“Warehouse consolidations to be next big thing”

Supported by its parent Mahindra & Mahindra (M&M), Mahindra Logistics has steadily grown its non-M&M related business to almost 50 per cent of its total turnover from a miniscule 12 per cent in the past. Pirojshaw Sarkari, Chief Executive Officer, Mahindra Logistics, talks to INFRASTRUCTURE TODAY about industry trends in warehousing such as contract manufacturing and e-commerce logistics.

Tell us about Mahindra Logistics and what you are doing currently?
We are a third-party logistics (3PL) services provider. One of our major thrust areas is warehousing and distribution, where we associate with large warehouses in distributing goods to dealers or other distributors. As a 3PL provider, we add a lot of value as compared to vanilla trucking that moves from the manufacturer to warehouse. In the latter, you are moving goods just to store them whereas in distribution, you are moving goods because there is an order at the other end. This is our focus area and want to grow our business because we are serving the customer’s customer, in a sense.

Today, for instance, we operate a 450,000 sq ft warehouse for a leading FMCG company in Vapi, Gujarat, from where we are distributing not only to Gujarat but also to Maharashtra, post the rollout of the Goods and Services Tax (GST). Technology has enabled us to bring a difference to a company like Hindusthan Unilever, who was dealing with small-time clearing and forwarding (C&F) agents or transporters prior to GST. A C&F agent can run a good arm for you, but he cannot run a 450,000 sq ft facility because the accuracy that we can deliver cannot be achieved without good technology in the warehouse.

What kind of value additions and differentiation are you talking about?
Storing and moving goods is something all logistics companies have to do. However, the winner today is the one who can give visibility for your goods. If you are a distributor and have an order pending to a retailer, for you, getting those goods on time is the most important thing. If a retailer wants something, he is not so concerned about whom he is going to get it from, but he does think about whether it will be available on time so he can serve his customers. Hence, technology should provide solutions for visibility of the product in the warehouse and tracking it until it reaches the retailer. This is where a good 3PL can play a role: providing visibility and tracking. Customers ask, if Amazon and Flipkart can do it for their end consumers, why it cannot be done in warehousing and logistics for dealers and distributors.

Tell us about your warehousing operations?
We have different models of warehousing operations. One of them is the build-to-suit (BTS) model. Let us say, you want a warehouse measuring 100,000 sq ft in a certain area with certain specifications. We can source it from our service partners and operate the warehouse for you after getting it built according to your specifications. However, there are customers who probably need facilities more immediately; so, we would indentify an existing facility in that case.

These were typically the models before GST. But, post GST, we started taking positions in warehouses even before a customer gives us his warehousing requirements.

For instance, we took a 200,000 sq ft warehouse in Gurgaon. We then went out and started marketing it. This is becsuse, post GST, we strongly believe large format warehouse consolidations are going to take place. While bigger customers want their own warehouses, smaller customers want those locations, but cannot always afford large warehouses of their own. Therefore, we give readymade spaces that we take in advance.

We have done two so far, one in Gurgaon and a 300,000 sq ft warehouse in Chakan near Pune, which is a part of the auto belt. In Gurgaon, we have five customers and the warehouse is full. We have three customers in Chakan and this is also full.

While Gurgaon was taken six or eight months ago, we are yet to start operations in Chakan, and it is already full! As I said, this whole auto belt is looking for warehousing. Our Chakan facility was taken from Embassy Towers, while our Gurgaon facility was from a local developer.

Is this your focus area in warehousing?
Yes. Moving ahead, while we will continue to give BTS and find customers for it, our strategy is also to start looking at consumption points and take space in advance of customers telling us to do so. Post GST, we know that customers want regional warehouses and the ability to distribute to more than one state from a single location. You may remember that we had tied up with cosmetics major L’Oreal India to set up their regional warehouse at Tauru Road, Haryana. We are now going to distribute to more than one state from that location.

What is the parent company’s focus on logistics and warehousing?
Well, when I started here in 2010, the split was 88–12 per cent. Today, it is 54–46 per cent. We have grown our non-Mahindra business at a fast rate and we ended last year with Rs 34 billion of top line and Rs 1 billion of profit before tax (PBT). As you know, we made a public offering in November last year. M&M realises that logistics is a sector for its future. This is critical, and the advantage we have is that we get the first chance to try out anything new that comes.

Finally, can you tell us what sort of focus you have on warehousing for e-commerce?
We run trucking between warehouses and this is what we call a line-haul movement. Then there are sorties. In e-commerce language, once the goods come to the warehouse, they need to be sorted for distribution to various locations. From distribution points, you have last mile delivery. We have restricted ourselves up to the distribution points and do not do the last mile delivery for two-wheelers, but we do them for whatever requires a four-wheeler. For example, we would do large packages like refrigerators, washing machines, etc., but not mobile phones. What is happening in e-commerce in the last mile is that there are up to 10 players from a distribution centre who pick up the goods and deliver it to the end customer. But now, e-commerce companies want to deal with one or two companies, not 10, in each of their centres. They may decide to give the entire volume to two operators, dividing the area into two segments, irrespective of small or large packages and leaving it to the operator to decide whether they want to deliver it in a two or four-wheeler. Once this happens, we will be interested because we know how to deliver them and we know how to optimise the deliveries. We are in talks with a couple of e-commerce players and if it comes in, we will take on this model. Otherwise, we are happy doing warehousing and primary transportation.