereafter, Mukesh proceeded on 2–3 months’ leave and reported back in May
2012.
Mr Raj Kumar was also handling cash in addition to engaging of vehicles through truck unions and other
brokers and supervising loading as well. The feeding of vouchers into the system was done at Rayagada branch
but the billing, etc., was being done by Mr Raj in connivance with Mr Sridhar Reddy, SAP Operator. Holding
independent charge of the Branch without much experience and performing all job singlehandedly with no
one to supervise his day-to-day activities, he was tempted to commit all these irregularities which went on
unchecked for undue long period resulting in substantial loss to the company.
1.3 MoDus oPerANDi
1.3.1 Fake hiring of vehicles

(i) Mr Raj Kumar prepared fake lorry hire advance vouchers, consignment notes, and challans, and put
them through the system as genuine entries.
(ii) The lorry hire vouchers were entered in cash statements and their amounts pocketed as no vehicles
were ever hired.
(iii) After normal transit period, the receivings were marked off against these CNs and balance payments
with unloading and detention charges claimed and pocketed.
(iv) The payments from the parties were shown to have been received in cash at Koraput from the following
clients which is quite unusual in transport sector when the parties were established at centres far away
from booking branch:
Date of receipt Amount remarks

of Payment (`)
05.12.2011 55,000 Tata Nagar
05.12.2011 2,35,848 Bilaspur
12.12.2011 1,43,989 Bilaspur
02.12.2011 4,14,549 Cash Recd. from ________ Bilaspur but Invoices are raised
for_____________, Bilaspur
08.03.2012 1,88,177 Cash Recd. from_________, Bilaspur but Invoices are
raised for __________, Bilaspur
09.03.2012 1,82,106 Cash Recd. From_________, Jabalpur
12,19,669
From above transactions, it is clear that amounts were drawn by putting through fake lorry hire
advance & balance vouchers and mis-utilised. On due dates of payment of bills raised against these
clients, cash amounts were deposited to hide these transactions from the company. It is improbable
that the consignees established at Jabalpur, Tata Nagar and Bilaspur came all the way to Koraput to
deposit cash.
(Contd.)
(v) A number of cash/transfer entries in bank accounts of the employee and his associates Mr Ramesh
Kumar Singh, Amit Soni and Sohil, as per tables given below, lead ample evidence to prove that cash
amounts given to them by him were returned when he needed for showing cash payments of bills.
(vi) In some of the cases where funds for payment of bills could not be arranged by the employee, fake
payment advices were prepared and put through in the system by Raj Kumar. During reconciliation of
accounts with Banks, when bank credit entries corresponding to those shown in payment advices were
not located, the fraud came to light.
(vii) Between 21.11.11 and 09.03.12, the employee Raj Kumar prepared 282 CNs included them in 148
challans and generated 62 bills for aggregate amount of `87,10,387 out of which fake payment advices
were fed for `40,98,171 and remaining were shown as outstanding.
(viii) Amount of loss due to fake lorry hiring
In the process of issuing fake lorry hire advance/balance payment vouchers, Mr Raj pocketed a total
amount of `87,45,850 as per break up given below. Cash discount amount of `87,550 has been
subtracted from total hiring charges.
No. Particulars Amount (`)

1 Lorry hire advance 49,18,820
2 Other advance 31,71,400
3 Balance payments 5,89,980
4 Unloading charges 1,33,200
5 Detention charges 20,000
Total 88,33,400
Cash discount to be deducted 87,550
Net Loss 87,45,850
1.3.2 Mis-appropriation of company’s cash

(i) The company’s cash came into the custody of Mr Raj Kumar:
a. by obtaining payments of cheques drawn on bank account
b. on some occasions by credit into his personal accounts (an irregular practice adopted for the sake
of convenience) by Vishakhapatnam and other branches.
c. by putting through fake lorry hire advance and balance payment voucher in the system.
(ii) He transferred heavy amounts aggregate `45,70,525 into his 4 bank accounts over a period of 1.5.11
to 2.5.12.
(iii) He remitted funds by ATM funds transfers to persons not connected with the company in any manner.
In these accounts heavy cash deposits were also noticed which are believed to have been remitted by
Mr Raj by other modes.
(iv) Out of total credits aggregating `45, 70,525 in the above accounts, ATM transfers from the account
Mr Amit Soni (A/c No ______) account for `2,91,000 and cash deposit at Rohtak, Dadri and Jhajjar
add up to `5,72,000 which clearly define his mala fide intentions as no business dealings with Mr Amit
Soni, a resident of Bhiwani or at our branches at the said centres were on record. Mr Sanjay Mehta
holder of _____ Bank A/c No. ______ from which ATM transfer credit of `49000 was afforded to
Mr Raj Kumar’s account on 01.05.12.
(v) The details of the heavy credits in above four accounts of Raj Kumar is as under :
a. Credits for `10,000 and above in ____ Bank A/c No. ____ of Raj Kumar (01.05.11 to 31.04.12)
No. Date Amount Type of No. Date Amount Type of

(`) credit (`) credit
1 03/05/11 10000 Cash 17 21/11/11 25000 Cash
2 03/05/11 17000 Cash 18 25/11/11 15000 Do
3 08/05/11 25000 Cash 19 05/12/11 25000 Do
4 08/05/11 10000 Cash 20 18/12/11 25000 Do
5 17/05/11 24500 Do 21 22/12//11 20000 Transfer
6 19/05/11 100000 Clg 22 26/01/12 25000 Cash
7 26/05/11 100000 Clg 23 16/02/12 100000 Do
8 20/06/11 25000 Cash 24 16/03/12 10000 Do
9 21/06/11 25000 Cash 25 19/03/12 25000 Do
10 23/06/11 25000 Cash 26 20/03/12 25000 Do
11 07/07/11 15000 Cash 27 01/04/12 20000 Do
12 07/07/11 25000 Cash 28 02/04/12 19700 Do
13 15/08/11 25000 Cash 29 10/04/12 25000 Do
14 10/09/11 25000 359700
15 15/09/11 15000 491500
16 29/09/11 25000 Total 851200
491500
b. Credits in ______ Bank A/c No. ______ of Raj Kumar (27.06.11 to 12.04.12)
No. Date Amount Type of credit No. Date Amount Type of

(`) (`) credit
1 27/06/11 30000 Cash, Koraput 18 11/11/11 49900 Cash,
Rayagada
2 08/07/11 49500 Cash, Rohtak 19 21/11/11 10000 Cash,
Koraput
3 05/08/11 49900 Cash, 20 22/11/11 35000 Do
Visakhapatnam
4 14/08/11 25000 Cash, Dadri 21 05/12/11 60000 Do
5 21/08/11 20000 Cash, Rohtak 22 07/12/11 50000 Do
6 26/08/11 49000 Cash, Dadri 23 12/12/11 75000 Do
(Contd.)

(`) (`) credit
7 28/08/11 48000 Do 24 17/12/11 68000 Do
8 28/08/11 49000 Cash, Rohtak 25 21/12/11 50000 Do
9 30/08/11 49000 Cash, Dadri 26 11/02/12 97500 TR
Manesar
10 01/09/11 45000 Do 27 12/04/12 19500 Rakesh
Kumar
11 03/09/11 45000 Do
12 28/09/11 49000 Cash, Jhajjar
13 29/09/11 49000 Cash, Dadri Total 1197300
14 31/10/11 15000 Cash, Rohtak
15 03/11/11 40000 Do
16 06/11/11 40000 Do
17 8/11/11 30000 Cash, Rayagada
c. _____ Bank A/c No. ______ Mr Raj Kumar

(`) (`) credit
1 1/12/11 20000 ATM Transfer. 18 16/01/12 100000 Cash
__________
2 3/12/11 100000 Cash 19 19/01/12 65000 Do
3 5/12/11 17000 ATM Transfer. 20 20/01/12 53000 Do
_________
4 5/12/11 60000 Cash 21 21/01/12 100000 Do
5 7/12/11 50000 Do 22 23/01/12 49000 Do
6 8/12/11 25000 ATM Transfer. 23 19/02/12 10000 Do
_________
7 12/12/11 100000 Cash 24 19/03/12 49900 Do
8 16/12/11 23000 Do 25 03/04/12 47800 Do
9 19/12/11 150000 Cash 26 06/04/12 49000 Do
10 19/12/11 50000 ATM Transfer. 27 10/04/12 49900 Do
_________
11 21/12/11 250000 Cash 28 16/04/12 49500 Do
12 21/12/11 50000 ATM Transfer 29 25/04/12 20000 Do
_________
13 23/12/11 50000 Do 30 30/04/12 49000 Do
14 26/12/11 200000 Cash 31 01/05/12 49000 ATM
Transfer
______

(`) (`) credit
15 031/12/11 30000 ATM Transfer 32 02/05/12 49000 ATM
_________ Transfer.
______
16 05/01/12 100200 Cash Total 2265300
17 09/01/12 200000 Cash
d. ______ Bank A/c No. ______ of Raj Kumar
No. Date Amount (`) Type of Credit

1 02/05/12 49000 Cash
2 30/04/12 48725 Cash, 49000 minus charges 275
3 25/04/12 50000 Cash, Koraput
4 03/04/12 49000 Cash
5 06/03/12 20000 Cash, Koraput
6 23/02/12 40000 Cash
Total 256725
e. Summary of credits
1 8,51,200 01.08.11 TO 31.07.12

2 11,97,300 27.09.11 TO 12.07.12
3 22,65,300 01.03.12 TO 02.08.12
4 2,56,725 23.05.12 TO 02.08.12
Total 45,70,525
(vi) Mr Ramesh Kumar Singh, Branch Manager, XYZ, Rayagada. ______ Bank A/c No. ______, Period
01.12.11 to 21.05.12.
The employee was involved in cash transactions with Mr Raj Kumar as he (Raj) had transferred
`50000 each into his (Ramesh) account on 29.11.11 and 16.04.12 and cash deposits aggregating
`79,900 from Rayagada were credited into Raj’s account No. ______ with ______ Bank:
1 22/06/11 150000 Cash 10 16/12/11 11000 Cash

2 22/07/11 34000 Do 11 25/02/12 10000 Cash
3 26/08/11 35000 Do 12 16/04/12 50000 ATM Transfer from
A/c of Raj Kumar
4 30/08/11 10000 “ 13 20/04/12 50000 Do
5 09/09/11 25000 “ 14 24/04/12 40000 Cash
(Contd.)
6 13/09/11 25000 “ 15 13/05/12 40000 Cash

7 25/10/11 27500 “ 16 17/05/12 25000 Cash
8 27/11/11 49900 “ Total 632400
9 29/11/11 50000 Tr.from Raj
Kumar A/c
(vii) Mr Amit Soni ______ Bank A/c No. ______

During the period from 01.06.11 to 21.05.12, Amit Soni, a resident of Bhiwani whose profession is
not known, had been regularly transacting with Mr Raj Kumar in as much as aggregate amount of
`9,33,000 was transferred into his account by Mr Raj on different dates. Mr Soni appears to have been
deeply involved in such transactions as ATM fund transfers from the account of the following persons
were also observed in his account which appears to be mala fide transactions:
a. Mr Ranveer Kumar, Citi Koraput, Orissa - ______ Bank A/c No. ______
`49,000 was transferred from his account through ATM on 31.04.12 into Amit Soni’s A/c and
reversed on 01.05.12, the next day.
b. Mr Raj Kumar, _______ Bank A/c No. ______
`20000 was transferred from his A/c though ATM on 01.05.12 into Amit Soni’s A/c out of
which `9000 was returned on 10.05.12 by ATM transfer.
c. Two ATM debit transfers for `30,000 each into ______ Bank A/c No. ______ of Puneet Kumar
and ______ of Rajesh Kumar on 26.01.12 and 02.02.12 have also been observed. There addresses
are being ascertained to find out their connection with the fraud or if they are our company’s
employee(s) at any other branch(es).
Additionally, cash deposits into his (Soni’s) account during statement period add up to `10,02,900
covering 28 credit transactions.
(viii) Mr Dharmender Singh, ______ Bank A/c No. ______ (01.12.11 to 21.05.12)
Two credits of `5000 each dated 23.12.11 and 29.12.11 by ATM transfer from the account of Mr
Raj in the above account were observed. These remittances by Raj do not appear to be business
transactions.
(ix) Mr Sanjay, ______ Bank A/c No. ______ ( 01.12.11 to 21.05.12)
Like Amit Soni and Dharmender, Mr Sanjay is another person with whom Mr Raj was transacting and
transferred from his ______ Bank account total amount of `3,95,000 in 7 transactions. Apart from
it, 25 cash deposits for `10,64,300 were also seen in Sanjay’s account in December–January 2011. All
ATM payments from his account took place at Rohtak and Bhiwani for far away from Koraput. As
no business connection has been reported with Sanjay, the transactions speak of nexus among these
persons to siphon company cash with connivance of Mr Raj.
1.3.3 embezzlement of cash
At the time of surprise checking of cash at the above branch on 14.05.12, a cash shortage of `14,85,791 was
detected by Mr Anand Kumar Mallampalli, Vigilance Officer at Visakhapatnam branch of the company as under:
(i) Cash balance as on 31.04.12 `7,45,791
(ii) Cash withdrawn from Bank on 31.04.12
but not accounted for in cash statement `7,40,000
(3 cheques for `2 lac each and 816616 for `1.40 lac)
Total `14,85,791
While FIR No 113 dated 19.05.12 was lodged against the accused at Koraput town police station for
misappropriating the above amount, it subsequently transpired that a total amount of `4,50,000 was
withdrawn in May, 2012, as under, and not accounted for in cash statement. Thus the total misappropriated
amount comes to `19,35,791. The company’s account at Koraput was operated under the joint signatures of
Raj Kumar, Ranjit Kumar and Mukesh Kumar (any two).
No Cheque No. Date of cheque Amount (`)

1 04.05.12 1,00,000
2 07.05.12 50,000
3 10.05.12 1,00,000
4 13.05.12 2,00,000
Total 4,50,000
1.3.4 Manipulation in expenses account and missing fixed assets

The employee is also alleged to have mis-utilised his official position as Branch in-charge and misappropriated
the following amount by putting through fake vouchers in expenses account. Additionally, 10 fixed assets
items under his charge were also found missing.
a. Office rent vouchers for the period from Jan 12 to Apr 12 `16,400
b. Sweeper/tea/photocopy bills. `1,537
c. Fixed assets items (10) valued at `13,724
Total `31,661
The landlord of office premises at Koraput branch has denied having received the rent amount.
1.4 summary of likely loss
No Particulars Amount (`)

1. Hiring of Fake Lorry Hiring 87,45,850
2. Cash Embezzlement 19,35,791
3. Manipulation of Expenses/Fixed Assets 31,661
Total 107,13,302
1.5 MoBile CAll DeTAils oF Mr rAj KuMAr (oFFiCiAl MoBile)

(i) On scrutiny of phone bills for the months of January 2012 to May, 2012 in respect of company’s
mobile no. ______ provided to Mr Raj Kumar, the following instance of repeated telephone calls to
some particular numbers for long durations have been observed, which are made only under special
circumstances. Considering the employees involvement in fraudulent activities, the list assumes greater
importance to identify the persons with whom he was in regular touch with, to establish any nexus
between them. This information should be supplied to police when second FIR is registered against
Mr Raj Kumar and others.
(Contd.)
Number of calls made by Mr raj Kumar

Mob No. jan, 12 Feb, 12 Mar, 12 Apr, 12 May, 12
56 69 103 185 89
141 154 105 79 20
3 59 153 157 58
106 63 50 44 3
12 56 64 97 31
84 45 30 69 20
98 100 9
84 27 24 39 26
132 64
10 19 43 86 28
18 102 8
11 40 23 25 21
7 1 72 20
29 31 12 14 3
20 11 25 13 13
Maximum duration of calls in mins
209.32 211.06 61.34
75.44 315.86 62.93
42.53 65.03 73.80 192.80 62.72
1.99 53.14 133.25 127.55 31.71
78.16 112.75 62.25 51.04 10.15
39.10 99.39 55.62 58.03 44.47
3.40 52.77 169.11 17.02 15.49
129.03 35.02 25.68 37.22 16.39
64.17 36.61 22.30 22.97 12.23
19.56 24.10 48.83 30.45 31.54
148.08 6.13
6.82 26.36 27.55 61.52 19.81
16.4 3.57 81.19 20.05
19.63 14.39 67.19 3.15
18.09 29.05 43.44 12.83
Maximum no. of units consumed as per mobile bill

13614 13882 3734
2977 4743 5381 13452 4641
4744 20147 3893
159 3834 9647 9355 2451
6026 8359 4865 3874 815
2470 6385 3602 3803 2967
8623 2382 1808 2722 1319
220 3402 10631 1065 949
4703 2652 1631 1801 905
522 2076 2235 4632 1461
1397 1610 3243 1966 2034
9168 373
1111 237 5565 1407
405 1175 1743 2687 1158
2423 1944 1356 1182 91
(ii) The employee has made repeated calls at ______, a mobile number at Bhiwani in the name of Mr
Mahesh Kumar, who owns a truck engaged with VITA plant for lifting milk. He has stated that their
common friend named Pradeep, who belongs to an adjoining village to Garetpur, called Veerpur, and
whose father runs a shop in auto market at Bhiwani had been making calls to Raj over his phone. The
truth of his statement is yet to be confirmed.
1.6 looPholes
1.6.1 system failures
(i) No laid-down system in the company to conduct surprise cash verification.
(ii) Routing of company’s cash through the personal accounts of employees for any purpose.
(iii) Receipt of payments against bills in cash instead of cheques/RTGS, etc.
(iv) Beside single custody of company’s cash without any prescribed limit by Cashier, the branch in-charge
himself handles cash transactions at many branches as happened at Koraput Branch.
(v) No system for independent tracking of vehicles, which remained a big casualty in the above case.
Independent tracking if done could have brought the fraud to light on the very first day itself.
(vi) No system of sending SMS to truck owners whenever their vehicles are engaged. This may also be
introduced to check any fictitious hiring entries in their names.
(vii) No systems of reconciliation of vehicles engaged with the consignor or of sending daily vehicle
engagement reports (perforated copy of booking register) existing in the company.
(Contd.)
(viii) Dereliction of duties by SAP Operators while feeding the documents which facilitated the fraud
unchecked.
(ix) Non-checking of genuineness of documents received at HO Manesar before consigning these to record.
1.6.2 human failures

(i) The immediate controller of the Branch, Mr Ranjit Kumar, to whom the Branch was directly reporting,
never checked cash balance held by Branch in-charge, books and documents relating to dispatch of
vehicles even on sample basis to ensure that basic compliances were being made to safeguard company
interests.
(ii) Mr Sridhar Reddy, SAP operator at Rayagada Branch while feeding the challans, CNs and balance
payment advices did not act with circumspection to detect any abnormal feature. The following
unusual features in the present case could have raised suspicion if the documents being fed had been
viewed with careful scrutiny and checks:
a. In many cases the truck engagement forms were not obtained.
b. Where such forms were taken, the engine and chassis numbers of vehicles were not engraved with
pencil.
c. Engagement of direct vehicles from Koraput to Cochin was also very rare.
d. Cash payments of bills by the parties established at other centres, far away from Koraput, an
unusual feature was also left unnoticed and unreported.
(iii) Mr Ramesh Kumar, Branch Manager at Rayagada also failed in his duty to scrutinize the documents
being received and fed at his branch.
(iv) The above documents after feeding were submitted to HO Manesar where these were received and
kept as records. It is evident that no scrutiny of these papers was being conducted at HO otherwise
vital discrepancies could not have escaped attention and fraud detected at the initial stage.
(v) Cash payments from the consignor parties located away did not raise any suspicion. No system of
customer calls was prevalent in the company to keep close liaison with customers.
(vi) It is surprising that Mr Raj Kumar did not avail any leave from January 2011 to May 2012 despite his
father’s illness in June 11. He went missing only when the fraud came to light in May 12. It did not
arouse any suspicion of the controllers of the Branch. Similar cases of employees not proceeding on
leave for long time require careful scrutiny.
(vii) Mr Raj Kumar spent a total amount of `1,88,633 on medical treatment of his father in June 2011
onwards without seeking any personal loan through the company and taking any leave. The payment
of eligible amount of `97500 was released by insurance company vide cheque no______ dated
30.10.11. The amount, even after sanction by the insurance company, was not claimed by Mr Raj
till December 2011. The fact remained un-noticed and did not raise any suspicion at any level in the
company.
1.7 remedial Actions required

(i) At regular intervals an official from a nearby Branch/Regional Office should be deputed to conduct
surprise cash verification and submit a report.
(ii) Internal Audit of the Branches should be conducted at fixed periodicity of 6 months covering
maximum operational areas. A proposal with revised format to implement, which was submitted to
corporate office, is pending for discussion and decision.
(iii) A list of employees with previous record of doubtful integrity should not be given independent or
single-handed charge/responsibilities in the company. To adopt system and keep them under constant
watch, a list of employees with such doubtful integrity should be maintained and reviewed periodically
by HRD.
(iv) To monitor assets creation beyond his known sources of income of an employee, a system to obtain
assets & liabilities statements annually on 31st March every year should be put in place in respect of
Branch In-charges and above (on prescribed format).
(v) There is no system of control and checks by the Regional Managers and other controllers of their
branches to create a sense of control for the operating units. They should be provided with a prescribed
format to fill up and email immediately to next higher authority regarding the observations made and
steps taken to implement systems and procedures of the company. They should be made accountable
for any such activity under their control for lack of control, etc.
(vi) All new/old branches should have minimum two members of staff also acting as joint custodians of
cash and cheque leaves whether pre-signed or not, as per circular instructions issued.
(vii) To avoid fake lorry placement as in this case, system of tracking of vehicles should be extended to
destination branch through SMS/email.
(viii) System of sending SMS to truck owners whenever their vehicles are engaged may also be introduced
to check any fictitious hiring entries in their names.
(ix) Regular reconciliation of vehicles engaged with the consignors or daily vehicle engagement reports
(perforated copy of booking register) if sent to the party could have prevented the fraud. The system
needs to be introduced. Even if it is assumed that the customer shall not pay any attention to such
daily report forms submitted to them, even then it would act as deterrent for the employee attempting
to put through fictitious vehicles into the system.
(x) The practice of crediting company’s cash into personal accounts of employee for any reason, may
be for business purposes, should immediately be stopped. For example, at Koraput Branch, personal
account of Mr Mukesh Kumar, Loading Staff ( ______ Bank A/c No. ______ ), company’s cash was
frequently credited into personal account of the employee which he had withdrawn through ATM on
different dates as under:
1 14/02/11 49500 Cash

2 17/02/11 45000 Do
3 27/02/11 49500 Do
4 28/02/11 49000 Do
5 14/03/11 49000 Do
6 21/03/11 40000 Do
7 15/04/11 49000 Do
8 04/05/11 22000 Do
9 06/05/11 25000 Do
10 19/05/11 49500 Do
11 25/05/11 49500 Do
TOTAL 477000
(Contd.)
(xi) All payment advices being fed into the system must accompany either photocopy of cheque or party
mail advising RTGS sent for credit into the company’s account to prevent fictitious entries.
(xii) All balance payment vouchers where detention and unloading have been paid, must accompany a
copy of mail authorizing unloading/detention charges by the competent authority to prevent arbitrary
concessions.
(xiii) “Whatever is not checked is not done” principle is not being followed at all. Being single custodian of
cash, CN and challan forms, and attending to loading jobs, the employee was successful in defrauding
the company for such a long time. Maker/Checker principle must be observed in all documents being
put through in the system. In the present case, the SAP operator has also been involved and remained
unchecked which helped Raj in perpetration of fraud in connivance with SAP Operator Mr Reddy
at Rayagada Branch. After feeding of challans, CNs and balance payment advices in SAP by the
SAP Operators, there is no system of immediate checking by any supervisor. Checks and control for
such checking should be provided in SAP to detect any of the following abnormal features which
in the present case could have aroused suspicion if the documents being fed had been viewed with
circumspection:
a. In many cases the truck engagement forms were not obtained.
b. Where such forms were taken, the engine and chassis numbers of vehicles were not engraved with
pencil.
c. Engagement of direct vehicles from Koraput to Ernakulam was also very rare.
d. Cash payments of bills by the parties established at other centres far away from Koraput, seems to
be an unusual feature.
(xiv) The practices of providing pre-signed and blank cheques to the operating staff are fraught with risk
as the employee is free to fill up any amount and withdraw from the bank. To minimize the risk
involved, the cheques can be stamped as “Not above `………………” considering the branch daily
requirements.
(xv) As preventive vigilance, the employees not proceeding on leave even for a short period permitting
other employees to work in their place should have also raised an eye of suspicion. Mr Raj Kumar did
not avail of any leave since January, 2011 till May, 2012 when the fraud was detected. Similar cases
should immediately be examined and reviewed by HRD. It should be made essential for employees at
operation level to avail leave for some minimum specific period at a stretch.
a. The STD call details appearing in the telephone bills should be scrutinized in order to check
misuse of mobile facility as well as to identify the numbers, whether personal or official, to which
repeated telephone calls were made to know the purpose for making such calls. The employee had
been making repeated calls on a particular number during day and night time. A system should be
devised to occasionally check whether such frequent calls were made for company business while
making payments of the official mobile phones.
b. Transfer and promotion policy for staff at branches and administrative offices may be formulated
keeping in view the important aspects of efficient functioning, overall development and interests
of the staff and company. It shall prevent and ensure timely detection of any malpractices being
committed by staff staying at their branches for unduly long periods for vested interests.
(xvi) Job rotation should be done within the branch every six months to prevent creation of any vested
interest and to provide all the members of the staff opportunities to enrich their knowledge and
develop themselves to handle different situations.
(xvii) A centralized Vigilance and Disciplinary Action Department armed with trained staff under direct
control of CMD/ED is required to be created to deal with such cases independently and take stern
action against employees involved in harming company’s image and causing financial losses.
(xviii) Delay in bank reconciliation with long delay is also an area of concern which is required to be looked
into.
2. CoNClusioNs
(i) Mr Raj Kumar had been able to defraud the company as no systems to check his malpractices were in
place and no preventive vigilance was ever exercised by other members of staff through whom his work
was passing through and his controlling office.
(ii) He defrauded the company by putting through fake hiring of vehicles in the system and put the
company to a loss of `87,45,850 in connivance with outsiders namely:
1. Mr Amit Soni
2. Mr Sohil Singh
3. Mr Dharmender
4. Mr Ranveer Kumar
5. Mr Raj Kumar
6. Mr Rajesh Kumar
7. Mr Sanjay Mehta
8. Mr Puneet Kumar
9. Mr Pradeep
and staff members, namely, Mr Ramesh Kumar, Branch In-charge and Sridhar Reddy, SAP Operator,
both at Rayagada Branch.
The involvement of other staff and/or outsiders cannot be over-ruled which can be explored with the
help of mobile numbers (as given above) which if provided to the police authorities along with further
FIR to help investigation and nab the accomplices of Raj Kumar.
In some cases, the bill payments of fake truck hiring entries were shown to have been received in cash
from the parties established far away from Koraput by Mr Raj Kumar and managed to feed into the
system with the help of SAP Operator.
(iii) He embezzled company cash amounting to `14,85,791, which came into his hands as Branch In-
charge Koraput branch. This remained un-noticed and un-reconciled for quite long time.
(iv) He manipulated expenses account vouchers under head office rent and other sub heads and pocketed
a total amount of `17,937 in a fraudulent manner.
(v) Ten fixed assets items costing `13,724 were found missing from his charge as Branch In-charge,
Koraput Branch.
(vi) The fraud under vehicle hiring would have remained undetected and loss amount further increased,
had he not put through fake payment advices and arranged genuine RTGS remittance by raising funds
from further posting of fake lorry hire vouchers.
(Contd.)
3. reCoMMeNDATioNs
(i) The FIR for embezzlement of cash amounting to `14,85,791 has already been lodged against Mr
Raj Kumar at Koraput Police station on 19.05.12 and the matter is under police investigation.
After discovering additional amount of `4,50,000 withdrawn by Mr Raj Kumar in May, 2012 and
not accounted for in cash statement, a supplementary application with available evidence should
immediately be submitted at Koraput police station for necessary action, if not already done so.
(ii) Further FIRs against Mr Raj Kumar and all others outsiders, as mentioned above, including Mr
Ramesh Kumar, Branch In-charge Rayagada Branch and Sridhar Reddy, SAP Operator at Rayagada
for putting through fictitious documents in the system and siphoning off company cash amounting
to `87,45,850 and against Mr Raj Kumar alone for putting the company to a loss of `31,661 by
manipulating vouchers in expenses account and for missing fixed assets under his control while
working as Branch In-charge at Koraput. All evidence in the form of lorry hire advance/balance
payment vouchers CNs, Challans, books and registers connected therewith, bank account statements
for company accounts and accounts of Mr Raj Kumar and others should be carefully preserved for
making these available during police investigation.
4. geNerAl oBservATioNs
(i) Of late, a large number of instances have come to notice where the operating staff has displayed gross
negligence in the discharge of their duties resulting in substantial financial losses to the company.
In addition to financial losses by way of various penalties due to negligence of staff, cases of misuse
and embezzlement of company’s funds the company are also on increase. Cases of employee’s lack of
integrity resulting in diversion of company funds for personal use have also been observed.
(ii) This is a cause of concern for the company which is also tarnishing the company’s image and
reputation. Despite repeated training sessions, meetings, seminars and circular letters, the magnitude
of such non compliances is increasing day by day and so as the cases of such incidents. The above case
of fraud committed by Mr Raj Kumar along with outsiders and our own staff, where company’s huge
funds have been siphoned off by fictitious booking of vehicles exposing our systems and procedures,
and showing laxity in ensuring internal control mechanism by all controllers supposed to be directly
or indirectly responsible, i.e. whom the branch was directly reporting, is the latest example.
(iii) With the too large and still growing size of the company today, surprisingly, there is no practice or
prescribed system for independent investigation in the internal control mechanism leading to fraud
and subsequently reprimanding employees who fail to abide by the company’s performance standards,
policies or rules. There is also no promotion or transfer policy in the company and employees
manipulate to stay at one place for long years for their vested interests which leads to such frauds. This
is the high time the company should look into this aspect.
(iv) Further, it is also noted that the fraud/other cases involving our staff are neither properly dealt with
nor brought to logical end apparently leaving erring staff scot free giving room to encourage others
to adopt such activities. There is, therefore, an urgent need to standardize process to deal with all
fraud/vigilance cases and employees who breach the terms of employment and/or indulge in various
fraudulent activities leading to financial losses to the company. Continuation of existing systems and
practices in the company without any change is fraught with great risk as existence of more such
instances at other branches cannot be ruled out.
(v) Re-employment of tainted staff with past history of doubtful integrity and removed from the company,
should immediately be stopped. HRD should make direct reference to the previous employers of the
new staff before taking final decision. All appointments should be centralized with no deviations based
on personal recommendations only.
(vi) Periodical strong branch internal audit system with deeper look in operational areas and compliances
is another area which requires immediate attention to avoid recurrence of such incidents.
(vii) Controllers of the branches should spend time during their visits to branches and make independent
enquiries and collect information from other resources about the branch functioning and peruse the
accounting/books. They should visit a branch at least once in a quarter for this specific purpose and
record all observations in branch visit book.
Submitted for information and necessary action
(Vishnu Vardhan) (MN Sharma ) (Divesh Gupta)
Vice President (Operations) Manager (HR and Adm) Sr Manager, Manesar
(Madan Bansal)
Accountant (Manesar)
17th June, 2012.
Exhibit 3
Summary of Observations in the TAC Report
1. eMBeZZleMeNT oF CAsh FroM KorAPuT BrANCh
(i) Absence of defined process to monitor the cash requirements at branch and inadequate controls to
monitor the utilization of idle cash balances at branch
(ii) Inadequate controls to monitor illegitimate/unauthorized utilization of cheques to misappropriate
funds
(iii) Absence of Maker/Checker controls at the branch leading to non-recording of cash withdrawals in
cashbook/recording of fictitious expenses
(iv) Absence of a defined process to verify the physical cash at branch vs. the balance as per cashbook/bank
book at branch
(v) Weak controls over collection from customers and collections deposited in the branch bank account
instead of HO account
2. FiCTiTious reveNue AND eXPeNses leADiNg To eMBeZZleMeNT oF FuNDs

FroM KorAPuT BrANCh
(i) Absence of detective and preventive controls to avoid recording of fictitious sales by branch. Sales
order received by branch are based on verbal communication with customers and not documented/
received over email.
(ii) Absence of a defined process to confirm legitimacy of the sales order confirmation by head office
directly with the customer to detect any potential fictitious sales order processed by 1919 branch.
(Contd.)
(iii) Absence of a defined process to obtain customer balance confirmations. Any fictitious sales order
processed by branch would be detected only at year end when debtors are overdue and provisioning
for such doubtful debts is required to be done.
(iv) Absence of maker/checker control at the branch office. There is no segregation of duty between the
person who receives sales order, generates sales invoices, hires vehicle for transportation, records and
approves expenses at branch and withdraws cash from bank for cash expenses and conducts bank
reconciliation.
(v) Absence of a defined process to conduct monthly bank reconciliation for all branch bank accounts on a
timely basis. Delays of 3–4 months of conducting bank reconciliation have been observed. Further, due
to absence of maker/checker controls any potential fictitious/incorrect reconciliation items highlighted
in bank reconciliation statement will remain unnoticed for a long period of time.
(vi) Absence of a defined process to conduct periodic branch audits or review of revenue/expenses recorded
at branch by head office. Branch managers are assigned conflicting roles and responsibilities to create,
approve and pay expenses, withdraw cash from bank, etc., which led to embezzlement of funds at
Koraput branch.
suggesTeD QuesTioNs
1. Comment on the stances of (i) Top Management, (ii) Whole Time Directors, and
(iii) Independent Directors.
2. Categorize and critique the suggestions made by the Investigation Committee and The
Auditing Company (TAC).
3. What specific systems (both IT based and non IT based) would you put in place to
prevent future similar occurrences?
A P P r o A C h F o r A N A lY s i s
Funds Management is a major challenge for any geographically spread business. Given the
nature of the problem instances of misappropriation of funds must be viewed with care and
caution. In such a situation, there is need for a proactive approach. Realizing the inadequacy
of controls in their organization when faced with the problem of embezzlement of funds, the
Directors and top management of XYZ Trucking Company are keen to take necessary action.
Based on the Investigation Committee report and that of TAC, it is important to reflect on
what messages need to be sent down the line, that such instances will not be tolerated. It
would be useful to analyze the stances taken by various stakeholders and what implications
they have on dealing with this incident.
An analysis and categorization of the causes between human and systemic issues would
help. The observations made by TAC highlight the need to have company specific anti-
fraud measures like periodical audits, a well-defined authority-responsibility structure, bank
reconciliations and external confirmations. Based on this, an action oriented response by the
management needs to be evolved.
Such corrective actions need to be both for the short term and the long term. Wherever
possible, information technology should be leveraged. Professional values need to be
reinforced. A risk identification and management framework needs to be put in place for
monitoring at the Board level.
C as e
11
case cOnteXt
F armAid Tractors Limited (FTL) was a tractor company with a 20 per cent
market share and aimed to be the market leader within five years. The Indian
tractor industry had become very competitive, with the growth in capacity
outstripping the growth in demand. Customer preferences and demands had
changed in the context of the competitive environment. FTL realized that the role
of the dealer and how he was serviced by the company were key to its success.
An important concern was how to develop a partnership with dealers by bringing in
a service focus through improvements in supply chain management and outbound
logistics. Trucking played a critical role in the transportation of tractors.
Two major areas that warrant analysis are (i) order processing and inventory
planning and (ii) the distribution structure including stockyard location. This case
addresses the issue of determining the optimal stockyard location for states in India,
specifically in the state of Gujarat.
FarmAid Tractors Limited
The tractor industry in India had become very competitive, with growth in capacity outstripping
growth in demand. The increased capacity was in response to a healthy growth in demand during
the 90s. (A brief description of the Indian tractor industry is given in Exhibit 1.) There were
seven major players targeting both domestic and international markets (Exhibit 2). FarmAid
Tractors Limited (FTL), situated near Thane in Mumbai, was the third largest player in FY99
with a 20 per cent market share. FTL was aiming to be the market leader within five years.
FTL had one factory, 15 models (4 accounting for 90 per cent sales), 18 regional offices (each
with a stockyard, one in a given state), and 300 dealers, and sold 60,000 tractors in a year for
the past two years (Exhibit 3). FTL was relatively a new entrant in the industry, having started
in the early 90s. The promoters were familiar with the automobile industry, and had competency
in the auto components business.
Customer preferences and demands had changed in a competitive environment. The role of the
dealer and servicing the dealer by the company were recognized by FTL as key success variables.
The key issue was to develop a partnership with dealers by bringing in service focus, through
improvements in supply chain management and outbound logistics.
In summer 1999, as part of a major effort in organizational restructuring and business process
reengineering, FTL decided to engage the services of Prof. Prashanth from a reputed institute
of management in western India. The assignment was on supply chain management, focused
on outbound logistics. After an in-depth study of FTL (manufacturing, production planning,
visiting and despatch processes), and, some of the regional offices, stockyards, and dealers, various
issues and decision areas were identified by Prof. Prashanth. Exhibit 4 gives a list of the issues
and decision and action areas which were planned to be analysed and for which data were sought
from FTL. An in-company logistics team of four young executives, coordinated by Mr Rajesh
Bhatt, supported Prof. Prashanth in this exercise.
Two critical areas for analysis were taken up first: 1. Order processing and inventory planning,
and 2. Distribution structure, including stockyard location.
Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad.

Assistance provided by Ms Sushma Choudhary is acknowledged. Names and some of the data have been modified.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion. Cases are not
© 2000 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/QM0242) has been reproduced with
We also thank McGraw Hill Education (India) Private Limited for permitting us to print this case, which was published
in Supply Chain Management for Competitive Advantage: Concepts and Cases by Rangaraj, Raghuram and Srinivasan.
1. Order PrOcessing and inventOry Planning
Orders were placed by regional offices for delivery to stockyards, model-wise on a monthly basis.
Orders had to be consolidated, based on dealers’ requirements by the twentieth for receipts
during the following month. Over the next five days, there could be discussion between the plant
(production planning) and regional offices to modify the order, keeping in view any possible
production constraints. Even though production (and despatches) were planned and scheduled
for a whole month, there were always end of month pressures for modifications and additions.
Marketing executives and top management of FTL were sensitive to the monthly market shares
that industry analysts watched and reported.
Inventory planning at the stockyards to enable high service levels to dealers and at the plant
to respond to seasonality were key concerns. The forecasts that would drive this planning also
needed to be examined. Exhibit 5 gives the framework proposed by Prof. Prashanth to address
these concerns.
2. distributiOn structure and stOckyard lOcatiOn
There were two concerns: the need for a central despatch yard and location (and number) of
stockyards. Exhibit 6 gives relevant issues as part of the consultant’s framework of addressing
these concerns.
Currently, all despatches were made from the factory to stockyards through a daily allocation
process which took into account the unmet demand at stockyards, ready for despatch inventory,
and availability of trucks based on transporters’ inputs. Once assigned to a transporter, tractors
were moved by transporters to their godowns, since there was no space in the factory for holding
finished stocks. It was often noticed that transporters actually moved tractors out of their godowns
after an average of two days, primarily because of non-availability of intended trucks for despatch.
FTL was concerned about this since the period of “lack of control” over tractors was enhanced
because of this. A central despatch yard at a suitable highway location, 20 km away from the
plant, was being considered. (There was no space nearer or adjacent to the existing plant for
such expansion.)
For better servicing of dealers, location of stockyards was crucial. The primary transportation mode
was decided as road, using long platform trucks that could carry up to five tractors. Secondary
transportation from stockyards to dealers would use trucks that could carry two tractors rather
than move tractors on own power. This was expected to reduce transit damages and also offer
tractors in a mint condition to the dealer. One of the issues was whether a stockyard should be
close to the entry point in a state or close to the marketing office, which was usually in a large
commercial centre near the centre of the state. For an in-depth analysis, Exhibit 7 gives potential
FarmAid Tractors Limited 263
stockyard locations for Gujarat, with monthly operating costs and distances. The current stockyard
location was Ahmedabad. Exhibit 8 gives the location of 19 FTL dealers in Gujarat, along with
expected monthly demand and distances. The total demand for tractors in Gujarat was expected
to be 500 tractors a month. Exhibit 9 gives a map of Gujarat showing all locations.
The primary transportation cost was expected to vary from `2.5 to `3.0 /tractor/km, depending
on the truck technology. The secondary transportation cost was expected to vary from `3.0 to
`3.5 /tractor/km depending on the service level offered. It was also a matter of concern that a
dealer should not have to be more than 500 km from a stockyard. Some of the more aggressive
marketing executives felt that this should not exceed even 350 km, which would be a one day
transportation lead time. Another issue was a possible minimum on what a stockyard should
handle in a month, especially if stockyard management was to be outsourced. The company
executives felt that 200 tractors a month was a reasonable figure to enable it to be attractive to
the outsourcee.
Exhibit 10 gives the results (optimal stockyard locations with total costs) of the analysis based
on a programming model for various scenarios of parameters affecting stockyard location. Top
management was interested in the actual allocation of dealers to stockyards for these scenarios
and their implications. The recommendations for stockyard locations in major states are given
in Exhibit 11.
Supply Chain Organization
To ensure better supply chain coordination for higher service levels to dealers and customers,
the distribution unit right up to stockyards would be under a new supply chain organization
which would include the production units (Exhibit 12).
The overall spirit of the service orientation sought to be achieved by better supply chain
management was communicated in a letter (Exhibit 13) to the logistics team members in response
to certain queries.
Exhibit 1
The Indian Tractor Industry
In 1999, the Indian economy was still highly dependent on agricultural growth and not surprisingly it was
the largest tractor market in the world. However, in terms of total tractors in use in the country, it was eighth
in the world. The country had a tractor density of 10.5 tractors per thousand hectares of gross cropped area
(GCA) compared to the international average of about 28 tractors per thousand GCA.
Demand and Supply

The tractor industry was segmented based on the power of the tractor engine expressed in terms of horse
power (HP). Among the segments, the 31-40 HP segment led with 54.7 per cent of total tractors sales in
FY2000. Among the regions, North India constituting UP, Punjab and Haryana led with a contribution of
44 per cent of tractor sales for FY99. The demand for tractors increased from 121,106 tractors in FY90 to
260,762 tractors in FY2000 at a CAGR of 8 per cent, but the annual growth in demand varied substantially.
For example, in FY99 and FY2000, the rise in sales was reducing with growth rates of 3 per cent and 2.9 per
cent respectively.
During the last 20 years from FY78 to FY98, the tractor industry had performed substantially better in
comparison to the growth in Indian agriculture production and GDP. As given in Table 1, CAGR of tractor
sales was almost four times the growth in agriculture production.
Table 1 Tractor Sales v/s GDP Growth
CAGR (FY78 to FY98)

Agriculture production 2.2 %
GDP 5.15 %
Tractor sales 8.31 %
The major factors influencing demand of tractors were monsoon, land holding pattern, availability of
credit, growth in income of farmers, and implementation of scientific farming practices. The industry was not
cyclical, as many would presume about the automotive industry in general. Demand contraction occurred in
1982 and again in 1993, the two years of severe credit squeeze.
The optimal land holding required for different HP tractors was approximately 8 to 10 hectares for 1800
cc or 25 HP tractors, 25 to 30 hectares for 35 HP tractors and beyond that, it was higher HP tractors. But
the actual relationship between different land holdings and the power of tractors was dependent on earning
stability, type of soil, type of operation, and affordability by farmers.
As per FY91 data, nearly 78.2 per cent of India’s agriculture land was held by small and marginal
farmers having less than the prescribed land holding. This had gone up from 76.2 per cent in FY86. The
all-India average land holding figure stood at 1.55 hectares in FY91, down from 1.69 hectares in FY86. For
these small and marginal farmers, there was very little potential for economic use of tractors by outright
purchase.
Industry Structure
The HP-wise composition of tractor industry sales, as shown in Table 2, reveals that 31-40 HP tractors
constituted the largest segment with 54.7 per cent of sales in FY2000. It can also be seen that demand for
the less than 30 HP segment, which was a close second in FY94, had been pushed back by the 31-40 HP
segment.
Table 2 Segment-wise Market Shares
FY94 FY99 FY2000

< 30 HP 36% 22.5% 26.1%
31-40 HP 46% 57.8% 54.7%
41-50 HP 15% 15.9% 14.7%
> 51 HP 3% 3.8% 4.4%
This graduation to a higher HP segment can be explained if one considers the fact that region wise share
of tractor sales had also shifted from the northern states to other parts of the country. Initially, the population
of tractors was concentrated in states like Punjab and Haryana which received the benefits of the Green
Revolution. Soil in these states was alluvial and thus required a low powered tractor for tilling. However, over
the years, with an increase in irrigated cropped area, the population of tractors began to increase in other states
as well. These included states in the western and southern parts of the country where the soil – laterite soil,
black soil, etc. – was harder and needed higher powered tractors.
From the table above, we see that in FY2000 the share of the less than 30 HP segment improved by around
3.5 per cent while that of the next higher segment fell by 3 per cent. This could be attributed to the fact that
in the 1999-2000 budget, the excise duty for the plus 1800cc tractors (above 30 HP) was increased from 13
per cent to 16 per cent while that of the less than 1800cc segment remained at 8 per cent.
Region-wise Share of Tractor Sales

North India constituting UP, Punjab, and Haryana led among the regions, by contributing 44 per cent of
tractor sales in FY99, the data for which are presently available. But its contribution had come down in the last
five years from a peak level of 53.5 per cent in FY94. Among the states, UP stood first with a contribution of
23 per cent of the country’s tractor sales. MP and Punjab stood next with around 12-13 per cent contribution
each.
State-wise sales figures over the years show some important changes (Table 3). Sales in agriculturally
developed states like Punjab, Haryana and Uttar Pradesh as part of total tractor sales had come down from
53.5 per cent in FY94 to 44 per cent in FY99. This contrasts with the increase in share for the central
and western regions of the country (Rajasthan, Madhya Pradesh, Maharashtra and Gujarat). This
region’s share rose from 20.4 per cent to 27.8 per cent in the same period. Sales in the northern
regions had been below the all India CAGR of 8.6 per cent in the last ten years. On the other hand,
the central and western regions of the country had recorded double-digit growth rates.
(Contd.)
Table 3 State-wise Market Shares
FY90 FY94 FY98 FY99 CAGR (FY90

to FY99)
Punjab 22,026 26,636 31,644 31,047 3.9%
Haryana 15,307 16,579 22,711 21,877 4.0%
UP 31,233 30,656 50,433 59,211 7.4%
Bihar 4,891 2,900 10,282 12,875 11.4%
Rajasthan 9,315 11,129 25,152 24,054 11.1%
MP 10,018 11,418 32,250 32,711 14.1%
Andhra Pradesh 5,395 5,881 11,171 9,862 6.9%
Gujarat 6,508 10,033 21,501 22,208 14.6%
Maharashtra 5,737 6,730 15,059 16,011 12.1%
Karnataka 3,665 5,179 10,176 6,501 6.6%
Tamil Nadu 3,864 7,030 10,392 7,369 7.4%
Others 3,147 3,887 9,608 11,145 15.1%
All-India 121,106 138,058 250,379 254,871 8.6%
The increased growth from central and south Indian states had led to growth in the medium and high
powered tractor sales, as these states had harder soil compared to the alluvial soil in the northern states. In
the future, new tractor sales were expected to take place mainly in the western and southern regions while the
mature markets of the north would see higher replacement sales.
Table 4 Major Markets for Tractors
Major markets
Less than 30 HP UP, MP, Rajasthan, Haryana, and Bihar
31-40 HP MP, Rajasthan, Punjab, UP, Haryana, Gujarat, and Bihar
41-50 HP Punjab, MP, and Rajasthan
More than 51 HP Punjab and some volumes in Kerala and Maharashtra
Source: SIAM/TMA
Exhibit 2
Key Market Players
As of 1999, the industry was controlled by seven major players – Mahindra & Mahindra (M&M), Escorts,
FarmAid Tractors Limited (FTL), Punjab Tractors Limited (PTL), TAFE, Eicher, and HMT. All except
FTL had been in the tractor market for more than 20 years. M&M continued its leadership position for the
sixteenth successive year with a market share of 25 per cent in FY2000. Escorts had taken the second position
from PTL with a market share of around 20 per cent. Escorts was followed by FTL (20 per cent), PTL (15 per
cent), and TAFE (12 per cent). While M&M had a balanced presence in all HP segments except that less than
20 HP, others like PTL were stronger in the low and medium powered segments.
In recent years, the tractor industry had seen some new entrants introducing their products in the higher
HP range. These included Ford New Holland and L&T John Deere. This had added around 65,000 units to
existing capacities. In FY99, capacity stood at approximately 350,000 units. This meant a capacity utilization
of around 72 per cent, down from around 87 per cent in FY98. This pointed to a growing problem of
overcapacity in the industry.
Many of the players had strong linkages with the automobile industry. Recently, one of the largest and
oldest players in the tractor industry, Escorts Limited, merged itself with Escorts Tractors Ltd after buying out
the stake of its foreign collaborator Ford New Holland.
Mahindra and Mahindra Limited (M&M)

M&M was the world’s largest tractor manufacturer. It was the largest jeep and tractor manufacturer in India
with a tractor market share of 27 per cent. Achieved economies of scale because of these associated operations
in LCV and utility vehicles. Strong distribution network and brand equity. Recently embarked on a business
process reengineering program to achieve reduction in the production time, costs, and improvements in
product quality. One of the core competencies of M&M lay in engineering skills and R&D which had helped
the company develop a diversified product range. M&M had acquired a majority stake in Gujarat Tractors
Limited.
Escorts
With the recent merger, Escorts had emerged as the second largest player in the Indian tractor market with
a market share of 20 per cent. (Escorts may not have substantial economies of scale because of differences in
the products of the two companies.) It was also poised to takeover the tractors division of public sector HMT
Ltd. Engaged in a restructuring exercise, resulting in the integration of the entire tractor business in one
company and the other businesses like two-wheeler, auto components, telecom, etc. in separate companies.
The distribution network, though widespread in the north, was weak in the emerging markets of south and
west. The highly successful brand name Ford had been withdrawn with the divestment of the stake of Ford
New Holland in favour of Escorts. Now, tractors were being marketed in the name FARMTRAC and the
change had been well advertised among the customers. Escorts had seen declining sales, had lower margins
than the industry, and had a very high debt/equity ratio.
(Contd.)
FarmAid Tractors Limited (FTL)

Had a presence in all market segments. Also had a 20 per cent market share and was aiming to be the number
one player in another five years, achieving a market share of 30 per cent, either by expansion or by acquisition.
Punjab Tractors Limited (PTL)

Strong distribution network and brand equity. Had adapted its tractors to suit specific state/crop conditions.
Had been growing at a faster rate than the industry. Had one of the highest operating margins in the industry.
Sales were against advances. It had a working capital surplus. Well positioned in the > 40 HP segment to
exploit future growth opportunities.
TAFE
Closely held company of the Amalgamation Group. It had the strongest presence in the 30-40 HP market
segment, but had no presence in either < 30 HP or > 40 HP segments. The company had substantial presence
in all the major markets, though, its earlier focus was southern India where the competition was weak. Setting
up new facilities to manufacture 13,000 tractors per year. Most of the vendors were well known automobile
ancillary group companies such as Bimetal Bearings, India Pistons, etc.
Eicher
Sales were limited to < 30 HP category which had seen declining market share, though absolute sales may be
increasing. Distribution was limited to Haryana, Punjab, and western UP. There was a proposed merger with
Royal Enfield, which could provide access to Enfield’s network in the south. Had one of the lowest net profit
margins in the industry.
HMT
Had a presence in all market segments. Despite very good product quality, had not been a very strong marketing
company. Had been experiencing a declining market share, although volumes were increasing. Had not been
strong in the Green Revolution states of Punjab, Haryana, and western UP. It had not been competitive on
prices. Proposed takeover by Escorts Ltd though final approval was pending with CCEA.
As seen in the table below, production capacities in the tractor industry had increased with the coming in of
John Deere and Ford New Holland. However, this increase had not kept pace with a corresponding increase
in production. Capacity utilization in FY99 stood around 72 per cent, clearly indicating a growing problem
of overcapacity in the industry. In FY2000, the utilization was expected to drop to 64 per cent. In FY01,
additional 17,000 units were likely to be added to New Holland’s capacity while another 20,000 units were
expected to be added to John Deere’s capacity in the next two years. FTL was also planning to expand either
by adding capacity or through acquisition.
Production Capacities
Company FY99 FY2000 (Expected)

Bajaj Tempo 6,000 6,000
Eicher 45,500 45,500
Escorts 56,250 56,250
Company FY99 FY2000 (Expected)

FTL 60,000 65,000
HMT 18,000 18,000
M&M 77,000 89,500
Punjab Tractors 50,000 72,000
TAFE 37,800 37,800
L & T John Deere 0 10,000
Ford New Holland 0 18,000
Total 350,550 418,050
Total production 253,904 267,356
Source: TMA/Annual reports
Exhibit 3
FTL Tractor Production
FY Numbers
1996 45000
1997 53000
1998 60000
1999 60000
2000 65000 (Expected)
Source: Company records
Exhibit 4
Logistics Issues and Decision Areas
1. Objectives of FTL’s logistics: To maximize market share and profitability in a competitive environment
by enabling availability of the right model in best quality at the right place at the right time.
2. Symptoms/issues
(a) Stockouts
Inability to supply specific models indented by dealers (end user impact: lost sale/forced conversion
to another model)
Delayed supply of specific models indented by dealers (end user impact: loss of goodwill)
Stockout cost considered anywhere from 50 to 200 per cent of contribution.
(b) Excess stocks
Inventory carrying cost: working capital cost of `100/tractor/ day (at 0.05 per cent a day on a
tractor worth `200,000)
Scope for damages
An average of 20 days stock before sale to dealer costs `2000/tractor (`12 crore/year)
An average of 20 days stock and a further 15 days credit by the dealer costs the dealer `3500/
tractor (`21 crore/year) (a dealer typically earns `8000/tractor as commission, and possibly `1500
as 15 days credit, apart from margins on accessories)
(c) Inter-stockyard transfers
Extent during 1997/98
Reasons, costs
(d) Losses: transit/storage resulting in repair/replacement/replenishment (70 per cent of tractors
received a ‘yellow’ card on receipt at dealers – implying not ready for sale. 75 per cent of these
were set right in the first week. The remaining sometimes got complicated in investigations,
resulting in non-settlement of claims/dues even up to four years)
Losses chargeable to transporter
Losses chargeable to insurance
Other losses, including opportunity cost of sale
Model-wise losses
(e) End of month pressures
Inventory carrying cost associated with skewed sales to dealers
Cost of communication
(f) Need to revise production schedules
Extent during 1997/98
Scope for improvement through better forecasting and planning
(g) Transportation costs
Average primary (`2500/ tractor, `15 crore a year)
Average secondary (`1500/ tractor, `9 crore a year)
3. Decision and action areas

(a) Central despatch yard
Allocation based on truck availability: savings in inventory
Increased flexibility because of later allocation across destinations: savings in inventory
Loading and storage under supervision: reduced losses
Infrastructure cost
Availability of trucks/movement to railsiding
(b) Stockyard locations
Stockyard in every state owing to tax savings
Since secondary transportation cost is not significantly higher than primary transportation cost,
entry point in the state is often the best
Multiple stockyards will be justified based on total transportation cost (primary and secondary),
limitations on secondary movements (if on own power), and stockyard infrastructure and
management cost (each stockyard costs about `25,000/ month)
Stockyard to have minimum throughput volume (say 200 tractors/month)
Stockyards to be managed by C&F agents
(c) Mode choice
Transportation cost
Inventory cost at unloading end
Inventory cost at loading end
Inventory cost because of pipeline
Cost because of losses
Buffer inventory cost at unloading end due to reliability in transit
Availability of transport/lead time for availability
(d) Inventory norms
(e) Forecasting and planning systems
Current system
Revised system with rolling horizon
(f) MIS for stockyard management
Selection of C&F agents
Experience/familiarity with tractor business
Professional outlook of management and employees
Understanding of transport business
Skills for inspection and documentation on receipt and before delivery
Security infrastructure, preparedness for contingency
Infrastructural support: land for ordered storage and retrieval, fax, telephone, loading/
unloading ramp
Professional charges
Time frame for contract
(Contd.)
Monitoring of C&F agents

Proper record keeping
Proper execution of instructions
Orderly storage and retrieval (in full communication with area office)
Damages during unloading/storage/despatch
(g) MIS for transporter assessment
Selection of transporter
Quality in delivery (accidents, thefts)
Reliability in transit time (average, variance)
Price
Number of trucks owned
Nature of financing
Type of drivers employed
Permits invested in
Monitoring of transporter
Date of despatch, date of delivery, variance analysis
Transhipments on route
Report daily movement
Spot contingency owing to accidents (role of central despatch/nearest C&FA/destination
C&FA)
Stock allocation during contingency by central despatch
Despatch wise
Transporter-wise
Model-wise
(h) Need for transport development
Loading and unloading practices
Truck design
Financing of transporters
Coordination with other tractor manufacturers for return loads
(i) Inputs for product development
Avoid protruding parts for better packing efficiency and reduction of damages
Kitting of loose parts

Exhibit 5
Order Processing and Inventory Planning
Regional Office to Factory (Stockyard-wise, Model-wise)
o Monthly inventory plan with safety stock for stockyards. Safety stock to provide 98 per cent service
level, model wise
o Order quantity = expected demand during protection interval + safety stock – current stock
(including stock in transit)
o Protection interval = Order interval (monthly) + lead time (0.8–1.3 months)
o Attempt to reduce end of month skew and move to weekly ordering, with two weeks lead time
Seasonality
o Annual inventory plan for seasonality (uniform production versus demand driven, if required by using
overtime and/or subcontracting).
Month Demand Production Inventory because

of uniform
production
January 5,000 5,000 1,100
February 4,000 5,000 2,100
March 4,500 5,000 2,600
April 6,000 5,000 1,600
May 5,900 5,000 700
June 5,700 5,000 0
July 4,500 5,000 500
August 4,000 5,000 1,500
September 4,500 5,000 2,000
October 5,500 5,000 1,500
November 5,400 5,000 1,100
December 5,000 5,000 1,100
Total 60,000 60,000
Forecasting
o Company level (for aggregate and seasonality planning)
o Regional office level (consolidation of dealer forecasts and cross-checking, for placing orders from
the factory)
o Dealer level (customer tracking)
Exhibit 6
Distribution Structure
Central Despatch Yard
o Investment cost: `15 million
o Operating cost: `2 million/year
o Flexibility in allocation after physical verification of truck availability
o Inventory saving over current practice: 2 days (1,20,000 tractor days/ year) i.e. `12 million/ year
Some Drivers for Secondary Logistics

o Change from own power to truck based-movement
o Stockyard near dealer
o B/C category inventory to be held by stockyard only
Stockyard Location Analysis

o Because of 4 per cent central sales tax, by and large each state had to have at least one stockyard
o Current policy for stockyard locations was proximity to regional marketing office, which was usually
in a major city in the centre of the state
o Both number and location of stockyards were questioned and relaxed where logistical servicing of
dealer gained importance
o A mathematical programming model could be used for analysis
Exhibit 7
Stockyard Location, Cost, and Distance
Stockyard Operating Cost Distance from
Location per Month (`) Thane (Kms)
Valsad 25,000 136
Surat 20,000 263
Vadodara 30,000 448
Ahmedabad 30,000 545
Rajkot 25,000 761
Exhibit 8
Dealer Location, Demand, and Distance
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Dealer
Surendranagar
Himmatnagar
Location
Dharampur
Bhavnagar
Porbandar
Jamnagar
Junagadh
Mehsana
Palanpur
Godhara
Bharuch
Rajpipla
Nadiad
Bardoli
Dholka
Amreli
Anand
Morbi
Patan
No. of 35 30 25 40 25 20 20 20 35 20 30 45 20 20 20 30 20 25 20
Tractors/
Month
Valsad 633 272 62 163 514 32 385 315 424 616 630 293 419 647 491 456 715 204 431
Surat 566 205 31 96 447 109 318 248 357 549 563 226 352 570 424 389 648 141 364
Vadodara 399 38 125 71 280 266 151 81 190 382 396 59 185 403 257 238 481 82 200
Ahmedabad 258 73 225 182 200 377 40 136 79 313 327 52 74 292 146 125 412 195 116
Rajkot 105 255 492 365 175 560 162 321 304 88 102 234 299 67 371 255 187 255 111
* All distances are in kilometres
Exhibit 9
Stockyard and Dealer Locations

Exhibit 10
Scenario Analysis for Gujarat
(`)
Cost/tractor/ Current Secondary Secondary Secondary Secondary Secondary
km distance distance distance distance distance
limit: limit: limit: limit: limit:
None 350 km 500 km None 500 km
Minimum Min. number
number of of tractors
tractors to be to be
serviced by serviced by
a stockyard: a stockyard:
200/month 200/month
Primary: 2.5 10,28,999 8,73,533 8,78,209 8,75,454 8,75,484 875,484
Secondary: 3.5 Ahmedabad Valsad Valsad Valsad Valsad Valsad
Rajkot Ahmedabad Ahmedabad Ahmedabad Ahmedabad
Rajkot
Primary: 3.0 11,19,855 8,22,880 9,43,085 8,87,380 8,22,800 8,99,080
Secondary: 3.0 Ahmedabad Valsad Valsad Valsad Valsad Valsad
Ahmedabad Vadodara Vadodara
Rajkot
Source: Author’s analysis
Exhibit 11
Recommendations for Stockyard Locations
State Existing Yard(s) Optimal Locations
Andhra Pradesh Hyderabad Hyderabad
Vijayawada
Tamil Nadu Chennai Hosur
Trichy
Karnataka Bangalore Belgaum
Davangere
Gujarat Ahmedabad Valsad
Ahmedabad
Madhya Pradesh Bhopal Indore
Raipur
Rajasthan Jaipur Kota
Sri Ganganagar Jodhpur
Sri Ganganagar
Punjab Jalandhar Patiala
Haryana Karnal Gurgaon
Source: Author’s analysis
Exhibit 12
Organization Structure
CURRENT PROPOSED
PRESIDENT PRESIDENT
PRODUCTION MARKETING MARKETING

SUPPLY CHAIN
RESPONSIBILITY
Engine Unit
Transmission Unit Distribution Unit
Engine Unit Distribution
Tractor Unit
Transmission Unit Unit
Tractor Unit
Transport Stockyard Transport Stockyard

Management Management Management Management
Exhibit 13
November 2, 1999
Mr Rajesh Bhatt
Logistics Team
FarmAid Tractors Limited
Thane, Mumbai
Dear Rajesh,
Regarding the restructuring of the supply chain, I have the following points.
1. The entire supply chain should service the customer requirements in a coordinated way. We aim to be
like a “service” organization.
2. We build on the premise that marketing’s role is to be aware of the customer requirements, and
interface with the customer, both directly as well as through the dealer. Hence, ideally, supply chain’s
responsibility should be up to servicing dealer requirements. Thus, dealer and dealer customer
interface becomes the front office function, while servicing the dealer right from the raw material
vendor through a series of transport, storage, and conversion activities is the back office function.
(Contd.)
3. Given the above ideal supply chain structure, we can start examining activities prior to reaching the
dealer, one by one, to see if there would be better effectiveness and efficiency if the activity was
performed by marketing (front office) or by supply chain (back office). The activities in reverse order
would be
a) transportation from area stockyard to dealer
b) allocation from area yard to dealer
c) receipt, storage, inspection at area yard
d) transportation from central despatch to area yard
e) allocation to area yard
f) transportation from finished goods to area yard
g) ready for despatch inspection at the plant, and so on
4. If (a) above is better performed by marketing, then it could be part of marketing role. Apart from this
activity, it appears that the other activities should be a back office function under supply chain, so
that complete responsibility is taken to ensure availability of required tractors. Focus on activities like
transportation, storage, and inspection even at geographically dispersed places should reach the same
level as a particular manufacturing process in a factory environment.
Thanking you,
Yours sincerely,
Prashanth

SuGGESTED QuESTIONS
1. What are the factors leading to the perceived ‘lack of control’ and poor delivery quality?
2. What forecasting technique should be used for inventory planning at the plant and the
stockyards?
3. Is there a need for a central dispatch yard? What are the pros and cons of having such
a yard?
4. What is a good model for determining the optimal location of stockyards and the
associated allocation of dealers to the stockyards in the state of Gujarat?
5. Interpret the implications of the recommended locations versus the existing locations as
given in Exhibit 11.
A P P R O A C H F O R A N A LY S I S
Quality, as determined by dealers, is an important driving element in the new supply chain.
It throws up a number of steps and stages of supply which lead to poor quality. These need
to be mapped out.
The demand forecast plays a major role as the next step in the analysis. Forecasts are made
at three levels – at the national level, across all models, for overall capacity planning at the
factory, regional forecasts across dealers in a region so that regional stockyards can order,
and finally, dealer level forecasts. Seasonality needs to be addressed properly for the required
service levels. Dealer level forecasts may have their limitations, so, alternatives would have
to be considered.
The need for a central dispatch yard can be assessed from the perspective of inventory
costs, quality costs and control issues. The visibility of loading on trucks is an important
consideration.
The case has a number of scenarios in which to analyze the optimal stockyard location,
with truck transportation costs (primary and secondary) and stockyard location costs being
the main factors. Constraints like the minimum number of stockyards in a state and the
minimum number of tractors to be handled by stockyards have to be taken into account too.
A mathematical program can be formulated for solving this problem using the demand
forecasts and cost estimates that are available. This model is usually of the location-allocation
type and would decide the locations of stockyards together with the allocations of dealers to
these stockyards. Exhibit 10 gives the outcome through a model of this type.
The optimal stockyard locations in the various states, driven primarily by costs, could be
different from the existing locations, which are based on their proximity to the marketing
offices. The optimal locations may, therefore, need a buy-in. This would need facilitating
mechanisms for improved communication and co-ordination.
In the context of the above issues, the supply chain organization may also need
re-structuring, to achieve better co-ordination across production, order processing, and
dispatching.
C as e
12
case conteXt
T his case focuses on the issue of mode choice for the movement of both raw
materials and finished products. The location of the plant has already been
decided based on various considerations, such as the availability of natural gas
as a fuel and access to new sponge iron plants in western India. However, the
market for the final product of Laxmi Transformers, sponge iron (also referred
to as Direct Reduced Iron) was a growing one in India and there was scope for
focusing on some selected final markets. Logistics costs could be a significant factor
in this consideration. Mode choice, across trucking, rail and sea, both for inbound
and outbound, needs to be examined. Apart from mode choice, the distribution
network design, investments for railway siding, barge rentals and scheduling of
ships could be explored for a complete logistics plan.
Laxmi Transformers
Direct reduced iron (DRI), commonly called sponge iron, was to be produced by Laxmi
Transformers (LT) at its new `500 crore Alibag (Maharashtra) plant starting in February 1991.
DRI was an intermediate product in the steel making process and essentially served as a substitute
for scrap iron. DRI was used by both mini steel plants and large integrated steel plants. It could
also be used by ferrous foundries. Maharashtra and Gujarat were the two most industrialized
states in India and had a number of mini‑steel plants and ferrous foundries which were potential
sponge iron buyers. All the integrated steel plants were located in the eastern part of the country
except the SAIL plant which was at Bhadravati in Karnataka.
The advantages of using sponge iron were as follows:
1. It was a substitute for ferrous scrap which was currently imported in large quantities, costing
the nation a large amount of foreign currency.
2. Undesirable elements which may be found in scrap such as chromium, tin, nickel, etc. were
absent. This gave a more consistent and reliable end product quality.
3. It was easier to handle than scrap.
Location
The two primary reasons for locating the project at Alibag were the availability of natural gas and
nearness to sponge iron markets. Natural gas from the Bombay High offshore field was brought
to Uran by a pipeline, about 25 km due south of Bombay. Industries located in areas near Uran
would get gas at what was called “landfall prices” which were substantially less than what inland
customers would pay. The landfall price of gas was about `2500 per 1000 cubic metres. About
300 cubic metres of gas were needed per tonne of sponge iron. The project site was on the
seashore, with a view to having access to sea transport, both during construction and operations.
There were a number of different processes that could be used for sponge iron production, some
being coal based and some being gas based. In consultation with the engineering advisers to
Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad and Mr Dilip Mathew.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion. Cases are not
© 1992 by the Indian Institute of Management, Ahmedabad. This Case (IIMA/PROD0219) has been reproduced with
We also thank Macmillan India Ltd for permitting us to print this case, which was published in Logistics and Supply
Chain Management: Cases and Concepts by Raghuram and Rangaraj.
We also thank McGraw Hill Education (India) Private Limited for permitting us to print this case, which was published
in Supply Chain Management for Competitive Advantage: Concepts and Cases by Rangaraj, Raghuram and Srinivasan.
the project, Technocrats India Ltd., LT decided to adopt the HyL III process for sponge iron
production, under license from the Mexican firm HyLsa which had patented it. This process
used reformed natural gas to convert iron ore to sponge iron.
The plant which had a rated capacity of 500,000 tonnes per annum, would require about 1.24
tonnes of pellets per tonne of DRI and 0.31 tonnes of lump ore per tonne of DRI, making for
a feed mix proportion of approximately 80 : 20. A problem with the Alibag plant was that the
iron ore and pellets required were not available locally.
transportation
LT’s newly appointed Manager, Logistics decided that his first task would be to review the
proposed transportation strategies of his company for the inward movement of raw materials
and the outward movement of his company’s product.
Raw Materials
He first met the Manager, Raw Material Procurement (RMP) and then the Manager (Marketing)
to get their views. Manager (RMP) was responsible for identifying potential reliable suppliers of
the principal raw materials, namely, lump iron ore and iron pellets. He found that the Manager
(RMP) had already made a thorough examination of the production situation and entered into
contracts with three mines that would supply lump ore. The Manager (RMP) had also entered
into a long term contract with Kudremukh Iron Ore Company Limited (KIOCL), Mangalore,
for supply of iron pellets which were essentially produced by agglomerating fine particles of iron
ore. Even though this was an export‑oriented unit whose rupee prices should ordinarily fluctuate
according to the value of the rupee with respect to the US dollar, LT was able to negotiate a
special arrangement guaranteeing its requirements at the rate of `600 per tonne FOB. This
rate would be reviewed annually. The Manager (RMP) was able to clinch this deal because he
negotiated at a time when KIOCL was going through a very troublesome period financially.
Based on considerations such as quality of ore and possible supply and handling constraints, LT
had decided to procure lump ore in the following proportions from the mines mentioned below:
Percentage Price (`/tonne)

Daitari (Orissa) 40 250
Banspani (Orissa) 40 250
Goa 20 330
These sources were not substitutable, since they had been identified according to certain required
chemical properties.
Laxmi Transformers 285
Finished Goods
The Manager (Marketing) was in the process of trying to line up customers for LT’s DRI.
While he had not yet been able to get any firm commitments, he had been able to make some
estimates of the size of the market. A major difficulty he faced in this task was that while there
were a few sponge iron producers in the country already, none of them could be called major
producers because for various reasons they were producing at only a fraction of their capacity.
The Manager, Marketing’s estimates of the market potential is shown in Exhibit 1.
inbound Mode choice
LT was now faced with the problem of deciding the best way of transporting raw materials to
the Alibag plant and DRI from the plant to market centres. There were three possible modes
that could be used – rail, road, and sea – or combinations of these.
Rail
The nearest railhead to Alibag was at Pen, about 15 km away. The Railway Board in Delhi had
categorically stated that there was no prospect of building a line to Alibag, but suggested that
LT would be able to get a line constructed at its own expense at an approximate cost of about
`1 crore per km (including handling and storage infrastructure). If other industries which were
coming up in the area (a cement bagging plant, a gas based fertiliser plant, and a few others in the
drawing board stage) wanted to use the track, LT would be able to share the construction cost.
In the case of rail transport, freight rates were determined by the Indian Railway Conference
Association (IRCA) which published a book of tariffs. Exhibit 2 gives relevant tariffs. While iron
ore was classified as Category 110 for purposes of tariff determination, there was some confusion
on the classification of DRI. While IRCA stated that sponge iron came under Category 150,
Central Railway’s commercial staff maintained that DRI was a different product and would be
charged under Category 210.
Sea
A jetty capable of handling four barges simultaneously with an unloading rate of 2000 tonnes
per hour was to be built at the plant site in Alibag. Giant Western Shipping had said that it
would be able to provide two ships, one of 65000 deadweight tonnes (dwt) and the other of
35000 dwt. LT would be expected to pay market rates whichever ship it decided to employ, as
the shipping industry was riding on the crest of a wave. Going rates and details of ship operating
costs and times are given in Exhibit 3.
High tonnage ocean going ships like the ones being considered could not enter Alibag’s minor
port due to draft restrictions. Hence cargo had to be loaded/unloaded in deep water into/from
barges which could use the jetty. Each barge could be used for one round trip in a day, due to
the tidal variations. The current plan was to charter five barges of 1,000 tonnes payload capacity
for this task. (The limits for unloading were determined by the operating rate of the cranes on
the ship. A total of 10000 tonnes per day was possible, but then 10 barges would be required.
Five would be at the ship side when the other five were at the jetty.) The charter rates for these
barges were `300 per tonne of barge capacity per month (A 1000 tonnes barge hire would cost
`3 lakh per month, i.e. `10000 per day). Deep water operations at Alibag were not possible for
120 days of the year due to the monsoon.
Road
Road transport rates were expected to be 50 paise per tonne kilometre, though due to the new
Motor Vehicles Act and consequent strict imposition of no overloading, the rates could possibly
go as high as 70 paise per tonne kilometre.
Exhibit 4 gives a distance matrix between the various mines, Pen station, ports, and market
centres. Exhibit 5 gives a map of India with relevant locations.
considerations for outbound MoveMent
In examining the options LT had regarding outbound movement, the following were some of
the key issues that had to be borne in mind.
1. Since the ships that bring iron ore would be returning empty (being on a time charter),
sponge iron to markets in the eastern parts of India could be transported by ship. This would
involve additional time due to loading and unloading, but not due to travel time.
2. Scheduling the ships for various trips could become an issue.
3. If LT opened a stockyard for redistribution, it would cost about `1 lakh per month to
maintain the stockyard.
4. Inventory carrying costs would be significant.
5. If trucks were to be used for outbound movement, two issues would dominate. Would it be
possible to get enough 10 tonne trucks to carry the quantities demanded? Would the plant
be able to handle such a large number of trucks?
6. If a rail siding were to be laid from Alibag to Pen, inbound rail transport would also be
facilitated. Regarding outbound movement, only the major consumers could handle direct
rail movement. If a siding was not considered, and rail movement was still planned from/
to Pen, then road movement between Pen and Alibag would take place at a cost of `30 per
tonne, including handling.
7. Each additional handling of DRI resulted in a loss of 1%. The average selling price of DRI
was expected to be `4000 per tonne.
8. The above considerations could even influence the market choice for LT, since demand was
expected to exceed supply.
The Manager (Logistics) was keen on developing a transportation plan keeping all these
considerations in mind.
Exhibit 1
Market Centre‑wise Demand Estimate for Sponge Iron (10,000 tpa)
No. Market Centre 1990/91 1995/96 2000/01

1 Delhi 8.8025 17.605 35.21
2 Hissar 1.0375 2.075 4.15
3 Ambala 0.885 1.77 3.54
4 Ludhiana 3.8475 7.695 15.39
5 Jaipur 2.475 4.95 9.9
6 Lucknow 3.4325 6.865 13.73
7 Muzzafarnagar 1.7375 3.475 6.95
8 Tatanagar 2.0275 4.055 8.11
9 Ranchi 1.175 2.35 4.7
10 Barajamda 0.0525 0.105 0.21
11 Calcutta 10.705 21.41 42.82
12 Rajkot 0.0525 0.105 0.21
13 Ahmedabad 0.845 1.69 3.38
14 Baroda 1.3075 2.615 5.23
15 Raipur 1.7775 3.555 7.11
16 Gwalior 0.565 1.13 2.26
17 Indore 1.9125 3.825 7.65
18 Jabalpur 0.1825 0.365 0.73
19 Bombay 9.37 18.74 37.48
20 Nagpur 2.485 4.97 9.94
21 Aurangabad 0.35 0.7 1.4
22 Kolhapur 0.6775 1.355 2.71
23 Waltair 0.8075 1.615 3.23
24 Secunderabad 1.16 2.32 4.64
25 Kothagudam 2.44 4.88 9.76
26 Bangalore 2.65 5.3 10.6
27 Hospet 0.5575 1.115 2.23
28 Bhadravati 1.48 2.96 5.92
29 Calicut 1.275 2.55 5.1
30 Madras 2.1175 4.235 8.47
31 Tiruchirapalli 0.245 0.49 0.98
68.435 136.87 273.74
No. Market Centre 1990/91 1995/96 2000/01

32 Bhilai 20 25 30
33 Bokaro 20 30 35
34 Rourkela 9 11 15
35 Durgapur 8 9 11
36 Burnpur 5 5 6
37 TISCO, Jamshedpur 10 15 20
38 VISL, Bhadravati 2.5 3.5 5
Total 142.935 235.37 395.74
Source: Company Information
Exhibit 2
IRCA Tariff (Rupees per Quintal)
Category 110 150 210 Category 110 150 210

Km ` Ps ` Ps ` Ps Km ` Ps ` Ps ` Ps
1‑100 4.25 5.44 7.24 186‑190 6.59 8.61 11.66
101‑105 4.54 5.82 7.77 191‑195 6.71 8.79 11.90
106‑110 4.66 5.99 7.99 196‑200 6.82 8.94 12.12
111‑115 4.79 6.17 8.21 201‑205 7.15 9.39 12.73
116‑120 4.91 6.32 8.45 206‑210 7.28 9.57 12.98
121‑125 5.02 6.48 8.68 211‑215 7.40 9.73 13.21
126‑130 5.14 6.65 8.91 216‑220 7.53 9.91 13.45
131‑135 5.26 6.81 9.14 221‑225 7.65 10.07 13.68
136‑140 5.38 6.98 9.37 226‑230 7.78 10.24 13.92
141‑145 5.49 7.14 9.59 231‑235 7.91 10.41 14.15
146‑150 5.61 7.29 9.84 236‑240 8.04 10.58 14.40
151‑155 5.74 7.47 10.06 241‑245 8.15 10.74 14.64
156‑160 5.86 7.64 10.28 246‑250 8.28 10.92 14.86
161‑165 5.98 7.79 10.52 251‑260 8.51 11.22 15.30
166‑170 6.11 7.97 10.74 261‑270 8.73 11.54 15.75
171‑175 6.22 8.12 10.97 271‑280 8.97 11.86 16.19
176‑180 6.34 8.30 11.20 281‑290 9.19 12.18 16.63
181‑185 6.47 8.45 11.44 291‑300 9.42 12.48 17.06
(Contd.)

301‑310 9.81 12.99 17.79 621‑630 19.07 25.58 35.36
311‑320 10.05 13.32 18.23 631‑640 19.32 25.91 35.82
321‑330 10.27 13.64 18.67 641‑650 19.56 26.25 36.29
331‑340 10.51 13.95 19.12 651‑660 19.81 26.57 36.73
341‑350 10.74 14.27 19.58 661‑670 20.04 26.90 37.20
351‑360 10.98 14.59 20.03 671‑680 20.28 27.23 37.64
361‑370 11.21 14.91 20.46 681‑690 20.52 27.54 38.11
371‑380 11.46 15.23 20.91 691‑700 20.77 27.90 38.57
381‑390 11.67 15.55 21.36 701‑710 21.08 28.34 39.19
391‑400 11.91 15.87 21.80 711‑720 21.34 28.67 39.65
401‑410 12.59 16.78 23.06 721‑730 21.57 28.99 40.12
411‑420 12.84 17.12 23.52 731‑740 21.81 29.32 40.58
421‑430 13.08 17.45 23.99 741‑750 22.05 29.65 41.04
431‑440 13.33 17.78 24.46 751‑760 22.30 29.97 41.50
441‑450 13.55 18.11 24.92 761‑770 22.54 30.31 41.97
451‑460 13.80 18.44 25.38 771‑780 22.78 30.65 42.44
461‑170 14.05 18.77 25.84 781‑790 23.03 30.98 42.89
471‑480 14.30 19.10 26.30 791‑800 23.26 31.31 43.36
481‑490 14.54 19.44 26.76 801‑825 23.98 32.26 44.69
491‑500 14.78 19.77 27.24 826‑850 24.57 33.09 45.85
501‑510 15.66 20.96 28.87 851‑875 25.18 33.92 47.01
511‑120 15.91 21.28 29.33 876‑900 25.80 34.76 48.18
521‑530 16.13 21.59 29.77 901‑925 26.52 35.71 49.53
531‑540 16.38 21.91 30.22 926‑950 27.11 36.55 50.69
541‑550 16.59 22.23 30.67 951‑975 27.72 37.38 51.86
551‑560 16.84 22.53 31.11 976‑1000 28.33 38.22 53.02
561‑570 10.07 22.86 31.56 1001‑ 1025 28.96 39.06 54.22
571‑580 17.31 23.18 31.99 1026‑ 1050 29.49 39.78 55.21
581‑590 17.53 23.50 32.45 1051‑ 1075 29.99 40.46 56.18
591‑600 17.77 23.81 32.90 1076‑ 1100 30.51 41.17 57.16
601‑610 18.59 24.93 34.44 1101‑1125 31.13 42.03 58.37
611‑620 18.84 25.26 34.90 1126‑1150 31.66 42.75 59.36

1151‑1175 32.17 43.44 60.35 1901‑1925 47.95 64.92 90.42
1176‑1200 32.69 44.13 61.32 1926‑1950 48.38 65.54 91.23
1201‑1225 33.83 45.70 63.50 1951‑1975 48.81 66.12 92.07
1226‑1250 34.38 46.42 64.50 1976‑2000 49.24 66.69 92.88
1251‑1275 34.89 47.15 65.49 2001‑2025 49.38 66.90 93.15
1276‑1300 35.40 47.84 66.50 2026‑2050 49.52 67.10 93.42
1301‑1325 36.06 48.73 67.75 2051‑2075 49.91 67.60 94.14
1326‑1350 36.59 49.46 68.75 2076‑2100 50.28 68.10 94.85
1351‑1375 37.12 50.17 69.75 2101‑2125 50.64 68.61 95.55
1376‑1400 37.64 50.89 70.75 2126‑2150 51.01 69.13 96.27
1401‑1425 38.64 52.23 72.64 2151‑2175 51.39 69.62 96.98
1426‑1450 39.17 52.97 73.66 2176‑2200 51.75 70.13 97.67
1451‑1475 39.71 53.69 74.68 2201‑2225 52.12 70.64 98.39
1476‑1500 40.23 54.42 75.69 2226‑2250 52.50 71.15 99.11
1501‑1525 40.88 55.28 76.90 2251‑2275 52.88 71.64 99.81
1526‑1558 41.30 55.88 77.73 2276‑2300 53.24 72.15 100.53
1551‑1575 41.73 56.45 78.54 2301‑2325 53.61 72.66 101.22
1576‑1600 42.13 57.04 79.34 2326‑2350 53.98 73.16 101.93
1601‑1625 42.75 57.84 80.50 2351‑2375 54.35 73.66 102.63
1626‑1650 43.18 58.44 81.31 2376‑2400 54.72 74.16 103.35
1651‑1675 43.60 59.02 82.13 2401‑2450 55.45 75.18 104.75
1676‑1700 44.04 59.61 82.95 2451‑2500 56.21 76.20 106.18
1701‑1725 44.65 60.43 84.13 2501‑2550 56.84 77.07 107.40
1726‑1750 45.10 61.04 84.96 2551‑2600 57.49 77.95 108.62
1751‑1775 45.52 61.62 85.76 2601‑2650 58.14 78.83 109.85
1776‑1800 45.95 62.21 86.57 2651‑2700 58.77 79.69 111.07
1801‑1825 46.35 62.74 87.34 2701‑2750 59.41 80.56 112.31
1826‑1850 46.77 63.34 88.16 2751‑2800 60.04 81.46 113.53
1851‑1875 47.21 63.91 88.97 2801‑2850 60.69 82.33 114.75
1876‑1900 47.65 64.50 89.81 2851‑2900 61.32 83.19 115.98
Exhibit 3
Shipping Charges and Times
Ship size (dwt) 35000 65000
Payload (tonnes) 34000 64000
Standing charges
(US $ per day) 9000 15000
(` per day) 153000 255000
One way voyage fuel costs to/from Alibag (`)
Mormugao
‑Loaded 120000 125000
‑Ballast 105000 110000
Mangalore
‑Loaded 180000 187500
‑Ballast 157500 165000
Paradip
‑Loaded 840000 875000
‑Ballast 735000 770000
Calcutta
‑Loaded 960000 1000000
‑Ballast 840000 880000
Fuel costs at anchor (` per day) 15000 17000
Port dues (` per entry)
Alibag 300000 412500
Mormugao 336000 462000
Mangalore 330000 453750
Paradip 380000 522500
Calcutta 420000 577500
Unloading/loading charges (` per tonne)
Alibag 15
Mormugao 50
Mangalore FOBT
Paradip 40
Calcutta 45
One way average travel times to/from Alibag (days)
Mormugao 1.0 1.0
Mangalore 1.5 1.5
Paradip 7.0 7.5
Calcutta 8.0 8.5
Average waiting/loading period at ports (days)
Alibag (unloading) 8.0 11.0
Mormugao 4.5 5.5
Mangalore 3.0 3.5
Paradip 5.0 6.0
Calcutta 6.0 7.0
Exhibit 4
Distance Matrix (kilometres)
Inbound road and rail distances between mines, ports and the plant
Goa Mangalore Daitari Banspani
Alibag (Road) 520 800 1780 1650
* *
Pen (Rail) 500 700 2200 1800
Mormugao (Rail) 50 ‑ ‑ ‑
Paradip (Rail) ‑ ‑ 170 700
400(post ‘95)
* After the completion of Konkan Railway (1996)
Outbound distances to market centres

Town Pen Alibag Town Pen Alibag
(Rail) (Road) (Rail) (Road)
Delhi 1420 1490 Baroda 440 510
Hissar 1520 1590 Raipur 1140 1200
Ambala 1610 1680 Gwalior 1225 1170
Ludhiana 1695 1765 Indore 880 680
*
Jaipur 1150 1250 Jabalpur 1000 1130
Lucknow 1400 1450 Bombay 70 85
Muzaffarnagar 1550 1620 Nagpur 830 940
*
Tatanagar 1700 2040 Aurangabad 340 350
Bhilai 1280 1450 Kolhapur 540 350
Rourkela 1540 1900 Waltair 1520 1320
Durgapur 2000 2300 Secunderabad 810 680
Burnpur 1850 2250 Kothagudam 1060 980
Bokaro 1820 2200 Bangalore 1140 970
Ranchi 1650 2000 Hospet 870 670
Barajamda 1600 1800 Bhadravati* 1390 780
Calcutta 1970 2160 Calicut 1840 1170
Rajkot 780 850 Madras 1290 1310
Ahmedabad 540 630 Tiruchirapalli 1710 1300
Towns marked * have metre gauge only
Exhibit 5
Map of India with Relevant Locations

SUGGeSTeD QUeSTIONS
1. What is the best mode for the inbound supply of raw material?
2. What final markets should Laxmi Transformers choose to serve based on logistical
considerations? What is the best mode for the finished goods dispatch to key markets?
3. Contingent on a particular choice for inbound movement, can the same mode be used
for servicing some final markets?
4. Is laying a rail siding from Pen to Alibag worth the investment?
5. If ships are to be used for inbound logistics, how many barges would be required for the
lighterage operations from the mother vessel to the jetty at Alibag?
6. Would the scheduling of carriers in any mode affect the economics of the mode
choice?
A P P R O A C h F O R A N A Ly S I S
In such a situation, attention must be paid to the value chain of the product, which could
have a significant impact on transportation and inventory related costs. In particular, the
inventory costs have to be calculated keeping in mind the stage at which the material is,
since raw material and finished goods have quite different values of holding and handling.
The main quantities to be considered in inventory calculations for each mode are pipeline
(or transit) inventories, batching inventories and buffer stock inventories.
Each mode choice (including trucking, rail and sea) scenario has to be worked out with the
relevant details of all the associated costs. The sea mode, in particular, has a number of cost
factors, since the volume of movement is high enough that inventory costs while building
up the loading quantity and while consuming the unloaded quantities have to be estimated.
Also, barge costs have to be accounted for, with a suitable level of detail.
Since the spatial spread of final markets for the firm is still uncertain, the logistics costs due
to a mode choice decision may affect the choice of locations for marketing efforts to some
extent. In other words, while considering each mode of movement, the ‘optimal’ choice
of market to serve (with appropriate assumptions about market share) can be assumed.
For this purpose, a segmentation of the final market can be done either on the basis of the
location of the customer, or on the basis of the size of the customer’s demand, in order to
decide which markets to focus on. Some markets may be served by road, while others by
rail and road using a distribution stockyard, and still others by sea. Do also recall that one
of the motivations of locating the plant at Alibag was to serve new mini steel plants and
ferrous foundries in western India.

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TRUCKING BUSINESS

Debjit Roy, G. Raghuram, Rekha Jain,

McGraw Hill Education (India) Private Limited

McGraw Hill Education Ofﬁces

Published by McGraw Hill Education (India) Private Limited

Trucking Business Management: Cases and Concepts

Copyright © 2016 by McGraw Hill Education (India) Private Limited

This edition can be exported from India only by the publishers,

Visit us at: www.mheducation.co.in

About the Authors v

Chapter 1 An Overview of the Trucking Sector in India:

Case 1 Agarwal Packers and Movers Ltd.: The Road Ahead 26

Importance of the commercIal VehIcle (cV) Industry In

phased Growth of the cV Industry In IndIa

Phase 1 – (Pre-Independence period) 1928 to 1947

Phase 2 – 1947 to 1968

Phase 3 – 1968 to 1996

Phase 4 – 1996 to 2015

customers drIVInG chanGe

the technoloGIcal chanGes by oems to offer safety

GoVernment thrust on safety

reGulatIons for the cV Industry

chanGes In the manufacturInG of cVs

challenGes faced by the cV Industry

The major challenges faced by the CV industry in India are as follows:

future prospects for the cV Industry

SignificAnce of roAd trAnSPort

1. Road vis-à-vis other Modes

Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad.

Table 1.1 Modal Share of Freight Traffic

Table 1.2 Projection of Freight Traffic

Table 1.3 Share of Different Modes of Transport in GDP (All values in %)

Table 1.4 Classification of Roads

40 Cars, Jeeps & Taxis

Structure of the trucking induStry

Pure Truck Owners

Tangible Elements Manufactures Truck Body Builders Drivers Fuel Suppliers

Financing, Insurance, Maintenance and Repair, Food and Stay, IT Services,

Figure 1.3 Structure of the Trucking Industry

1. Core Actors in the Trucking Industry

(i) Trucking Companies

(iii) Pure Truck Owners

(ii) Truck Body Builders

(iv) Fuel Suppliers

(iii) Maintenance and Repair

(iv) Food and Stay

4. Government and Regulatory Bodies

(ii) Tax Administrators

(iii) Traffic Police

(iv) Road Development Authorities

(v) Centre (MORTH) and States

5. Causes and Consequences of Industry Structure

Truck Owner Trucking Company Shipper

Figure 1.4 Unholy equilibrium in the trucking sector

(iii) Ownership Pattern

Ownership of trucks in India

Figure 1.5 Truck ownership profile pattern in India

(iv) Service Quality

noTES AnD REfEREnCES