MWC Ltd. – Looking Beyond the Role of Warehousing

1. Warehousing Industry

Warehouses in India are divided into two broad categories: (1) warehouses for agricultural pro­duce and (2) warehouses for manufactured products. The warehouses for food grain storage are well organized, as these are mostly under government control. There are two major public ware­housing organizations, e.g. Central Warehousing Corporation and the State Warehousing Corpora­tions. They cater to a part of the government’s food grain procurement requirement in handling and public distribution system. In addition to these, Food Corporation of India (government con­trolled) has a network of its own warehouses, exclusively devoted to the public distribution system. The other agencies are run by the cooperative sector at the village and the taluka levels for storage of food grains. However, the total storage capacity of these agencies (39 million tonnes) is inad­equate to take care of the food grain production in the country, which is at the level of 210 million per annum.

For manufactured products the traders and manufacturers use either private, pubic or contract warehouses, or a combination of these, for storage of goods for distribution. This industry is highly fragmented. The privately owned public warehouses offer a variety of services to the depositors and there is stiff competition among the service providers. However, these warehouses do not oper­ate on economies of scale and use manual material-handling methods. As a result, the profit level in these warehouses is low. After liberalization, due to market needs, many foreign-based logistics service suppliers have entered the market and are offering integrated logistics service solutions to their clients. They are building mega-capacity warehouses to operate on scale economies and using the latest technologies to enhance productivity and speed in delivering the products to clients.

2. MWC Profile

MWC Ltd. was established in 1950 in the state of Maharashtra with two warehousing centres. It is one of the oldest warehousing corporations in India. Over a period, MWC has grown into 130 warehousing centres with a total storage capacity of 10 million tonnes in 2001.

In the beginning MWC was storing stocks from primary agricultural producers and local trad­ers. However, slowly MWC has expanded its activities and started storing all types of agro-based products and fertilizers produced in the country. It started with accepting cement and fertilizer from private and public sector undertakings for storage. MWC is now catering to the needs of importers and exporters through bonded warehouse and container freight stations. It also started storing cotton bales from cotton growers. Ever since its inception MWC is continuously making profits. The financial performance of the company during past five years was excellent and they offered not less than 20 per cent dividend to their shareholders during the period.

MWC warehousing space growth is one of the fastest in the industry. It is adding more than 50,000 tonnes of storage capacity every year since the last 4-5 years. The compound growth observed was 10 per cent per annum.

The firm’s storage capacity is mostly used for the storage of food grains and other agro-based products. The depositors are mainly cooperatives, public sector undertakings (PSUs), fertilizer firms, traders, and so on.

With the changing face of trade and commerce due to liberalization of the Indian economy, MWC is facing severe competition from the logistics service providers who are developing their network of warehouses and providing integrated logistics services. Further, the MWC’s warehouses are mostly constructed for storage and handling of food grains and agro products.

3. Business Portfolio

Warehousing Centres. The firm has 130 warehousing centres with 10 million tonnes storage capac­ity in the state of Maharashtra. These centres are located at the major district and taluka levels and at the major food grains and cotton seed producing and trading centres in the state. The products stored are food grains, cereals, pulses, spices, oil cake, coffee seeds, newsprint reels, cement, fertilizers, sugar, jaggery and industrial products. The storage of industrial products is done at the major industrial cen­tres such as Pune, Nashik, Mumbai, Aurangabad, Jalgaon and Nagpur. The industrial manufactured products contribute 18 per cent of the throughput in tonnage per year. The average storage capacity of one warehouse centre varies from 1800 to 18,000 tonnes of food grains. At one warehouse centre there may be 3-10 buildings, each of such building is 140′ Lx 70′ Wx 30 Ht and can store 1800 tonnes of food grains. The inside storage arrangement is similar to the one indicated below. The maximum permissible storage height of the food grain stack is 15 layers of sacks, each of 3′ X 2′ size, which con­tains 100 kg of food grains. The storage space in the building is divided into 12 segments, each 30′ X 20′ size and with sufficient space in between the segments for ventilation and movement of persons.

A good percentage of the warehouses (50 per cent) is more than 20-25 years old and was built to support the public distribution system of the government. The storage capacities of MWC are divided into six regions:

All the warehouses were designed and built for the purpose of storage and handling of agro-based products. Some 3-6 persons, depending on the capacity of the warehouse and the level of throughput, manage each of these warehouses. The stock turnover ratio of these warehouses for food grain is around 8-12, depending on the location. After liberalization of the Indian economy in 1991, MWC began stor­ing products from the manufacturing sector as well. The company finds storing these is remunerative and hassle free, especially from the point of view of less decay and damages during storage, which is otherwise a normal feature for food grains storage. This activity was undertaken by the company at a few places like Mumbai, Pune, Aurangabad, and Nagpur. The stock turnover ratio in the case of industrial products they discovered was 15-18. The warehousing charges for food grains were Rs 4-5 per sq ft per month (food grain being an essential commodity, there was government involvement in distribution and rate fixation in consultation with FCI), while for industrial product they were charging a 30-40 per cent higher rate, according to the warehousing industry practices. Currently, the FMCG companies are shifting their focus from urban to rural markets. They are on the lookout for a warehousing chain to stock their product at strategic locations across the state of Maharashtra so as to penetrate the rural market. This is an excellent opportunity for MWC to deploy its warehousing chain for storage and dis­tribution of products form the manufacturing sector and earn more profits.

Customs Bonded Warehouse. MWC is operating customs bonded warehouses for import-exports cargo. These warehouses are located in a few places like Mumbai, Pune, Aurangabad, Nahsik, Thane, Navi Mumbai, Jalgaon, Ratnagiri and Nagpur. The business is remunerative because in most of the cases manufactured industrial products are warehoused and the charges are to the depositor’s account. The storage rates here are similar to those for industrial products. However, this accounts for 6-8 per cent of the total business of the company.

Container Freight Stations. To cater to the needs of exporters, the firm has started four con­tainer freight stations at Pune, Nagpur, Mumbai and Jalgaon. This is a highly remunerative busi­ness and requires a great deal of coordination among the exporters, container-leasing firms and customs authority. Container freight stations (CFSs) are totally devoted to the exports business. However, the firm has plans to expand in this area of business for domestic cargo movements.

Cold Storages. This is a new area wherein the firm has recently entered. MWC has set up a 1000 MT cold storage facility at Navi Mumbai for storage of perishable agricultural products such as fruits and vegetables. The construction cost of the cold storage is around Rs 3000 per MT as against Rs 300-400 per MT storage capacity for dry cargo. Due to the ever-increasing electric power tar­iff rates, the operating cost is very high. The facility needs to be run on economies of scale for cost advantage. The major cost-spinner in this business is electric power. MWC is planning to use an emerging technology like the ammonia absorption system wherein the energy requirement is 15-18 per cent less than the conventional system run on electricity. There is an excellent scope for cold storage business, as the cold storage capacity is merely sufficient to store 9-10 per cent of the total fruit and vegetable production (110 million tonnes) in the country. According to the surveys conducted by the government and other private agencies, 33 per cent of fruits and vegetables pro­duced in the country perish before these are consumed or processed, mainly because of inadequate cold storage infrastructure in the country. Another area for cold storage requirement is floriculture products, which have great export potential. Currently, cold storage facilities are in great demand in the floriculture, pharmaceutical, horticulture and food processing industries.

Organization Set-up. The firm is headed by the managing director, who is assisted by the gen­eral managers heading operations, finance, engineering, administration and business development. The business development department looks after site selection for new warehouses, feasibility study and market development activities. The engineering department is responsible for construction of new warehouses; maintenance of the old ones; and maintenance of the food grain stocks through usage of pesticides and fumigation process. The operations department is concerned with the mar­keting of storage space, market development and maximizing the storage capacity utilization of the firm. The present average capacity (floor area) utilization over the year is 75 per cent.

In order to avail of the emerging marketing opportunities in a highly competitive environment, The MWC management has done a SWOT analysis to take stock of the situation for formulating a strategic plan for future growth.

Strength

• Excellent warehousing network and geographical coverage
• Huge storage capacity
• Known for food grain storage
• Established customer base

Weakness

• Capacity utilization on the lower side
• Low stock turnover ratio
• Small capacity warehouses
• Manual material-handling facilities
• Traditional way of connectivity in the network
• Low productivity

Opportunities

• Increased trading and distribution activities for manufactured products in FMCG, pharma­ceutical, retail chain, automobile and lifestyle products industries, because of liberalization of the economy and emergence of WTO directives
• Other areas of logistics such as transportation, packaging, inventory management in great demand in the manufacturing and trading industry

Threat

• Proliferation of a new breed of logistics companies (mostly with foreign associations) offering integrated logistics solutions
• New logistics companies offering value-added service
• Logistics companies creating mega storage capacities with technology backup to have econo­mies of scale

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.