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International Journal of Management, MIT College of Management, Vol. 2, No. 2, August 2014, pp. 58–62 58

ISSN 2321- 6700 © MIT Publications

Logistics : Challenges, Look-ins in India

Pranav Kharbanda1

INTRODUCTIONThe Indian economy has been growing at an average rate of more

than 8 per cent over the last four years (Srinivas, 2006) putting

enormous demands on its productive infrastructure. Whether it is

the physical infrastructure of road, ports, water, power etc. or thedigital infrastructure of broadband networks, telecommunication

etc. or the service infrastructure of logistics — all are being

stretched to perform beyond their capabilities. Interestingly,

this is leading to an emergence of innovative practices to allow

business and public service to operate at a higher growth rate in

an environment where the support systems are getting augmented

concurrently. In this paper, the status of the evolving logistics

sector in India has been presented, innovations therein through

interesting business models and the challenges that it faces in

years to come.

THE CURRENT SCENARIO OF LOGISTICINFRASTRUCTURE IN INDIA

Globally, the logistics industry is valued at US$ 3.5 trillion and

the Indian logistics industry is presently estimated at US$ 90

billion (Source: CII).The global logistics industry was valued

at US$3.5 trillion in 2007, whereas US logistics industry size

was around US$900 billion, 25% of the global logistics industry.

Logistics costs in India are estimated to be around 13% of

the GDP, which comes to around US$94 billion in 2006-07.

However, India’s spending on logistics industry is much higher

than the developed economies like the US (9.5%) and Japan

(10.5%). Presently, Indian logistics industry is highly fragmented

and is still evolving, with the top 100 listed players only having

a miniscule 2 per cent market share.

Only India among the BRIC nations has slipped on the WorldBank’s Logistics Performance Index. India’s ranking slipped to

46th in the 2012 World Bank’s Logistics Performance Index,

which measures logistics efciency and is now recognized

globally. Five years ago, India was ranked 39. The drop in ranking

is a matter of concern for the country, which is expecting a lot

of foreign investment across sectors that require an efcient

logistics system.

The Indian logistics market, valued at $14 billion a couple

of years ago, is expected to grow at a CAGR (compounded

annual growth rate) of 7-8 per cent. It is felt that the growth will

continue, and might even scale newer heights, as the economyis experiencing a retail boom with Western companies such as

Metro, Wal-Mart planning to start operation in this country, and

large local retailers such as Shoppers Stop, Pantaloon, RPG and

Big Bazaar planning to expand their operations in smaller cities.

India has one of the world’s largest road networks, with a total

length of 3.3 million kilometers. But much of this network

does not meet Western standards. The Indian road transport

market is forecast to rise to $40 billion by 2012 — it is

currently $28 billion.

The logistics industry in India is evolving rapidly and it is the interplay of infrastructure, technology and new types of service

providers that will dene whether the industry is able to help its customers reduce their logistics costs and provide effective

services (which are also growing). Changing government policies on taxation and regulation of service providers are going

to play an important role in this process. Coordination across various government agencies requires approval from multiple

ministries and is a road block for multi modal transport in India. At the rm level, the logistics focus is moving towards reducing

cycle times in order to add value to their customers. Consequently, better tools and strategies are being sought by rms in order

to enhance their decision making. The present study emphasizes upon a perspective on these issues, outline some of the key

challenges with the help of secondary information, and describe some interesting initiatives that some rms and industries are

taking to compete through excellence in managing their logistics. The research focuses on the importance of logistics capability

and its effect on rm’s performance in the e-commerce market. Logistics capability is perceived as the rm’s critical capability

in providing a competitive advantage in both traditional and e-commerce market environments.

Keywords : Logistics management, e-commerce market, multi model transport.

ABSTRACT

1. CPEM IIFT, Assistant Professor, Knowledge Institute, Delhi, F-296, 1st Floor, Mansarover Garden, New Delhi-110015 (INDIA).





PROBLEMS/CHALLENGES IN LOGISTICS

MANAGEMENT IN INDIA

Logistics has always been a central and essential feature of

all economic activity. Despite this importance, there is a long

history of organizations paying little attention to their logistics.

They traditionally concentrated their efforts into manufacturing

products and considered the movement and storage of materials

as an uninteresting errand that formed part of the overheads of

doing business.

Recession in many markets, combined with new sources of

competition, has raised the consciousness of customers towards

value of service delivered to them by their service providers.

Accordingly, the logistics industry has consciously strived to

be at the focal point of strategy formulation and operational

excellence to continue in its endeavor for providing maximum

contribution in value creation. Globalization, consolidation,

technology advancements and outsourcing have led to growth in

the logistics services market. The capabilities of logistics service providers are growing along with the changing expectations

of their clients. As the logistics services industry evolves,

competitors are moving away from asset-based commoditized

services to more strategic, information-based approaches. Some

of the challenges faced by Indian rms in logistics sector are:

• Lack of sustained investment in planned infrastructure

like warehouses, transport centers, ICDs etc.

• Cold Chain infrastructure is very sporadic. The concept

of “Integrated Cold Chain” is non-existent.

• Major investments on these infrastructures have come from

Government agencies like CWC, SWC, CONCOR etc. • Current private sector initiatives are small and sporadic.

• Private sector warehousing are of poor quality, small,

fragmented and does not meet infrastructure standards.

• No quality standards or benchmarks are followed in in-

frastructure creation.

KEY COUNCIL INSIGHTS AND

RECOMMENDATIONS

While a lack of Logistics infrastructure is a burden, it’s also

an opportunity. Starting fresh means adopting the best supply

chain management principles, practices and technologies without

having to migrate or upgrade legacy approaches. Manufacturers

and retailers should devise a strategy to align with the organized-

retailing infrastructure build-out, focusing key activities on

designing a multi-tiered distribution network, setting basic

transportation goals and expectations, and establishing solid

partnerships.

Design a Multi-tiered Distribution Network

The key to a successful distribution strategy will be proximity.

The tail that wags the distribution dog is transportation reliability.

Transportation reliability or, more accurately, unreliability, will

play a key role in determining the number of nodes required for

distribution and the inventory to support it. Pure ow-through,

or single-node distribution chains from plants directly to

retailers, will be non-existent. CPG and retail rms will require

signicantly more infrastructure in India. For example, Reliance

plans to build between 65 and 80 distribution centers to support

its goal of $20 billion in revenue. That’s more than half the

DCs currently in Wal-Mart’s supply chain, which supports over10 times the revenue. Even as Reliance and Wal-Mart build

distribution capability, manufacturers will have to match this

distribution, not only at the local level, but also at regional and

central points. These multi-echelon networks will replace lean,

single-tiered U.S. philosophies based on just-in-time principles.

Even rms with fast-moving goods will be required to set up

decentralized, multi-tiered distribution networks.

Rely More Heavily on Inventory

Let’s face it, in the near term, India’s supply chains will not be

highly reliable. Shippers accustomed to reliability and speedwill have to reset expectations. To reduce the impact of highly-

variable transportation, brought about by inadequate logistical

infrastructure, rms must adopt inventory strategies similar to

those used in small-part service industries. While service parts

industries use inventory to buffer demand versus transportation

variability, the resulting network structure is the same. Firms will

need to stage inventory throughout multiple echelons to reduce

the impact of transportation variability and high transportation

costs. This multi-echelon staging will create networks with

many distribution points and double-handling of products. By

investing in additional capacity ow, like dock-doors and staging

oor space, rms will add more capacity for quick off-loading,reducing the impact of increased transportation investments and

costs. The ‘cringe factor’ of this strategy is reduced, considering

labor and warehousing combine for less than a quarter of India’s

logistics costs.

Reside Close to the Market

To buffer lead-time variability, firms should set up final

distribution within the independent, local markets they plan to

serve. By starting in only a few highly-concentrated cities, a

regionalized distribution scheme will enable rms to support

branded stores or dis tribution operat ions, while bui lding

relationships with other local entities to expand their presence.

As volume grows and transportation improves, rms can convert

regional stocking facilities to ow-through and add centralized

facilities as sourcing and stocking points. However, to support

this more efcient multi-tiered strategy, rms will need to vie

for space now, as land grab efforts increase dramatically. Just

last year, retail real estate costs accelerated faster in New Delhi

than anywhere else in the world. While hot urban areas include

Hyderabad, Bangalore and Mumbai, second-tier cities are quickly

becoming targets of mall openings, accounting for 40 percent

of those scheduled through 2010. Longer term, about 200 cities

with under 2 million in population and 500 additional rural townswill be used as retail hubs, each catering to over 1000 villages.





Use Technology to Provide Visibility and Collaboration

To manage the inevitable explosion in items they will eventually

carry, organized retailers are investing heavily in leading-edge

systems to create a data foundation for providing visibility and

optimizing operations. Early-stage retail ventures are starting

with leading-edge planning and execution applications fromSAP, Oracle, JDA, Manhattan Associates and i2 Technologies.

These systems will greatly aid supplier collaboration and enable

manufacturers to share in real-time information ow. They

also will make it possible for retailers to build accurate sales

histories from day one, creating a foundation for more robust

planning capabilities in network design, inventory planning and

transportation modeling.

Select a key partner. Today, third-party logistics in India accounts

for a quarter of its transport industry, but is expected to grow

to over $125 billion by 2010. Including distribution, the 3PL

market is expected to hit $3.6 billion by 2012. This growth is

being fueled, in part, by large investments in automotive andtelecom manufacturing. 3PLs like Menlo are not only managing

distribution, but many are also offering innovative assembly and

manufacturing manpower, as well. And industrial real-estate

developers Prologis and Aeroterm are entering the market by

building on speculation. The partial introduction of the Value

Added Tax (VAT) in 2005 is expected to drive more industries

toward using 3PL services, since it benets large warehouses in

hub cities — huge investments many companies will want the

service providers to make.

Set Basic Transportation Goals and Expectations

In India, the transportation network consists of few highways,small trucks and constrained speeds. It is projected that highways

will improve, as recently funded projects are completed. The

government has pledged to build 10,000 kilometers of new roads

and improve ports by 2010. But the bulk of the infrastructure will

likely come from private or foreign investment. For example,

Mukesh Ambani, Reliance’s chairman, is building a new port

city near Mumbai. His younger brother, Anil, is building a $4

billion suburban railway system in Mumbai. Several of India’s

other wealthiest business developers are focused on developing

energy for the country. As infrastructure improves, new market

entrants will need transportation strategies that:

Focus on high asset utilization. While labor in India isinexpensive, compared to developed economies in the West,

equipment and fuel are not. Comparatively, labor is the highest

cost component in the U.S., but in India, it’s one-third the cost

per kilometer of fuel alone (Exhibit 4 shows a logistical cost

comparison between India and U.S.). Leveraging low-cost labor

to maximize the utilization of assets will be a critical element

to optimizing transportation strategies. By employing strategies

such as “slip-seating,” one driver can be changed-over with

another driver when his maximum driving time is reached, since

there’s minimal nancial impact to rest him for the day. Firms can

utilize team-driving to improve not only equipment utilization,

but also improve transit times and reduce variability.

Establish a Core, Senior Logistics Team on the Ground

Delivery success in the near term won’t be based on technology,

but rather on relationships and communication. Firms won’t

be able to manage transportation virtually from an ofce in

Chicago or Amsterdam. Instead, they will have to build a strong

physical presence in each region. Companies like Samsung havesuccessfully penetrated India by employing a core, experienced

operations team in each region. This team must be familiar

with the regional service providers, restrictions and statewide

regulations.

Set rigid provider qualications. India’s carrier base will continue

to consolidate and become more sophisticated as the shippers

they serve invest and demand higher service. In 2004, DHL

acquired Blue Dart to cover 13,000 locations in India. TNT

and Fed Ex are aggressively entering the market and both have

proven success rates creating global networks. In the meantime,

companies need to put in place a set of rigid qualications to set

expectations for intermediaries and independent carriers. Firmsneed to rigorously qualify and measure carrier performance and

communicate that data back to carriers.

Establish infrastructure others can use. Firms should consider

infrastructure investments as potential future prot centers.

Manufacturers will have an opportunity to not only build

infrastructure for themselves, but to create distribution and

transportation services that others can use. For example,

Mahindra & Mahindra, an automotive company, established

a business to manage its complex logistics processes. To take

advantage of this investment, they became a 3 PL to others in

need of logistics and distribution. Manufacturers can set up

local distribution where plants are located and retailers can build infrastructure to support other non-competing retailers. To

mitigate concerns about carrier reliability, rms can benet by

setting up dedicated eets. To better utilize these assets, brokers

and intermediaries can be leveraged to ll backhauls.

Invest Early in Technology

India’s telecom industry is extremely advanced compared to other

industries. And while only 30,000 vehicles in the country have

tracking capability, that’s expected to grow a total of 100 percent

over the next ve years. Already, telecom and software rms are

scrambling for a slice of the 1.6 million-vehicles-a-year market.

Firms investing in this technology for their dedicated eets willnd the infrastructure to support them substantial.

Focus on Establishing Solid Partnerships

Foreign rms that have been successful in India have done so

with the right local support. Local relationships are the true key

to success in India. Local companies can use their inuence to

make or break an initiative. To truly make an endeavor successful,

rms should search for growing business groups with which to

develop sustainable partnerships. To name a few examples, Tata

Group is a diversied company known as a visionary in Indian

business, and Bharti has proven it works well with multi-national

partners. Firms need to look outside of traditional partnerships





to companies in other industries like Telecom. Even with

limited supply chain experience, these potential partners possess

nationwide connections and have proven success in growing

businesses in this market. And while the big three Indian families

control 30 percent of the country’s GDP, partnering with them

can be challenging, since power and decision-making is connedto a few key players. To avoid failure, companies should look

for rms with a proven track record of sustained partnerships.

CONCLUSION

The logistics industry will continue to be the focal point of strategy

formulation, operational excellence and information technology

to make maximum contribution in value creation for customers.

Globalization, consolidation, technology advancements and

outsourcing have only led to growth in the logistics services

market and this industry will continue to evolve in the coming

years. Industry research suggests that the interdependent factors

like globalization and consolidation, increased outsourcing,

security and risk management, technological advancements,

increased customer expectations etc. will shape the Global

Logistics Industry over the next 5-10 years.

Drivers like these and the push/pull pressures created by the

market forces will not only trigger structural changes in the

logistics industry resulting in specialization, consolidation,

outsourcing, service migration, new markets, new services but

will also create challenges around service, delivery, quality and

cost as customer needs become more demanding and complex.

SMEs, forming the core of the logistics industry, will be impacted

by this transition in a major way and will have to focus on

improvement of its internal operations, processes, technology

upgradation, resource utilization, service quality, customerrelationships, market intelligence, and nancial strengthening,

in a nutshell in overall capability enhancement — in order to

respond to and gain from the changing environment.

The government is indeed trying to introduce counter-measures

and shift freight transports from the roads to the rails. But, rst,

the rail infrastructure must be expanded and the connections

to harbors and airports improved. The government should also

induce some of the better-performing PSUs, particularly those

engaged in infrastructure, such as power, transport, construction,

etc., to expand and speed up their investment programmes.

Finding resources for infrastructure development and speeding

up investment in this sector should receive top priority, for, asthe World Bank has observed, infrastructure is a key factor in

improving the lifestyles of the masses and addressing the pressing

issue of poverty.

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