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Management Case

describes a situation faced, a decision or action taken by an individual manager or by an organization at the strategic, functional or operational levels.

Blue Dart Express Limited


S C Bhatnagar and C Ranganathan Company Background
Blue Dart Express Limited is a leading express company in India and is engaged in door-to-door pickup and distribution of packages, documents, and shipments in India and overseas. It was founded as 'Blue Dart Courier Services' in 1983 by three entrepreneurs Mr Clyde Cooper, Mr Kushroo Dubash, and Mr Tushar Jani. It was incorporated as a private Limited company in 1991 and went public in September 1994. Its foundation marked the birth of the organized express industry. The company started with a capital base of Rs 30,000 and its revenues in 199697 were Rs 1570 million. The mission statement of the company reads: We commit to develop, reward, and recognize our people, who through high quality and professional services and use of sophisticated technology will meet and exceed customer and stakeholder satisfaction profitably. The company had tied up with Gelco International (UK) in 1983, which was acquired by Federal Express (Fedex), a world leader in express industry, in 1984. Since then, Blue Dart has been a global service participant of Fedex, which has given it access to over 205 countries worldwide. Blue Dart is the largest player in the domestic segment of documents and non-documents with 26 per cent market share in terms of tonnage. In terms of overall (domestic plus overseas) market share, it is the second largest express company in India with a share of about 22 per cent. The company had a turnover of Rs 1150 million in 1995-96 and has had an annual growth rate of about 50 per cent while the industry growth rate has been hovering around 35 per cent. Table 1 presents the break up of revenues and costs for the year 1996-97. Administratively, the company is organized into regional centres at six major cities namely, Ahmedabad, Mumbai, Delhi, Chennai, Bangalore, and Calcutta. Each regional centre is responsible for a number of branch locations under which there are area locations. In 1996, there were 237 area locations. These area
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This case study describes the operations of Blue Dart Express Limited and documents the development of major IT applications by the company during 1987 to 1997. The company has been investing nearly one per cent of its revenue on developing IT applications during this period. The case describes the evolution of a consignment tracking application on which the current operations of Blue Dart are completely dependent. In 1997, the company was reviewing its plans for the next five years. The company plans to use the emerging information technology to enhance the existing applications and to widen the geographic scope of the application. The case lists some of the issues faced by Malcolm, the chief architect of the successful tracking system, in proposing the size and scope of t he next IT plan to the top management. Readers are invited to send their responses on the case to Vikalpa Office. S C Bhatanagar is CMC Professor of IT at the Indian Institute of Management, Ahmedabad and C Ranganathan is with Exeter Group Inc., Cambridge, MA, USA.

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Table 1: Profit and Loss Account for 1996-97 (Rs 000)


Revenues

Service Charge Lease Rental Total


Operating Costs

1/186,521 87,355 1,573,876 995,131 223,594 137,287 109,080 1,465,092 108,784 46,653 14116

Freight Handling and Service Costs Employee Selling and Administration Establishment Total PBT, Interest, Depreciation Depreciation PBT

The core function of Blue Dart is the physical transportation of a shipment from its origin to the destination which is performed by the operations department. It deploys 164 jeeps and vans and 1282 two-wheelers in the process of collection and distribution of packages. The distribution system follows the "hub-and-spoke" concept, i.e., shipments picked up at a particular origin location are transported to the nearest hub, which in turn routes these shipments to the hub to which the destination location is attached. The destination hub routes the shipment to the specific destination location where the staff deliver the shipment to the consignee. Exhibit 1 presents the movement of a shipment from pick-up to delivery. In 1995, it was handling nearly seven million domestic and 0.35 million international packages and employed nearly 3000 people. Each major branch has a team of operations personnel who manage the entire network, transportation and tracking of shipments. They also liaison with airline and transportation agencies and take care of scheduling out-bound couriers. Other responsibilities of the operations department include routing,

locations serve as an interface with customers and perform the pick-up and delivery of shipments. Branch operations include pick-up, delivery, and liasing with customers. Branch offices also take care of sales and accounting operations.

sorting, security checking, fleet management, and customer billing. Commercial functions like finance and marketing are centralized at the head office in Mumbai. Its international out-bound gateways function at Dubai, Singapore, London, and Mumbai. The in-bound international gateway is at Mumbai which receives packages from London, Frankfurt, Singapore, and Dubai.

Table 3: Comparative Data on Scope of Activity and Sales (1994-95)


Companies No of Domestic Locations Served No of Employees No of Vehicles No of Countries Served Sales (Rs Million) DHL 160 1500 400 220 1620 Blue Dart 237 3008 1500 204 868.3 Elbee 246 2178 825 185 807.1

The Express Industry


The annual turnover of express industry in India was estimated to be Rs 8000 million in 1994-95. The industry players can be categorized into (i) organized sector, accounting for 50 per cent market share, (ii) EMS Speed Post, accounting for 6.5 per cent, and (iii) the unorganized sector, making up the remaining 43 per cent. The unorganized sector of the industry largely comprises of regional players angadias, who have loose arrangements with other local players for providing services. Their services are restricted to a few selected locations and they compete primarily on low prices. EMS Speed Post, which is a division of the government's postal services department, started in 1986. It uses the existing vast network of postal department and offers services at low costs as compared to the players in the organized sector. The main players in the organized sector have tie -ups with international companies for providing services in foreign countries. Table 2 presents data on the market share of major players. Table 3 provides comparative data on geographic scope of activity and sales for these companies.

two personal computers to manage its international invoicing requirements. These computers were used to prepare documents to be submitted to the Reserve Bank of India. Malcolm Monteiro, a management graduate from HM, Ahmedabad joined the operations wing of Blue Dart in 1989. His entry marked a significant phase in the development of IT applications in Blue Dart. Soon after joining the company, Malcolm recruited a software programmer and chalked out a blueprint for IT growth in Blue Dart. First, a few small applications were taken up in the areas of sales analysis, financial accounting, and payable management. PCs were procured and these systems were developed in dbase III and Clipper. These applications were first imple mented in Mumbai and were subsequently rolled out to the four regional centres. All the decisions concerning computer procurement and development were handled by Malcolm, who was based in the central Mumbai branch of Blue Dart. In 1989, Federal Express' tracking system COSMOS was introduced in India enabling Blue Dart to track international shipments.

IT in Blue Dart (1987-1991)


Blue Dart started using computers in 1987. The international operations wing, whose main function was to manage remittances to and from Fedex, bought
Table 2: Market Share of Major Players
Company Air Freight Blue Dart Express Elbee Services Corporate Couriers Skypak Couriers Ltd International Tie-up DHL Worldwide Express Federal Express Corporation United Parcel Service TNT Asia 6.3 Market Share (%) 35.0 22.0 18.0

Consignment Tracking System


Apart from physical transportation of shipments, a crucial activity at Blue Dart is to handle the customer (senders/receivers) queries on the status of their shipments. For example, customers are often anxious to find out if quotations sent by them against tender enquiries had reached before the deadline. The manual operations involved in tracking of a shipment were quite tedious. A customer could send a shipment from any location to any of the other 237 locations where Blue Dart offered its services. On delivery of the shipment, the recipient signed a proof of delivery (POD) attesting the date and time of delivery. The POD travelled back to the origin-location of the shipment, where all such PODs were collected, collated, and sorted. When an enquiry was received from a customer, the particular waybill/POD was located for and the information on the status of the shipment was communicated to the customer. 47

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In 1989, the idea of implementing a computerized shipment tracking system was conceived. Malcolm and his operations team discussed the idea and made an overall sketch of the tracking system. This initial sketch was discussed with Mr Clyde Cooper, the Managing Director, who gave his approval for undertaking the development of the tracking system. As per this sketch, data required by the tracking system were to be captured from the airway bill (AWB) document which contained every detail about the shipment. Malcolm had noted "Our objective then was 100 per cent capture of AWBs." The AWB data should ideally have been captured at the area level. Since the company did not have adequate infrastructure to do so at the area level, it was decided to set up new EDP centres in the main regional offices. After identifying four locations Mumbai, Delhi, Chennai, and Bangalore for the proposed EDP centres, it was decided that a group of area offices would be attached to each EDP. The EDPs would have adequate data entry staff and work stations connected in a LAN to capture AWB and POD details for all the shipments in the locations attached to them. Shipment related information would be recorded at the origin EDP and its corresponding POD information would get recorded at the destination EDP. Subsequent data transfer between EDPs would highlight the status of the shipments. This was the mechanism that was to be deployed to track the shipments. The tracking system called COSMAT-I was developed in about three months time. It was first implemented across Mumbai and Delhi, and was subsequently implemented across Bangalore and Chennai. Data transfer between these locations was done using floppy diskettes initially and later through dial-up lines. The system was a batch processing system with data entry done at the end of each day. It helped Blue Dart produce MIS reports that could aid in locating errors of mis-routing and lost packages. Whereas COSMAT-I allowed tracking of shipments within India, a Blue Dart computer at a regional office could log into COSMOS to enquire the status of a package booked to/from an international destination. The COSMOS and COSMAT systems were not integrated into one transparent network. Beyond Tracking: Aiding Managerial Decisions The next major application was a billing system that was built around the tracking system. Billing system was implemented at all EDP centres by the third quarter of 1991. Blue Dart was making delivery commitments to 48

its clients around the country, but was not sure as to how these commitments were being met. In the express business, reliaoility and delivery commitments are very critical. The clients do not pay for just delivering the shipments on time, but also for giving information about the delivery of their shipments. In 1992, the top management of the company introduced a performance parameter called Net Service Level (NSL) on the lines of what its global partner Fedex had put in place. NSL simply measures the success in delivery of shipments vis-a-vis the commitments made to the clients and is calculated on the basis of POD data that were captured. The introduction of NSL led to the development of a MIS consisting of a series of monitoring parameters for various functions and the MIS application was integrated with billing and tracking systems. Thus, due to increased software development activities, a separate systems development department was established.

Initiatives for Business Improvement


The year 1992 was important in the history of Blue Dart as the company made giant strides in other management areas. It introduced a series of methods for ensuring internal and external customer satisfaction such as an employee satisfaction program based on Kurt Lewin's SEA (Survey, Feedback, Action) methodology and GFTP (Guaranteed Fair Treatment Policy) to measure internal customer satisfaction. GFTP works quite similar to that of a customer grievance cell for resolving contentious issues. This was followed by STEP Subsidized Tuition and Education Plan which offers aid for employees for higher education and skills so that they c ould take higher level responsibilities and positions. On the external customer front, Blue Dart introduced an external customer satisfaction survey based on Parasuraman's ServQual model. The company conducts internal and external customer satisfaction surveys annually to assess its performance. It also measures itself against its competitors on various parameters including expectations, performance, disconfirmation, satisfaction, and loyalty. It was well on its way towards acquiring an ISO 9001 certification during 1996.

IT in Blue Dart (1993-1994)


From 1988-1992, Blue Dart's business grew, with the number of shipments increasing by over 40 per cent. Consequently, the volumes of AWBs processed also increased. Data entry and processing at each EDP centre took several hours. With such growth in business, several locations needed computing support.
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Although COSMAT-1 was an improvement over the manual system, Blue Dart could not provide quick and accurate status of shipments in response to customer queries. The company realized that it had to expand its information technology and information systems infrastructure to cater to the growing business needs. Due to these increased computing needs, Blue Dart started considering the following options : Upgrading the applications to an RDBMS-platform for on-line and faster processing of AWB data. Using leased lines for effective data transfer be tween regional EDP centres. More decentralized processing of waybill and POD data due to high load on regional EDP centres by establishing data entry/EDP centres at newer locations. In 1993, Malcolm and the senior management of Blue Dart decided to conduct a complete IT planning study with the help of Arthur Anderson, a popular IT consulting company in India. Anderson identified the applications to be developed, their prioritization, technical architecture, systems software, hardware, and telecommunications setup required by Blue Dart. The company learnt and deployed Method/1 methodology and structured systems design approaches from Anderson. Blue Dart also started adopting a team-based approach for its IT activities. A high level IT steering committee with the top management personnel, senior IT personnel, users, and the consultants was constituted to deve lop and monitor various IT activities. Smaller teams of IT personnel were formed to take care of various projects. Anderson's recommendations reconfirmed Malcolm's thoughts regarding the need to upgrade COSMAT-I to a RDBMS-based on-line tracking system. Malcolm decided to redesign and redevelop COSMAT-I with better connectivity established across the EDP centres. The on-line tracking system was named as COSMAT-II. COSMAT-I was an off-line tracking system which could provide customers feedback only after 2 4-48 hours. COSMAT-II was expected to: provide faster feedback to the customer hold a database which was easily accessible across a wide area network have the ability to provide the status of package to the customer wherever the package was ensure that, in spite of poor telecom services in some parts of India, the tracking system would
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work reliably take technology to the customer and make it visible to him. After obtaining top management's approval for COSMAT-II, a team with IT staff from both Anderson and Blue Dart was constituted for design and development. The team was further divided on the basis of functional modules of COSMAT-II. A few more IT staff were recruited to cope with the new systems development requirements. COSMAT-II was constructed in four major modules, viz., Area Module, covering operations of all areas and service centres, Customer Services Module to take care of all customer requirements like tracking, queries, etc., Hub Module to cover all operations at a hub, and EDP Module to cater to entire transmission of information across locations, MIS, and billing. Initially, the team contemplated a complete online system, but was constrained by the number of locations, huge investments, and lack of infrastructure facilities. It was, therefore decided that a private leased-line based wide area network would be established across all the EDP centres. After considering a few RDBMS packages like INGRES, ORACLE, INFORMIX and SYBASE, the team decided to develop COSMAT-II on ORACLE. The company decided to implement LANs in those branch locations where AWB volume exceeded 350 per day. The company also decided that computers for data entry would be provided only in areas where pickup and delivery volumes exceeded 100. An important criterion for deciding if a particular location would be computerized was the revenue generated by that location. If a location could generate sufficient revenue to support LAN and connectivity, it was given priority as each LAN setup would cost Blue Dart about Rs 7 lakh. The company evaluated various options including a WAN based on INDONET, INET, dial-ups, and leased lines for connecting the EDPs, and decided to have a private WAN based on leased lines. For connectivity between branch locations and their respective EDPs, it considered the options of a RABMN, leased lines, dial-ups, and floppy transfers. COSMAT -II was first implemented in 1994. To begin with, COSMAT-II worked on dial -up based connectivity between branches and respective EDPs. Later, branches were connected to the respective regional offices through leased lines in a phased program. One of the nagging problems Blue Dart faced in the early years of COSMAT-II was the poor performance of the WAN. The company had been using 9.6 49

kbps leased lines between its five regional offices. To support the growing network traffic requirements, it considered the replacement of present leased line connectivity with VSATs. A team comprising IT staff was constituted to study the feasibility of VSATs and its merits/demerits. The company did a study and estimated that 30 per cent of their IT team man-hour was blocked due to problems in network media. Communication networks were critical for three main applications COSMAT tracking system, COSMOS query applications, and e-mail. The IT team for VSAT project analysed the volume of data transfer for COSMAT application. The company had already introduced scanners in the offices where data were captured from packages. The team found out that all packages had to go through an average of 8-14 scans, covering source, destination, and intermediate centres through which the shipment was transported. The volume of data transmitted using the network was about 110 MB/day with the number of files transmitted over 15000. This had to be taken into account while evaluating the option of VSAT. On the costs front, the team identified that Rs 15 lakh had to be spent on telephonic costs only due to leased line failures. The company was operating with 26 leased lines between key locations and the rest of the locations were connected using dial-ups. The team evaluated VSAT option against leased lines and recommended VSATs. The team now had to decide on the locations and connectivity for each of these locations. COSMAT, file and e-mail volumes, network up time, and sales figures were collected for all locations. After analysis, the team divided these locations into four categories, namely : A, B, C, and D. Category A represented EDP centres handling large volumes of data which required inter-EDP data transfer and ORACLE database access was critical. In category B were placed those locations which were important hub/branch headquarters, and where leased line-up time were not up to the mark. Category C had locations where leased lines were not feasible then and where downtimes were expected to be very high. Category D had locations where leased lines were infeasible. The implementation of the COSMAT-II system was done by a joint team from Blue Dart and Arthur Anderson. Two types of difficulties were encountered during the implementation. The first one which was mentioned earlier related to unreliable communication between offices over leased lines. This has been remedied gradually by connecting EDP centres to Mumbai via VSAT and connecting 75 branches to 50

regional offices by reliable leased lines/VSAT. The second type of difficulty related to the management of change in the entire organization. COSMAT-II system affected the work of every employee of the organization. The employees have to now use new technology like scanners and to interact with computer screens: Extensive training was provided to the employees on using the software and they were also made aware of the business benefits of the new system for the entire company. In cases where employees were not fully cooperative, senior managers intervened to make them realize the benefits of computerization. Extensive availability of e-mail to nearly 2000 employees helped in promoting an IT culture. Everyday, nearly 2300 e-mail messages are handled by the company. It is interesting that employees who now work in computerized branches do not want a transfer to non-computerized branches. The current design of databases distributed at hubs involves a large amount of move ment of data files throughout the day. It also involves purging of data periodically, archiving of data in appropriate modes, and data verification in large number of offices where data are being captured. The housekeeping tasks are enormous requiring dose supervision at each regional office. Information Flow in COSMAT-II Blue Dart earns 60 per cent of its revenue from corporate customers whose offices must be visited everyday for package collection. Rates are negotiated with such customers and they are also offered credit. Other customers usually call the office to specify if they want a package to be picked. Such information is logged into a computer. They may also send the package to Blue Dart office by evening. When the packages are collected from the customers, a way bill is filled out. This way bill (four copies) has a bar code identifier. Data from all way bills for a particular day (from a copy which is detached from the package and passed on to the data entry people and subsequently sent to accounts) are entered into the computer at the branch by the evening. Branches which do not have computers send the way bills to the regional offices for data entry. The traffic at non-computer branches is about 10 per cent. The copy attached with the package is scanned to capture the identifier. All computerized branches have data scanning facilities. Packages to be delivered for a specified destination are put in a plastic bag which also has a bar code. This bar code is scanned after plastic bagging and the bar codes of the packages
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contained in the bag are associated with the bar code of the plastic bag in the computer system. Subsequently, plastic bags destined for a hub are placed in a canvas bag. Each canvas bag has a unique identifier which is keyed in to the computer system. Bar codes of all plastic bags put into a canvas bag are associated with the canvas bag identifier in the computer systems. The bags then move physically through a specified mode and route to the destination hub. At each hub, the canvas bags are unpacked and plastic bags are scanned. When the plastic bags reach their destination, the bags and their contents are scanned once again. With the commissioning of COSMAT-II, customers could call any Blue Dart operator to get an immediate response about the status of their package. The operator would use COSMAT to track the package on-line and provide a response on the telephone itself. Some corporate customers were to be allowed access to Blue Dart databases to conduct the enquiry from their own PC. Offices which are linked to the Blue Dart wide area network can log into federal express centralized computer systems at MEMPHIS and retrieve data for any international consignments by providing the way bill number. The way bill documents for international consignments are federal express documents and are different from the domestic way bills. Once international packages leave the Blue Dart international hub, data on the way bills are passed on to federal express system. Overall, the company has benefited immensely from COSMAT-II. About 30 per cent of the staff time which was earlier spent on preparing documents like transfer challan, manifest, etc. has been saved. The NSL which was about 92-93 per cent increased to 99.6 per cent after implementing COSMAT-II. The annual customer satisfaction survey has also showed an increased customer satisfaction on the technology front. Since the wide area network is declared as a corporate provider network, Blue Dart is able to use it for voice transmission between offices. Thus, IT applications have enabled the organization to cope with phenomenal growth in its business without expanding manpower.

of two. Having spent nearly Rs 15 crore in the last ten years in developing the COSMAT application, the top management of Blue Dart is now reviewing future plans. The annual IT expenditure is now to the tune of Rs 3 crore. It has built up a large IT infrastructure with 850 computer terminals spread in different locations, interconnected by dedicated leased lines, and backed up by V-SAT connections. The total number of people involved in IT operations in the branches and the corporate offices is 275 including data entry operators and supervisors. Using bar coding and laser scanning, shipments are scanned at every transit point and information transmitted back to the originating point automatically. E-mail is available at 72 locations and is being used by 2500 users. While Blue Dart was investing heavily in IT, its major competitors were also making large investments in IT. In fact, its two main competitors have also put in place tracking systems although technologies and software are different. For example, DHL India has developed IT applications for tracking shipments, querying service information and updates, and automatic call distribution management. If the competitors have similar systems, does it mean that Blue Dart could not gain any competitive advantage from such a system? It is felt that Blue Dart would have to innovate constantly to keep ahead of the competition. Malcolm is taking stock of the achievements of the IT department as a part of the exercise to plan future investments. COSMAT-II is now four years old and could be redesigned using platforms like client/ server or intranet. He is justifiably proud of what has been achieved so far. In 1997, Blue Dart had been shortlisted amongst the top three for Computer Socie ty of India National IT Award for best application. As for the company's future plans, an internal task force had scanned emerging information technologies which could be usefully deployed. Some of them were: use of portable scanners, Automatic Call Distribution (ACD) and interactive voice record system, and providing notebook computers to sales people. An ACD can efficiently distribute the incoming customer calls to customer-service agents in the desired manner. It could also help Blue Dart establish a 24-hour auto attendant facility for its clients. ACD would also help in recording all in-coming conversations in order to monitor client service. Portable scanners would minimize the time during operations at various service centres and areas and would enable faster capture for POD and way bill. This would in turn help in faster information availability to client and faster bagging 51

Future Plans
Blue Dart has plans to reach a turnover of Rs 10,000 million by the turn of the century. It proposes to concentrate on domestic market and develop it further. It also has plans to add three hubs and extend its services to 968 cities in India by adding 600 franchise collection centres in addition to its own branches. It is hoping to add 6 more aircrafts to its existing fleet
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and corrections respectively. The task force was also looking at WEB and intranet applications to improve communication with stakeholders. It was believed that COSMAT-II was capturing a large amount of data which could be useful for improving operational decisions in many ways. They were keen to identify such areas and build Decision Support System (DSS) to provide assistance to operating people in area and regional offices. Malcolm is now evaluating the propsal for Blue Dart's future IT plans which he would have to put

up to the top management. Having invested nearly 2 per cent of its revenues in the past, would the top management balk at the idea of stepping up these investments further? What kind of justification would they ask for? Should he formally work out the pay off from past IT investments? Could he claim that Blue Dart has got sig nificant competitive advantage? Has he identified all the new applications and enhancements to existing applications? Should he spell out these in detail so that the costs and benefits could be clearly evaluated?

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