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Digitalisation: Helping companies transform their logistics & supply chain models

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Sandeep Kumar
Sandeep Kumar
A multimedia journalist with over eleven years of experience in print and digital media, Sandeep Kumar is assistant editor with Images Group. Books, retail, sports and cinema are an inextricable part of his life.

Logistics and Supply chain (L&SC) is often regarded as the main constituent of a country’s economy. It is one of the most cost-effective resources on which the wheels of the company/retailers and brand runs. Efficient supply chain management has a cascading impact on all aspects of retail–from sourcing of raw materials based on demand forecast and then speeding up the production to getting the product to the store and finally to the consumer, everything depends on the L&SC.

As per CARE ratings, India’s logistics industry is projected to be worth US$ 215 billion by 2020-21, recording a 10 percent compounded annual growth rate (CAGR) over its approximate size of US$ 160 billion in 2016-17. In India, the logistics industry continues to grow and prosper, and the credit of this improvement goes to retail, e-commerce, manufacturing and various other sectors.

The rise in e-commerce consumption, as well as domestic logistics, has also contributed and added more improvement and advancement in the Indian logistics market 2019. As per the report, the industry’s growth will be fuelled by the strides in manufacturing, retail, fast-moving consumer goods and e-commerce sectors. Development of logistics related infrastructure, like dedicated freight corridors, logistics parks, free trade warehousing zones and container freight stations, are expected to improve efficiency.

Efficient supply chain management has a cascading impact on all aspects of retail – from sourcing of raw materials based on demand forecast and then speeding up the production to getting the product to the store and finally to the consumer, everything depends on the supply chain. Experts unanimously agree that besides infrastructure and complications in taxation, it is the efficiency of manpower and adoption of technology that gives a huge boost to supply chain management. However, it still remains to be seen whether the Indian Retail Industry has actively invested in the smooth running of its back-end supply and logistics.

“The logistics industry in India is set to become more forward-looking, and as per the Economic Survey 2017-18, is expected to reach US$ 215 billion in 2020, growing at a compound annual growth rate (CAGR) of 10.5 percent. A considerable degree of consolidation is in the offing, with larger warehouses, and more organised setup. Fuelled by innovation and digitization, the Indian logistics industry will encourage functional excellence with integration and collaboration to a large extent. The digital age will be so intertwined with the logistics industry, it will be difficult to separate the two, I feel,” says Rubal Jain, Managing Director, Safexpress.

Transportation has always remained the dominant factor in this segment. With around 80-85 percent share in the value terms currently, the percentage is set to remain high in the coming years. The remaining percentage is the storage factor. Together, these two components make L&SC, one of the most employment intensive segments, absorbing more than 20 million people.

Indian Logistics Industry

At present, the Indian logistics industry is highly fragmented and unorganised owing to the presence of numerous unorganised players in the industry, with the organised players accounting for approximately 10 percent of the total market share. With the consumer base of the sector encompassing a wide range of industries, including retail, automobile, telecom, pharmaceuticals and heavy industries, the logistics industry has been increasingly attracting investments in the last decade. Further, the logistics industry faces challenges such as under-developed material handling infrastructure, fragmented warehousing, multiple regulatory and policy-making bodies, lack of seamless movement of goods across modes, and minimal integrated IT infrastructure.
In order to develop this sector, focus on new technology, improved investment, skilling, removing bottlenecks, improving inter-modal transportation, automation, a single-window system for giving clearances, and simplifying processes would be required.

Costs, GST & Logistics

Logistics costs have a significant bearing on exports. It is estimated that slashing logistics costs by 10 percent could widen exports by five to eight percent. Steep logistics costs –13-14 percent of India’s GDP– vis-a-vis other nations have always been a worrisome issue. The figure is higher compared to 10-11 percent for BRIC countries and eight to nine percent for developing nations. USA spends around 9.5 percent of the GDP on logistics. Higher logistics costs in India could be ascribed to the lack of efficient inter-modal and multi-modal traditional systems, the ratings agency said in its report.

However, the logistics costs as a share of the GDP is expected to decline, and certain initiatives have played huge role in creating this paradigm. Complications in taxation and costing are one of the biggest hurdles gripping the industry besides infrastructure. Where Goods and Services (GST) has been introduced to simplify the taxation woes to an extent.

The other initiatives, which are also contributing a lot in reducing the costing and improving the infrastructure of and increasing the GDP include:
– Implementation of GST
– Investments in road infrastructure
– Development of inland waterways and coastal shipping
– Dedicated freight corridors

“With the logistics sector getting an ‘infrastructure’ status, the rolling out of GST, and technological advancements, the logistics industry today is set to make a quantum leaps into the future. A few years later, I feel we won’t even recognise the Indian logistics industry as it was – ignored, unorganised, with small players trying to minimise their operating costs and having to deal with daily firefighting,” says Jain.

As explained earlier, at present the Indian logistics industry is highly fragmented and unorganised. Owing to the presence of numerous unorganised players in the industry, it remains fragmented, with the organised players accounting for approximately 10 percent of the total market share. However, with the consumer base of the sector encompassing a wide range of industries, including retail, automobile, telecom, pharmaceuticals and heavy industries, the logistics industry has been increasingly attracting investments in the last decade.

Nonetheless, there are many challenges to be addressed including, but not limited to, under-developed material handling infrastructure, fragmented warehousing, multiple regulatory and policy-making bodies, lack of seamless movement of goods across modes, and minimal integrated IT infrastructure.
In order to develop this sector, focus on new technology, improved investment, skilling, removing bottlenecks, improving intermodal transportation, automation, a single-window system for giving clearances, and simplifying processes would be required.

Challenges

The last mile delivery for products – be it then in retail or food products – to different urban and rural areas remains a key challenge. In Tier II &III towns and suburbs, transportation is a misery. Some of the big players have started delivery by air shipment to ensure products reach on time and are fresh to consume for their buyers. Some of the other key bottlenecks include:

Instability in Supply & Demand: There is no limitation and restrain to the demand of the consumers and to sustain in the business, retailers have to meet them at any cost. So, to fulfil these demands, companies spend a lot in proper planning to cover up the risk management involved.

Pressure to Deliver: Pressure to deliver is a continuous process and requires efficiency focus to deal with it every time.

Talent Availability & Gap in Skill Set: This is another major setback of the supply chain industry. There is a scarcity of talented and skilled labour in this segment. Labour will be abundant, but right skilled labour is hard to come by. Creating a selective automation, capability development and better work environment also remains a tasks.

Right Pricing: Having the right pricing strategy and tools is another factor to consider. It is a well-known fact that 50 percent of promotions don’t generate the necessary ROI. Retailers need a pricing tool which not only helps them automate decision making across the enterprise but also provides important metrics like halo and cannibalisation to compete effectively.

“The last five years have witnessed significant shifts in the way customers and businesses have evolved. Now the customer is highly demanding, and needs have evolved which has proportionally leveraged the value of his money spent. Companies, meanwhile, have started working across all the verticals. With sales being the primary driver, customer sales, demand, likes and dislikes were being recorded for building the right product, but Supply Chain Management has been struggling for capturing the accurate information that would help to improve demand forecast, decrease sales variability to eventually improve the service levels. The distribution system was in naïve state, as it focussed on primary stock movement from factories to distribution centres – which was the bulk cost involved, but least focussed on optimal load movements, moving production units closer to demand, stressing on last mile connectivity and the most ignored was customer service level improvement. There was lack of proper infrastructure in terms of logistics (multi-modal transport) and good quality storage spaces. The frozen industry has still miles to cover with the current refer trucks infrastructure, which is just ~15 percent of our actual requirement (9000 no.s against 62000 Reqn). (source: NCCD 2015 –All India Cold-chain Infrastructure Capacity Assessment of Status Gap).

There had been dearth of mature third-party logistics/3PLs who can help leverage and improve the customer servicing,” explains Vishal Kumar Gosike, Head, Supply Chain- Innovative Foods Limited, Brand Sumeru.

“Some challenges do exist in the logistics between the channel partner and the retailer. One major difficulty that we face is with respect to the timely delivery of orders from partners to retailers. To overcome this challenge, we have started delivering supplies to retailers in the form of ready stock units,” says Ashok Chopra, Country Head at Fresca Juices.

What Retailers Can Do

Retailers and organisations must invest in guides to experiment and learn about emerging themes. Today the budget of the organisation is fully focused on next year operational plan. It is important to carve out investments (in terms of every possible resources) to experiment with pilot preparedness of potential future scenarios.

Modernisation of supply chains will require a combined effort from government, private industry and foreign investments. The challenges are also amplified by volatile demand and increasing expectation of the consumers, changing trends and preferences of the consumers, increasing number of SKUs and the huge Indian customer base – ranging from highly populated metro cities to millions of sparsely populated villages.

Role of Technology in Supply Chain Management

Hemant Gupta, Chief Operating Officer & Chief Finance Officer – The Mandhana Retail Ventures Ltd. says, “Due to lack of technology, there was a huge gap in the time taken between the arrivals of merchandise in the warehouse until the time taken to dispatch the goods as all the processes were then done manually.

The introduction and advancement of technology has played a very important part in the supply chain, including the logistics and warehousing functions. We now have an electronically generated process which helps decide the key responsibility area which clearly indicates the cycle for the goods to come in and move out. The entire supply chain management functioning has evolved over a period of time and has been structured in a way to adhere to timelines accordingly which help to reduce our working cycle capital of the overall supply chain management. For e.g.; to track a package, earlier one would have to manually dial a number and call the logistic partner to find out where the package is, today most of the logistic partners have developed websites with GPS enabled systems thus making tracking easier.”

“We use an ERP called Genesis which is a retail solution. It has an in-built operation that tracks all the processes including billing, tracking and tallying the goods. It also helps us manage our inventory agent which is an important part as far as the supply chain is concerned,” he adds.

Vasanth Kumar, Managing Director, Lifestyle International shares, “At Lifestyle International we have successfully implemented Oracle ARS as well as TOC Symphony software apart from a single view inventory (SVI) order management for effective last mile deliveries from warehouse.”

“Technology has been proving a big enabler in improving the servicing part of Supply Chain. We largely depend on WMS for improved TAT & inventory management. It helps in maintaining FEFO (First Expiry First Out) principle, warns on ageing alerts, helps in quicker navigation inside the warehouse. We use standalone applications for daily production monitoring, RM/PM indent generations. Nowadays, quite a good number of companies are interested in looking for technology solutions which give quick scaling options as well as improved visibility & analysis for better decision making. They are moving from tradition excel based tools to automated scripts and systems, which would save on time, resource effort and accuracy. Now with the convenience of android apps & mobile revolution, most of the HR notifications, approvals, tracking is made available in their respective mobile that are improving the speed of auctioning,” explains Brand Sumeru’s Vishal Kumar.

“To facilitate smooth supply chain management, we use a mobile app called Field Assist. The app enables our sales partners to book orders and also allows us to track the supply. The app was created just a year ago to make our supply chain management process more seamless and efficient,” adds Fresca Juices’ Ashok Chopra.

“SCM and Technology have become synonymous. Digitization of business processes has become more of a necessity than a value-add proposition. This has increased the requirement for creating a digital environment that seamlessly integrates the operations carried out by various entities in the supply chain.

Technological advancements now enable businesses to build end-to-end supply chain solutions that speed up processes and avoid bottlenecks in the supply chain. Business Intelligence tools have helped to improve forecasting and identify areas of concern without any major time lag.

Lastly, it is a matter of survival. With the advancement of technology, market disruptors have spawned and one has to be dynamic to ward off these challenges and retain market leadership – and believe me, without technology, one just cannot be dynamic. With growing e-commerce buyers, retail Indian companies are fast adapting the new technologies to give customer delight,” says Ritesh Shroff, Vice President – Business Excellence, Kurl-On.

Last Mile Delivery: Benefits

Retailers who provide a great last-mile delivery service has following benefits:

Faster Delivery – An Opportunity to Build Loyalty: If given faster delivery options, consumers will be more loyal. For example, a two-hour delivery option, increases loyalty towards a company by leaps and bound. The same holds true for same day delivery as well. But when delivery moves out to three days or more, the percentage of loyalty dips to a very large extent – only about 30 percent retailers say this will increase their loyalty. This likely reflects that consumers see this as a commoditised, mainstream option that is offered by most players. Despite the loyalty opportunity at hand, only a handful of firms off er two-hour or faster delivery. Making faster delivery options available is a significant opportunity for leading firms to differentiate themselves from their competitors and meet consumer expectations.

Satisfied Consumers Pay Higher Delivery Charges for Fast Delivery: Satisfied consumers are willing to pay more for fast delivery as a value-added service, and few are ready to pay premium charges s well for the fast delivery.

Satisfied Customers Purchase at a Higher Frequency: A successful and timely delivery results in happy customers. A satisfied customer eventually turns out to be regular shopper with the same brand/ retailer/ organisation.

Digital Supply Chain Initiatives

As per a Capgemini report, the digital supply chain is a new entrant on the L&SC platform. A digital supply chain includes new initiatives which use digital technologies to optimise operations across the entire supply chain by enabling connectivity, data management, insights, and smart automation. The digitisation of supply chain refers to:

Taking a process or task that is performed manually or offline today and delivering it more efficiently with digital tools
Using digital processes and data to make something more effective and consumer-centric

The benefits of supply chain digitisation can be wide ranging – cost savings, improved customer satisfaction, or even the launch of an entirely new business model. For example, Amazon is looking to roll out its drone-based ‘Prime Air’ program to deliver customer shipments within 30 minutes. This will reduce the operational costs of last-mile deliveries and improve customer satisfaction.

Moreover, it will also open up opportunities for new business models – for example, charging fees to customers for this sub-30-minute delivery or letting other retailers pay to use prime air’s infrastructure.

“Blockchain, for instance, is one of the newest kids on the block. A distributed database that transfers information with a timestamp and the Blockchain is able to pinpoint the source of the product and bring transparency to operations. As a matter of fact, in March 2019, India’s Coffee Board launched blockchain-based coffee e-marketplace. Blockchain not only improves supply chain security and addresses probable fraudulent practices, but also makes processes seamless, with accurate recording of data and the ease of tracking updates in real time,” says Rubal Jain.

With the aggressive pace of economic growth, India is on a fast track to development, powered by innovation and disruption across key sectors, encouraging government policies, and robust and aggressive growth in IT and the Logistics Sector is benefitting, undergoing an unprecedented transformation, fuelled by technological innovations.

It is widely accepted that digitalisation is already enabling organisations to transform their supply chains from corporate cost centres into competitive differentiators. Going forward, we will start to see supply chains develop beyond individual networks into vast ecosystems.

As per a Capgemini report titled ‘The Digital Supply Chain’s Missing Link: Focus’, strong, collaborative partnerships off er significant opportunities, such as collaborative design (with upstream partners) and collaborative demand planning (with the downstream partners).

This will lead to a new reality of the multi-enterprise supply chain that requires new operating models in which humans and machines work seamlessly together and supply chains will ultimately become platform-powered, ensuring multi-enterprise visibility and collaboration based on ‘no-touch’ processes.

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