an analysis of global supply chain management- indian perspective.doc

“AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE”

Introduction

SUPPLY CHAIN MANAGEMENT (SCM)

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ell ram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton (stick), but the entire team needs to make a coordinated effort to win the race.

Below is an example of a very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arbores cent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large.

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To simplify the concept, supply chain management can be defined as a loop: it starts with the customer and ends with the customer. All materials, finished products,

Information and even all transactions flow through the loop. However, supply chain management can be a very difficult task because in the reality, the supply chain is a complex and dynamic network of facilities and organizations with different, conflicting objectives.

Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

Unlike commercial manufacturing supplies, services such as clinical supplies planning are very dynamic and can often have last minute changes. Availability of patient kit when patient arrives at investigator site is very important for clinical trial success. This results in overproduction of drug products to take care of last minute change in demand. R&D manufacturing is very expensive and overproduction of patient kits adds significant cost to the total cost of clinical trials. An integrated supply chain can reduce the overproduction of drug products by efficient demand management, planning, and inventory management.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.

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i. History of supply chain management

The term ‘supply chain management’ (SCM) was coined by Houlihan in 1985. Supply chain management is the management of the flows of material and information, which are managed between facilities such as vendor, manufacturer and distributor. It performs functions of procurement of material, transformation of material into the finished goods and distribution of these finished goods to customers. Its strategy is to coordinate the various organizations’ objectives in order to increase the efficiency of the entire supply chain.

Thomas & Griffin classified the operational coordination of the supply chain management into three categories;

(I) buyer – vendor coordination,

(II) production-distribution coordination and

(III) inventory- distribution.

A supply chain management is a network of firm’s activities, organizations, and the technologies that performs the function of procurement of raw material from vendor firms, transformation of this material into intermediate and finished products and distribution of this finished products to the customers.

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ii. Conceptual Study of Supply Chain Management

Globalization also brings foreign competition into markets that traditionally

were local. Local companies are thereby forced to respond by improving their

manufacturing practices and supply chain management. Experience shows that the gains to

be made in cost, lead-time and quality through working in partnership with customers and

suppliers are significant.

Supply chain management (SCM) is the process of planning, implementing

and controlling the operations of the supply chain as efficiently as possible. Supply Chain

Management spans all movement and storage of raw materials, work-in-process inventory,

and finished goods from point-of-origin to point-of-consumption.

Ganeshan and Harrison have yet another analogous definition:

A supply chain is a network of facilities and distribution options that

performs the functions of procurement of materials, transformation of these materials

into intermediate and finished products, and the distribution of these finished products to

customers.

According to Wikipedia.org:

Supply Chain Management (SCM): Supply chain management is the

process of planning, implementing, and controlling the operations of the supply chain

with the purpose of satisfying customer requirements as efficiently as possible. Supply

chain management spans all movement and storage of raw materials, work–in–process

inventory, and finished goods from point–of–origin to point–of–consumption.

The definition one American professional association put forward is that

Supply Chain Management encompasses the planning and management of all activities

involved in sourcing, procurement, conversion, and logistics management activities.

Importantly, it also includes coordination and collaboration with channel partners, which 4


can be suppliers, intermediaries, third-party service providers, and customers. In

essence, Supply Chain Management integrates supply and demand management within

and across companies. More recently, the loosely coupled, self-organizing network of

businesses that cooperates to provide product and service offerings has been called the

Extended Enterprise.

Logistics is that part of the supply chain process that plans, implements,

and controls the efficient, effective flow and storage of goods, services, and related

information from the point-of-origin to the point-of-consumption in order to meet

customers' requirements.

The broader view of SCM is depicted in the below figure in a simplified

supply chain network structure. This would explain the basic difference between

Logistics and SCM. Supply Chain is inter-company integration of business process and

relationships and where as Logistics is intra-company integration.

Providing enhanced value to customers at the least Total cost Value, Velocity and

Visibility

iii. Participants in the Supply Chain 5


In its simplest form, a supply chain is composed of a company and the

suppliers and customers of that company. This is the basic group of participants that

creates a simple supply chain. Extended supply chains contain three additional types of

participants. First there is the supplier’s supplier or the ultimate supplier at the beginning

of an extended supply chain. Then there is the customer’s customer or ultimate customer

at the end of an extended supply chain. Finally there is a whole category of companies

who are service providers to other companies in the supply chain. These are companies

who supply services in logistics, finance, marketing, and information technology.

In any given supply chain there is some combination of companies who

perform different functions. There are companies that are producers, distributors or

wholesalers, retailers, and companies or individuals who are the customers, the final

consumers of a product. Supporting these companies there will be other companies that

are service providers that provide a range of needed services.

Producers:

Producers or manufacturers are organizations that make a product.

This includes companies that are producers of raw materials and companies that are

producers of finished goods. Producers of raw materials are organizations that mine for

minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the

land, raise animals, or catch seafood. Producers of finished goods use the raw materials

and subassemblies made by other producers to create their products.

Producers can create products that are intangible items such as music,

entertainment, software, or designs. A product can also be a service such as mowing a

lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the

producers of tangible, industrial products are moving to areas of the world where labor is

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less costly. Producers in the developed world of North America, Europe, and parts of

Asia are increasingly producers of intangible items and services.

Distributors:

Distributors are companies that take inventory in bulk from

producers and deliver a bundle of related product lines to customers. Distributors are

also known as wholesalers. They typically sell to other businesses and they sell products

in larger quantities than an individual consumer would usually buy. Distributors buffer

the producers from fluctuations in product demand by stocking inventory and doing

much of the sales work to find and service customers. For the customer, distributors

fulfill the “Time and Place” function—they deliver products when and where the

customer wants them.

A distributor is typically an organization that takes ownership of

significant inventories of products that they buy from producers and sell to consumers.

In addition to product promotion and sales, other functions the distributor performs are

inventory management, warehouse operations, and product transportation as well as

customer support and post-sales service. A distributor can also be an organization that

only brokers a product between the producer and the customer and never takes

ownership of that product. This kind of distributor performs mainly the functions of

product promotion and sales. In both these cases, as the needs of customers evolve and

the range of available products changes, the distributor is the agent that continually

tracks customer needs and matches them with products available.

Retailers:

Retailers stock inventory and sell in smaller quantities to the

general public. This organization also closely tracks the preferences and demands of the

customers that it sells to. It advertises to its customers and often uses some combination

of price, product selection, service, and convenience as the primary draw to attract

customers for the products it sells. Discount department stores attract customers using

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price and wide product selection. Upscale specialty stores offer a unique line of products

and high levels of service. Fast food restaurants use convenience and low prices as their

draw.

Customers:

Customers or consumers are any organization that purchases and

uses a product. A customer organization may purchase a product in order to incorporate

it into another product that they in turn sell to other customers. Or a customer may be the

final end user of a product who buys the product in order to consume it.

Service Providers:

These are organizations that provide services to producers,

distributors, retailers, and customers. Service providers have developed special expertise

and skills that focus on a particular activity needed by a supply chain. Because of this,

they are able to perform these services more effectively and at a better price than

producers, distributors, retailers, or consumers could do on their own.

Some common service providers in any supply chain are providers of transportation

services and warehousing services. These are trucking companies and public warehouse

companies and they are known as logistics providers. Financial service providers deliver

services such as making loans, doing credit analysis, and collecting on past due invoices.

These are banks, credit rating companies, and collection agencies. Some service

providers deliver market research and advertising, while others provide product design,

Engineering services, legal services, and management advice. Still other service

providers offer information technology and data collection services. All these service

providers are integrated to a greater or lesser degree into the ongoing operations of the

producers, distributors, retailers, and consumers in the supply chain.

Supply chains are composed of repeating sets of participants that

fall into one or more of these categories. Over time the needs of the supply chain as a

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whole remain fairly stable. What changes is the mix of participants in the supply chain

and the roles that each participant plays. In some supply chains, there are few service

providers because the other participants perform these services on their own. In other

supply chains very efficient providers of specialized services have evolved and the other

participants outsource work to these service providers instead of doing it themselves.

Examples of supply chain structure are shown in diagram below

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OBJECTIVE


Objective

To Understands real supply chain practices

To Know the cold chain system

To study the current scenario of Indian Logistics Industry

To study the impact of Logistics industry

To know the importance of international cooperation in the field of SCM among industrial form and trading institution

(i) To study the role of global 3PL service providers in India

Scope of the study11


Scope of the study

Scope of the study

Scope of the study

Scope describes the areas covered in a research whereas limitations are the

circumstances that were not considered in the research12


It extends to whole Indian global supply chain

It extends to India’s export and import

It also extends to logistic industry

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Data Collection & Interpretation

THE GLOBAL SUPPLY CHAIN

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With increased globalization and offshore sourcing, global supply chain

management is becoming an important issue for many businesses. Like traditional,

supply chain management, the underlying factors behind the trend are reducing the costs

of procurement and decreasing the risks related to purchasing activities. The big

difference is that global supply chain management involves a company's worldwide

interests and suppliers rather than simply a local or national orientation.

Because global supply chain management usually involves a plethora of

countries, it also usually comes with a plethora of new difficulties that need to be dealt

with appropriately. One that companies need to consider is the overall costs. While local

labor costs may be significantly lower, companies must also focus on the costs of space,

tariffs, and other expenses related to doing business overseas. Additionally, companies

need to factor in the exchange rate. Obviously, companies must do their research and

give serious consideration to all of these different elements as part of their global supply

management approach.

Advantages of Global Supply Chains

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Reduced total costs

Inventory reduction

Improved fulfillment cycle time

Reduce cycle time

Increased forecast accuracy

Productivity increase

Improved capacity

Expand international connections ,

Increase intellectual assets

Delivery improvement

International influences on SCM issues or factors

Costs16


Local labor rates

Local space cost

International freight tariffs

Currency exchange rate

Custom duty

Duty rates differ by commodity and level of assembly

Duty drawback

Impact of GATT / WTO: changes over time

Transfer pricing

Duty suspension

Taxes on corporate income

Different markups by country

Tax havens and not havens

Make vs. Buy effect

Export regulation

Export licenses

Denied parties list

Time

Lead time

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Cycle time

Transit time

Export license approval cycle

Customs clearance

Participants in the Global Supply Chain

The major participants in global supply chain management are

Exporter

Exporter custom

Logistic (service provider)

Importer custom

Importer

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Participants in the Global Supply Chain

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Logistics Management Function

Logistics is the process of movement of goods across the supply chain of the company.

This process is consisting of various functions, which have to be properly managed to

bring effectiveness efficiency in the supply chain of organization. The major logistical

function are shown in figure

1. Order processing:

The starting point of physical distribution activities is the processing of customers’

orders. In order to provide quicker customer service, the orders received from customers

should be processed within the least possible time. Order processing includes receiving

the order, recording the order, filling the order, and assembling all such orders for

transportation, etc. the company and the customers benefit when these steps are carried

out quickly and accurately. The error committed at this stage at times can prove to be

very costly.

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Order processing activity consist of the following

Order checking in any deviations in agreed or negotiation terms

Prices , payment and delivery terms

Checking the availability in of the material stocks

Production and material scheduling for storage

Acknowledge the order, indicating deviation

2. Warehousing:

Warehousing refers to the storing and assorting products in order to create time utility.

The basic purpose of the warehousing activity is to arrange placement of goods, provide

storage facility to store them, consolidate them with other similar products, divide them

into smaller quantities and build up assortment of products. Generally, larger the number

of warehouses a firm has the lesser would be the time taken in serving customers at

different locations, but greater would be the cost of warehousing. Thus, the firm has to

strike a balance between the cost of warehousing and the level of customer service.

Major decision in warehousing is as follow:

Location of warehousing facility

Number of warehousing

Size of warehouse

Design of the building

Ownership of the warehouse

3. Inventory Management:

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Linked to warehousing decisions are the inventory decisions which hold the key to

success of physical distribution especially where the inventory costs may be as high 15

as 30-40 per cent (e.g., steel and automobiles). No wonder, therefore, that the new

concept of Just-in-Time-Inventory decision is increasingly becoming popular with a

number of companies. The decision regarding level of inventory involves estimate of

demand for the product. A correct estimate of the demand helps to hold proper inventory

level and control the inventory costs. This is not only helps the firm in terms of the cost

of inventory and supply to customers in time but also to maintain production at a

consistent level. The major factors determining the inventory levels are: The firm’s

policy regarding the customer service level, Degree of accuracy of the sales forecasts,

Responsiveness of the distribution system i.e., ability of the system to transmit inventory

needs to the factory and get the products in the market. The cost inventory consists of

holding cost (such as cost of warehousing, tied up capital and obsolescence) and

replenishment cost (including the manufacturing cost).

4. Transportation:

Transportation seeks to move goods from points of production and sale to points of

consumption in the quantities required at times needed and at a reasonable cost. The

transportation system adds time and place utilities to the goods handled and thus,

increase their economic value. To achieve these goals, transportation facilities must be

adequate, regular, dependable and equitable in terms of costs and benefits of the

facilities and service provided.

5. Information:

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The physical distribution managers continuously need up-to-date information about

inventory, transportation and warehousing. For example, in respect on inventory,

information about present stock position at each location, future commitment and

replenishment capabilities are constantly required. Similarly, before choosing a 16

carrier, information about the availability of various modes of transport, their costs,

services and suitability for a particular product is needed. About warehousing,

information with respect to space utilization, work schedules, unit load performance,

etc., is required. In order to receive all the information stated above, an efficient

management information system would be of immense use in controlling costs,

improving services and determining the overall effectiveness of distribution. Of course,

it is difficult to correctly assess the cost of physical distribution operations. But if correct

information is available it can be analyzed systematically and a great deal of saving can

be ensured.

6. Facilities:

The Facilities logistics element is composed of a variety of planning activities, all of

which are directed toward ensuring that all required permanent or semi permanent

operating and support facilities (for instance, training, field and depot maintenance,

storage, operational, and testing) are available concurrently with system fielding.

Planning must be comprehensive and include the need for new construction as well as

modifications to existing facilities. Facility construction can take from 5 to 7 years from

concept formulation to user occupancy. It also includes studies to define and establish

impacts on life cycle cost, funding requirements, facility locations and improvements,

space requirements, environmental impacts, duration or frequency of use, safety and

health standards requirements, and security restrictions. Also included are any utility

requirements, for both fixed and mobile facilities, with emphasis on limiting

requirements of scarce or unique resources.

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RELEVANCE OF LOGISTICS INTERNATIONAL MARKETING

Marketing experts have recognized that for developing a position of sustainable

competitive advantage, a major source is superior logistics performance. Thus, it can be

argued that instead of viewing distribution, marketing and manufacturing as largely

separate activities within the business, they need to be unified, particularly at the

strategic level. One might be tempted to describe such an integrated approach to strategy

and planning as ‘Marketing Logistics’. Business can only compete and survive either by

winning a cost advantage or by providing superior value and benefit to the customer.

In recent years, numbers of companies have become aware that the market place

encompasses the world, not just the India .As a practical matter, marketing managers are

finding that they need to do much work in terms of conceptualizing , designing , and

implementing logistics initiatives to market effective globally. Following are the reasons

behind the extension of logistics activities at global level to do business internationally.

The magnitudes of global business are:

• Increase in the magnitude global business.

• Business is relying on foreign countries to provide a source of raw materials and

markets for finished goods.

• Fall of global trade barriers.

• Increase in Global competition.

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THE INDIAN LOGISTICS SECTOR :

Wars have been won or lost on the strength of logistics capability or lack of it. Although

quite an old concept, logistics has been becoming efficient only since the globalization

wave of the early 1990s and hence, the businesses supported by it, worldwide, have been

pushed for competitive balance-sheets, providing consumers a better product/service and

yet adding value to its investors.

Triggering intense competition, globalization, coupled with liberalization, forced both

private and public firms to commit themselves to making available to their customers the

right material of right condition, at the right time and place at the lowest cost — be it a

product or a service.

The World Bank, in a recent survey connecting to Compete: Trade Logistics in the

Global Economy has developed a Logistics Performance Index (LPI) that can serve as a

benchmarking tool for measuring performance of businesses along a country’s logistics

supply chain. The Bank study asserts that countries that are able to connect to the global

logistics web would not only have access to vast new markets but also remain a part of

the global trade growth. The report avers that it is not the income of nations but their

undergoing trade expansion that determines their logistics efficiency, as the survey

shows that nations with increasing trade (imports and exports) to GDP emerged as the

out-performers on the LPI scale relative to their income levels. It also warns that those

countries whose links with the global logistics chain are weak are bound to face large

and growing costs of exclusion from international trade. India trails behind China on

important indices such as customs procedures, overall infrastructure quality,

international shipment, logistics competence and tracking of shipments, but is ahead of

the latter on the domestic logistics efficiency front.

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Healthy economic growth in India is increasingly supported by robust industrial growth.

One of the relatively lesser known but significant sectors that support almost all

industrial activity - the logistics sector - is also witnessing this growth as a follow

through. However, not withstanding its importance and size (INR 4 trillion), it has

traditionally not been accorded the attention it deserves as a separate sector in itself.

Country LPI Score

USA 3.85

UK 3.84

Singapore 4.19

India 3.07

China 3.64

Mexico 2.64

The level of inefficiency in logistics activities in the country has been very high across

all modes. With the evolving business environment creating a strong demand pull for

quality and efficient logistics services, core issues around enabling infrastructure,

regulatory environment and the fragmented nature of the industry are being overcome

gradually.

The required pace of efficiency and quality improvement will demand rapid

development of capabilities of logistics service providers. And with logistics being a

service oriented sector, skill development will emerge as a key capability while skill

issues exist in varying degrees in all segments of logistics; those segments where the

gaps are not only wide but also widening at a relatively fast pace. The most severe and

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immediate requirement for skill development is found to be in the road freight and

warehousing segments.

India’s spend on logistics activities - equivalent to 13 percent of its GDP is higher than

that of the developed nations. The key reason for this is the relatively higher level of

inefficiencies in the system, with lower average trucking speeds, higher turnaround time

at ports and high cost of administrative delays being just a few of the examples.

These inefficiencies have arisen over the years from a combination of a non-conducive

policy environment, extensive industry fragmentation and lack of good basic

infrastructure. India's indirect tax regime discouraged large centralized warehouses and

led, over time, to fragmentation in the warehousing sector. At the same time, the absence

of a single logistics 'champion' (whether in form of a ministry or otherwise) in the

government (or industry) led to a disintegrated approach to development of the sector.

Country Logistics Cost/GDP

India 13%

U.S. 9.9%

Europe 10%

Japan 11.4%

Extensive fragmentation meant the incapacity of industry players to develop the industry

as a whole and poor support infrastructure, such as roads, ports and telecom, led to a

situation where the opportunity to create value is limited.

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However, much of this is changing with the government now demonstrating a strong

commitment towards providing an enabling infrastructure and creating conducive

regulations. There is significant current and planned investment in infrastructure to the

tune of (INR 15 trillion) over the next few years and an increased emphasis on public-

private partnership. At the same time, regulations around rationalization of tax structures

and prevention of overloading for example are creating an environment of positive

change. Players now have the opportunity to leverage economies of scale,

complemented with better infrastructure, to provide integrated logistics solutions which

are cost effective.

In addition, the evolving business landscape and increasing competition across

industries, is creating the need for more efficient and reliable logistics services than what

exist today For example, rapid growth of organized retail and the need to reach out to the

large untapped rural markets in India are necessitating development of strong back end

and front end supply networks.

Fundamentally, a fragmented industry with low average scale - and consequent limited

investment and market development capability - is worst placed to serve these needs. It

is not surprising therefore that there is a frantic pace of consolidation and organic growth

that the industry is witnessing (refer box and figure 4). While logistics service providers

are struggling to keep pace with the growth, logistics service users with limited or no

outsourcing are finding it increasingly difficult and / or undesirable to manage this non-

core activity in-house. The result is a wide need gap that is seemingly widening much

faster than it is being filled.

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It is in this context that capability development of logistics service providers assumes

critical importance. While rapid development across all dimensions of organizational

capability will be required to achieve and sustain demand growth, logistics being a

service industry, manpower capabilities assume utmost 5 importances. The sector

currently employs about 40 million people, a number that will rise rapidly with

exponential growth expectations in the sector. 6 A look at the financials of a set of 80

logistics companies in India across sectors reveals that manpower spends comprise 8-10

percent of overall sales of the sector.

This roughly translates to about an INR 500 billion spend on logistics manpower in the

country annually. Only about 13 -14 percent of the overall manpower costs are spent on

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non-salary, manpower development items (welfare, training etc.). This share for the

unorganized companies would expectedly be much less.

As against this leading global logistics companies spend around 20 percent of their

employee expenditure on non-salary items. This lack of focus on developing manpower

and skills for the logistics sector has resulted in a significant gap in the numbers and

quality of manpower in the sector. This gap, unless addressed urgently, is likely to be a

key impediment in the growth of the logistics sector in India, and in consequence, could

impact growth in industry and manufacturing sectors as well.

This underscores the need for identifying areas where such manpower and skill gaps are

critical, and developing focused action plans to improve the situation. In the next

section, we analyze each segment of the Logistics sector in India to identify the skill

gaps that exist in each. These gaps are then prioritized to identify key focus areas, and

the action that needs to be taken to bridge the gaps.

SIZE OF THE LOGISTICS MARKET IN INDIA:

Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is

the backbone of Indian Economy. Our industry is growing at a rate of 8-10% annually

and has been a crucial contributor in the growth and development of the Indian

economy. In the near future, Traditional Logistics services like Transportation and

Warehousing would continue to growth at a good rate. However, the big ticket growth

would come from the Value Added Logistics services in the near future.

At present, Outsourced Logistics accounts for only one-third of the total Logistics

market in India, which is a significantly lower proportion vis-à-vis the developed

markets. Growth in this industry is currently being driven in India by over USD 300

billion worth of infrastructure investments, the phased introduction of VAT, the

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development of organized Retail and Agro-processing industries, along with a strong

manufacturing growth. In addition, we expect strong Foreign Direct Investment inflows

in the Indian markets, which would lead to increased market opportunities for providers

of Third-Party Logistics in India.

Therefore, India possesses substantial opportunities for growth in the Supply Chain &

Logistics industry in the coming years, notwithstanding the temporary jolt due to the

economic slowdown.

LOGISTICS ON A HIGH GROWTH TRAJECTORY

The Indian logistics sector grew by 8 to 10 per cent annually between 2002 and 2007.

Several factors have favourably impacted the growth of the logistics industry, like the

country's changing tax regime, growth across major industry segments such as

automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence

of organised retail. With escalating competition and cost pressures, companies are

increasingly focusing on their core competencies by outsourcing their logistics

requirements to third party logistics (3PL) players.

The future of the Indian logistics and warehousing industry is currently governed by

three key factors

a) BURGEONING DOMESTIC DEMAND

Emergence of organised retail:

Globally, retail has been a key growth driver for the logistics industry and India is no

exception to this phenomenon. Organised retail in India has been growing at over 30 per

cent year-on-year.

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The total retail industry in India is expected to 1 grow from US$ 320 billion in 2006 to

US$ 421 billion by 2010. The growth of organised retail has created demand for

specialised logistics services, wherein every retailer relies on strong logistics and

warehousing infrastructure for the success of its business. This changing business

environment should give further impetus to the logistics sector by generating increased

demand for high-quality and efficient logistics and warehousing services.

Increase in foreign trade:

In 2007, the Indian economy witnessed a growth of 13 per cent in exports and 17 per

cent in imports. India's current share in global trade is around 0.8 per cent and is

expected to increase to 1.6 per cent by 2012. Robust growth in foreign trade will

increase the demand for good quality and timely logistics and warehouse services.

India becoming a manufacturing hub:

The world over, India is being recognised as a destination for outsourcing of custom-

based, high-technology manufacturing activities. According to Confederation of Indian

Industries (CII), India will emerge as one of the global 'manufactured product'

outsourcing hubs and reach revenues of approximately US$ 50 billion by 2015. In order

to remain cost-competitive, contract manufacturers will be required to provide integrated

logistics solutions that will bolster the cost savings potential of the outsourcing

initiative. The increasing trend of outsourcing will, in turn, drive strong demand for

logistics solutions in the country.

b) Reducing logistics costs

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The logistics cost in India – which includes inventory holding, transportation,

warehousing, packaging, losses and related administration costs – is estimated at

approximately 13 per cent of GDP and is high when compared to the corresponding

figures for major economies India's multi-layered tax regime, infrastructure bottlenecks

and other inefficiencies have been the primary reasons in keeping logistics costs high in

India.

Under the existing tax structure, 2 per cent Central Sales Tax (CST) is levied on inter-

state sales. As a result, companies have had to maintain small warehouses and depots in

every state in order to avoid paying CST on Inter-state sales. These multiple warehouses

have resulted in high inventory costs, increased working capital and other overheads. A

simplified tax regime will help logistics players service multiple markets and offer end-

to-end solutions far more efficiently and at much lower costs.

As per the World Bank's report on the Logistics Performance Index, a 0.5 per cent

decrease in logistics cost leads to 2 per cent growth in trade and a 40 per cent increase in

the range of products that get exported out of the country.

From multiple taxes to a simplified tax regime:

Union Budget 2008-09 has proposed the phasing out of Central Sales Tax (CST) 2010-

11. Once implemented, this measure will promote outsourcing of logistics operations

and encourage the creation of large warehouses at key strategic locations that could

operate on the 'hub-and-spoke' model. The implementation of Value Added Tax (VAT)

in 2006 has played a role in reducing logistics costs. The proposed implementation of

Goods and Service Tax (GST) could lower logistics costs further. According to the

Confederation of Indian Industry (CII), improvement of logistics and warehousing

industry can make Indian industries more cost-competitive, thereby enabling a GDP

growth of 11 to 12 per cent, from the existing 7 to 8 per cent.

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c) Improvement in infrastructure

Transportation in India accounts for nearly 40 per cent of the total cost of production.

One of

The major barriers faced by the Indian logistics industry have been the lack of quality

physical infrastructure. However, India's core sectors are witnessing a significant

change. The country is expected to increase its infrastructure development spend from

4.7 per cent of GDP in 2007 to 8 per cent of GDP by 2012. This increased spend will

help boost the logistics industry. However, delays in critical projects may lead to a

failure of this measure to provide the much needed impetus to the growth of this sector.

Better connectivity to small towns and cities is another area planners need to work upon.

Road transportation is currently the most dominant form of transportation with more

than half of the goods in the country being moved by road. Almost every mode of

transportation in India is fraught with inefficiencies.

For instance, ports – that are vital for foreign trade—have very high turnaround times

when compared with statistics for other countries. Similarly, the railways, which were a

popular mode for freight transportation (especially the movement of bulk goods), have

lost ground to road transportation due to limited access to smaller towns. Air, on the

other hand, is a costly mode and its use is restricted to courier shipments. It is rarely

used for bulk transportation.

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Supply Chain Management in Automobile Industry

Overview of Indian automobile industry

Indian automobile industry is riding high with vast economic growth rate

of 8.4% in 2008-09. The industry has been growing at CAGR of 16.33% from 2002-03

to 2008-09 in terms of production. Booming IT/ITES sector, manufacturing industry

(namely textile, pharmaceutical and engineering) and real estate have contributed to this

high growth in automobile industry in the country.

This is easy to understand because the per capita disposable income of the people has

gone up remarkably. Over the last five years, per capita personal disposable income has

gone up by around 8%, which has increased purchasing capacity of the people in the

country. Other factors have also contributed to this high growth in Indian automobile

sector. These include lowering age of first car users, shorter replacement cycles, rising

duel income families, new technology, which is lowering cost of ownership, low car

penetration in the country and most importantly growing steel production in the country.

In addition, wide variety and easily available financing options are also some of the

major reasons for surge in demand for automobiles in India.

35


Automobile Production Trend in (‘000 units)

Domestic sales have grown at CAGR of 14.27% from 2002-03 to 2008-09. The

commercial vehicle segment, in particular, has increased at CAGR of 24.35% during the

above-mentioned period; whereas total sales of passenger cars in domestic market have

increased at CAGR of 14.02%. In terms of production, commercial vehicles have

registered a CAGR of 24.55% from 2002-03 to 2008-09; while passenger vehicles have

registered a CAGR of 18.24%. There is a declining trend in mopeds production as well

as in sales in the domestic market. During 2002-03, mopeds production and sales have

declined at CAGR 2.93% and 5% respectively.

36


Exports on a roll

The significant development in Indian automobile sector is the

outstanding growth of its exports. From 2002-03 to 2008-09, total exports of automobile

sector has gone up at CAGR of 44.56%. Exports of motorcycle segment have registered

highest annual growth rate of 71.42% during this period. This has clearly indicated that

Indian automobile sector is going global.

Export Trend in IndianAutomobiles (‘000 units)

37


Cold chain system

38


Cold chain systemA cold chain is a temperature-controlled supply chain. An unbroken cold

chain is an uninterrupted series of storage and distribution activities which maintain a

given temperature range. It is used to help extend and ensure the shelf life of products

such as fresh agricultural produce, processed foods, photographic film, chemicals and

pharmaceutical drugs.

UsesCold chains are common in the food and pharmaceutical industries and

also some chemical shipments. One common temperature range for a cold chain in

pharmaceutical industries is 2 to 8 °C but the specific temperature (and time at

temperature) tolerances depend on the actual product being shipped.

This is important in the supply of vaccines to distant clinics in hot

climates served by poorly developed transport networks. Disruption of a cold chain due

to war may produce consequences similar to the Smallpox outbreaks in the Philippines

during the Spanish-American war.

Traditionally all historical stability data developed for vaccines were

based on the temperature range of 2-8 °C. With recent development of biological

products by former vaccine developers, biologics has fallen into the same category of

storage at 2-8 °C due to the nature of the products and the lack of testing these products

at wider storage conditions.

The cold chain distribution process is an extension of the good

manufacturing practice (GMP) environment that all drugs and biological products are

required to adhere to, enforced by the various health regulatory bodies. As such, the

distribution process must be validated to ensure that there is no negative impact to the

safety, efficacy or quality of the drug substance. The GMP environment requires that all

39

http://en.wikipedia.org/wiki/Temperature

http://en.wikipedia.org/wiki/Good_manufacturing_practice

http://en.wikipedia.org/wiki/Good_manufacturing_practice

http://en.wikipedia.org/wiki/Biologics

http://en.wikipedia.org/wiki/Vaccines

http://en.wikipedia.org/wiki/Pharmaceutical

http://en.wikipedia.org/wiki/Food

http://en.wikipedia.org/wiki/Pharmaceutical_drug

http://en.wikipedia.org/wiki/Shelf_life

http://en.wikipedia.org/wiki/Supply_chain


processes that might impact the safety, efficacy or quality of the drug substance must be

evaluated, including storage and distribution of the drug substance.

Cold chain concept

A Cold Chain is a system which provides a series of facilities for maintaining ideal storage conditions for perishables from the point of origin to the point of consumption

Farm Pack house

Cold storage

40


Retail outlets Reefer van

Recent trends in Global Supply Chain

41


Trend 1: Globalization

Globalization, the ratio of a company’s value creation outside the home

country, is gaining momentum, according to our survey results. Respondents consistently rank acceleration of supply chain globalization as a top priority over the next several years and note that they are reducing management of supply chain functions within their home country and shifting these functions to other locations. This trend is consistent regardless of a company’s focus industry or current supply chain maturity.

Among the 300 surveyed companies, 42% of all manufacturing activities and 38% of final assembly have already been globalized. The primary shift of manufacturing and assembly operations has been to low cost country destinations including China, India, and Eastern Europe. As a result, support functions such as warehousing and procurement have also been globalized in support of international locations.

The trend toward globalization is ongoing, with four out of five surveyed companies planning to shift additional functions offshore by 2010. While transition of manufacturing and assembly functions will grow only moderately, by 2010 more than half of the companies’ total operations will be located outside the original home country.

This year’s survey shows a new trend: a high rate of growth with respect to the globalization of product and technology development. While these functions have traditionally been kept at a company’s headquarters, the need to adapt products to international markets and lack of qualified R&D personnel are driving the trend toward increased globalization. By 2010, off shoring of R&D and technology development activities will almost double.

42


The trend to outsource IT and other shared services such as HR and Finance is decelerating, as most of the surveyed companies have already achieved anticipated benefits from off shoring these functions.

43


Risk of globalizing the supply chain

The material and labor cost benefits gained as a result of increased globalization are not without risk. The majority of survey respondents report that they have experienced issues with product safety and quality as a result, with more than one-fifth saying that these issues are frequent and serious. In some cases, decisions to offshore products have been reversed because quality problems could not be resolved.

The incidence of product safety and quality problems varies by industry. Automotive and industrial equipment companies are the most likely to experience major issues, and electronics and consumer goods companies are the least likely.

In addition, the surveyed companies named on-time delivery of critical products as well as overall product / supply availability as major risks when globalizing their supply chain.

Companies have developed numerous ways to minimize disruption related to quality and delivery issues. Increasing the frequency of on-site audits is the most commonly cited approach, followed by physical deployment of their company’s resources within the supplier’s location, increased inspection, and increased supplier training. Industry leaders are more likely to focus on deployment of their own resources within supplier locations while followers rely more on supplier audits.

Other risk mitigation strategies mentioned frequently include consistent dual sourcing strategies, early integration of product development and supply chain Management and late customization of products in home market facilities.

44


Major Globalization Risks and Means of Mitigation

45


46

Analysis


1. Logistics performance of Index of India with other countries :

Country LPI Score

USA 3.85

UK 3.84

Singapore 4.19

India 3.07

China 3.64

Mexico 2.64

47


Interpretation: The Logistics Performance Index (LPI) and its indicators provide the first

in-depth cross-country assessment of the logistics gap among countries. As the above

graph shows that LPI score of USA, UK, Singapore, India and Mexico, indicates the

performance of logistics in global transport and logistics hubs. Also as the performance

of developed countries in logistics are high as compare to the developing nation.

Singapore has high performance in global logistics as compare to other countries also

gain rank 1st among all by World Bank. USA, UK, Mexico and China are ranked in

logistics performance in global market at 9th, 14th, 56th and 30th respectively. India is

ranked 39th in the Global market show the high logistics performance than in the global

market.

48


2 LPI top 10 countries of low income group :

Country LPI score

India 3.07

Vietnam 2.89

São Tomé and Principe 2.87

Guinea 2.71

Sudan 2.71

Mauritania 2.63

Pakistan 2.62

Kenya 2.52

Gambia 2.52

Cambodia 2.50

Interpretation: This graph shows that India had performed well among all the low-income

countries. India has scored 3.07 LPI score and ranked 1st among all other low income countries.

This shows the among the low income countries India’s performance in global transportation

and logistics hubs is better.

49


3 Logistics cost contributed from GDP in different countries :

Country Logistics Cost/GDP

India 13%

U.S. 9.9%

Europe 10%

Japan 11.4%

Interpretation: Above graph show that in India logistics cost high than developed

countries and contribution in GDP is 13 %. High logistics cost is due to the incomplete

and under developed infrastructure, non conductive policy, environment, indirect tax

regime and extensive industry fragmentation.

50


4 Share of 3PL in overall industry:

Country Share of 3PL in overall

Logistics

India 10 %

U.S. 57 %

Europe 30 %

Japan 80 %

Interpretation: Above graph shows that in Japan share of 3PL in overall industry high

as compare other developed countries is 80 %. In India share of 3PL is 10 % show that in

India 3PL service provider are less.

51


5. Revenue generated from 3PL:

Year Revenue (mil. USD)

2005 890

2008 1622

2012 E 3556

Interpretation: The above graph shows that 3pl share in the logistics industry

increased with the increased in revenue of the 3PL in the logistics industry in India.

52


53

Limitation


Limitation of study

The study is based on the secondary published in news papers, books and journals of the researcher. So some time data witch is publish by the researcher can not analysis fresh stimulation means old &wrong data is collected by the inbuilt error.

This study based on only India’s global supply chain

54


55


CONCLUSION

Indian Logistics industry is continuously improving its performance in the

global logistics industry by improvement of customs, trade-related infrastructure, inland

transit, logistics services, information systems, and port efficiency help to provide trade

goods and services on time and at low cost. The World Bank's 2007th Global Logistics

Report ranks India 39 amongst 150 countries in terms of logistics performance during the

year as well as its future potential.

56


57

Bibliography


Book:

Global Supply Chain Management:Author -Masaaki Kotabe, Michael J. Mol – 2006

International Logistics: Global Supply Chain Management:

Author- Douglas C. Long – 2003

Global Logistics and Supply Chain Management

Author- John Mangan, Chandra Lalwani, Tim Butcher - 2008

Websites:

www.google.com

www.scribd.com

www.thehindu.com

www.supplychain-forum.com

www.supply-chain.org

58

http://www.supplychain-forum.com/

http://www.thehindu.com/

http://www.scribd.com/

http://www.google.com/

http://books.google.co.in/books?id=9bpcxQIw484C&printsec=frontcover&dq=global+supply+chain+management+%26+logistic+management&hl=en&ei=Iou9S7j1H4O3rAe41sSPBw&sa=X&oi=book_result&ct=result&resnum=6&ved=0CFoQ6AEwBQ

http://books.google.co.in/books?id=z7NBCXKa6DUC&printsec=frontcover&dq=global+supply+chain+management&hl=en&ei=o4q9S66cMtCvrAex25nSBw&sa=X&oi=book_result&ct=result&resnum=2&ved=0CEIQ6AEwAQ

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