The large reconstruction of India’s supply chain and logistics business

Supply chain is considered the backbone of any consumer goods company, given the fact that companies have to manage large volumes and reach the farthest corners of the country.

Rapid changes in the market place have made it necessary for companies to re-evaluate their supply chain network to ensure availability of the right product, at the right place, at the right time and at the right price, to ensure sustainable profitable growth.

Recent factors driving this include:

  • Transformational fiscal reforms in the form of GST and E-Way Bill
  • The technology revolution affecting business through digitalization, emergence of new channels like e-commerce and social media, artificial intelligence, machine learning tools etc.
  • Growing competitive intensity in the marketplace

The introduction of Goods & Services Tax (GST) is, by far, the most important transformation tax reform introduced in India in recent years.

Given the fact that GST has subsumed all other taxes, such as Service Tax, VAT, Octroi, Excise Duty etc. collected by the central and state governments in India, the reforms are extensive and all-encompassing.

Not only does GST improve the ease of doing business, it also ushers in a degree of convenience and numerous benefit for consumers.

The E-Way Bill is an enabler for GST and a logical step forward following the introduction of GST as it makes the entire process of transporting goods easier and more transparent. Greater transparency under the new GST regime means higher compliance levels, resulting lower tax avoidance. These new regulations effect, and that too positively, the 3 Cs, i.e. country, company and consumers.

Under GST, the entire distribution system is undergoing a sea change. Companies today realize that better supply chain system ensure improved performance in the marketplace and higher profitability, whereas poorly managed supply chains will make it tough to even survive in a competitive market.

So, companies are investing in bringing in greater efficiencies in their supply chain network.

With GST replacing the multiple state taxes, the long-prevalent need to install a hub across all states does not exist any longer. As a result, companies have now remodeled their supply chains and consolidated their hub operations to benefit from large-scale operations.

Without the pain of state-level levies troubling them, companies are now running more efficient supply chains. As a result, they now have bigger warehouses that can service the needs of multiple states, their cost burden has reduced, and they are closer to their consumers.

Improved cost savings arising out of efficiencies in transportation cost, consolidation of warehouses and carrying and forwarding agents (CFAs) will result in higher profitability for companies, which would be ploughed back into developing the business and would have a cascading effect on the country’s overall economic growth.

The emergence of larger warehouses has already resulted in development of warehousing zones in various parts of the country. This would result in overall infrastructure development in and around these zones, helping the local economy too.

Companies are also enhancing their direct reach to the far-flung areas by eliminating intermediaries. This ensures sustainability of product availability, reducing loss of sale due to a particular product not being available in the market.

The reduction in the number of warehousing locations now means the companies today maintain lower inventory, resulting in lesser write-offs andimproved freshness of stocks to consumers.

In this changed scenario where state boundaries no longer matter, consumers get the freshest stock from the nearest stocking point and that too at lower prices.As a result, the availability of products on store shelves has improved and the consumer no longer has to go without her favourite brand.

Technological advancement has opened up doors for rapid expansion of e-commerce, with social media and digitalization helping expand the awareness of products in urban as well as rural areas.

Artificial Intelligence, analytical tools and machine learning tools are aiding in better and faster decision making and reduced turnaround time.

We are already seeing the fruits of these transformations with green shoots of demand emerging.

With each passing day, the government is also working towards making the entire process more transparent and user-friendly with building up strong infrastructure through roads and rails.

These steps would go a long way in taking India higher in the ease of doing business rankings.


Lalit Malik

CFO @ Dabur India Limited

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