‘Logistics industry is under pressure to improve efficiencies’

Copy of DHL's Roadking Trucks

DHL Supply Chain is one of the global market leaders for contract logistics solutions. DHL Supply Chain India Pvt. Ltd was recently carved out into a separate legal entity to pursue its ambitious growth strategies and provide a competitive edge in a highly fragmented logistics market.

Vikas Anand, MD – DHL Supply Chain, India told Sandeep Menezes that GST implementation will move India into an integrated market place wherein supply chain decisions are based on relevant factors such as supply and demand considerations, and not tax requirements.

Vikas Anand

Vikas Anand

Excerpts from the interview:

 

How do you foresee India’s supply chain management industry evolving in the forthcoming decade (ten years)?

I see a lot of potential in the E-commerce space with a marked increase in online purchasing by the Indian consumer. This is a tremendous opportunity for E-commerce Supply Chain providers and distributors in the coming years. The current E-commerce market in India is at a very nascent stage and is miniscule in size compared to USA and China which are the largest E-commerce markets worldwide.

I also envisage disruptive technologies such as 3D printing to play a key role in changing the logistics landscape globally. This technology is, however, still in its infancy, but those Supply Chain companies that venture early into this space, will definitely reap enormous benefits.

From a specific India point of view, the implementation of GST will have a significant and far reaching impact on the logistics industry. It will move India into an integrated market place where large organizations, both local and MNCs, will ensure supply chain decisions are based on relevant factors such as supply and demand considerations, and not tax requirements.

I can also foresee an increased use of technology, such as voice picking, Put to Light, coupled with efficient Warehouse Management Systems being adopted, leading to further improve productivity. The eventual integration of Transport Management Systems and Warehouse Management Systems will provide efficient end to end visibility and will be increasingly demanded by most customers in India.

Currently the 3PL market in India is growing faster than GDP due to increased outsourcing by Indian companies and MNCs. This is specially seen in the retail, pharma, automotive and FMCG sectors.

One of the biggest factors that will play a critical role in the success of efficient supply chains will be competent, trained and certified employees.

 

Logistics costs go up when there is a lack of visibility and reliability in the supply chain. How can infrastructure improvements assist to improve reliability and thereby reduce overall costs?

Like all industries, logistics is under increasing pressure to improve efficiencies and bring transparency in the supply chain process. Since logistics involves multi-point and multi-mode of transport it also involves multiple information points, a technology driven approach provides the much needed platform to integrate the data and the vendors into a seamless network for the customers. Indian companies have taken giant strides in recent times to match with the global pace.

Having said that, there is significant scope for growth considering some of the unstructured points in supply chain. For example, warehousing, surface transport etc. where the proprietary approach of the smaller players has hindered the efficiency of the industry. Government is opening up on investment funds, both foreign and domestic, and there seems to be a concerted effort to bring focus on this vital industry. The scope of the industry is enormous and minor easing of policies can not only make the environment more conducive but also attract the bigger global investors to our country.

 

India’s warehousing infrastructure both qualitatively and quantitatively is highly inadequate. Going forward, how do you foresee the scenario evolving?

The share of organized warehousing to unorganized warehousing is currently still very low in India. The need of the hour is to set up world class infrastructure to ensure we provide efficient cost effective supply chain solutions to meet the growing demand. With this in mind, DHL Supply Chain has been expanding its footprint by setting up state-of-the-art warehouses with advanced IT enabled systems and features customized to suit specific customer requirements.

With the impending introduction of GST, we will increasingly see consolidation of smaller sites which will no longer be economically viable. In order to be ahead of the curve and GST ready, we have already set up Multi Client Sites (MCS) in Mumbai, Pune and Delhi, with more expected in South and Central India by end of this year.

 

India spends around 13% of its GDP on logistics; this is higher than USA (10%), Europe (11%) and Japan (10%). Inefficient practices have inflated the industry size, how can we improve supply chain efficiencies?
India is emerging as one of the world’s leading consumer markets. It expects to sustain strong growth over the coming years and strives to become one of the top three economies in the world by the middle of the century. The logistics sector plays a major role in supporting this growth and the connectivity and convenience in operations is key for sustaining this progress in India.
Infrastructure development is the cornerstone of this growth. Logistics infrastructure covering road, rail, waterways and air network is the backbone of the economy. An ideal situation would be to have adequate infrastructure capacity riding on which the various modes could form a logistics chain for seamless flow of goods and services.
This is definitely cost effective as it derives best of efficiencies through economies of scales on all modes. Also, reduced liabilities due to lower pilferage and damage bring direct savings to their bottom-line apart from making them more competitive in their own domain.

The industry can be seen working hard at mitigating the circumstances it finds itself in due to systemic and infrastructure related deficiencies. The central government has made efforts to build infrastructure, but the gestation period is very long. Till we evolve with faster and more efficient ways to address the lack of infrastructure, India would have to ride the wave and innovate in terms of addressing supply chain inefficiencies.

 

India is unique because transportation costs are high by virtue of the way the supply chains are designed against tax optimization and not transport optimization. Comment

In India we are mainly burdened by a complicated tax that places several challenges on the logistics industry. Payment of multiple state and central taxes result in:

 

• Considerable loss of time in transit for road freight in order to pay such taxes
• Fragmentation of warehousing space especially for low margin products thereby providing a disincentive to create large integrated warehousing spaces

 

Hence the introduction of GST will facilitate a uniform tax structure and provide a panacea for the existing situation. If implemented in spirit, GST will enable logistics services to be provided without consideration for tax boundaries thus allowing supply chains to be designed from a transportation viewpoint rather than considering its tax implications.

 

What were the main reasons for separating DHL’s supply chain segment from the freight forwarding and customs brokerage businesses?

DHL is strongly committed to investing in markets of growing importance. By increasing our footprint and with continued investment in our people, we are taking another step in the right direction to pursue DHL’s global strategy and support the development of our business in India. To provide fresh impetus to its business, the separate legal entity, DHL Supply Chain India Pvt. Ltd will enable the supply chain business unit to pursue its ambitious growth strategies and provide a competitive edge in a highly fragmented logistics market.

 

Tell us about your future business strategy for DHL Supply Chain in India?
DHL Supply Chain announced a significant Euro 100 million investment into India in 2012. These investments were to be made in four major areas namely;
Warehousing– DHL Supply Chain has added over 1 million sq.ft in the last 12 months, taking its footprint to approx. 6 million sq.ft of warehouse space across the country making it the biggest player in warehousing in India. We will continue to add capacities in the coming year as we ramp up our facilities and value added services to the fast growing sectors like Life Sciences, Automotive, IT, Fashion & Apparel and Ecommerce.
Transportation– DHL Supply Chain has made significant investments into the transportation side of its business with the new and advanced ‘Roadking’ trucks. The Roadking is a significant upgrade on anything carrying cargo on Indian roads and represents the scaling up of our fleet. These trucks are amongst the most efficient carriers in the world and allow for greater efficiencies in terms of handling, loading/unloading, tracking, safety and efficiency.
Automation/IT – From RFID tags to real time tracking of shipments to temperature controlled logistics, we will continue investing significantly into technology and automation.
People– Logistics in India is one of the largest employers and the potential for the industry to absorb a significant number of skilled and blue collared workers is substantial. To meet the critical need of well trained, professional and skilled employees who will be in a position to fulfill the growing demand for higher levels of operational and quality compliance, we have invested significantly in developing the skills of all our employees with consistent and standardized training on several aspects of warehouse operations.

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