Logistic & Supply Chain Management-Indian Perspective

Logistic & Supply Chain Management-Indian Perspective

Uday Shankar Jha

In the age of global competition Indian manufacturers, producers and suppliers have to bear an additional expenditure of 10 to 12 per cent on infrastructural issues vis-à-vis their global counterpart of the developed countries including China.  To improve their performance it is important to reduce this component to make them more competitive worldwide.  This can be achieved by ensuring appropriate logistic and supply chain management, which is virtually non-existent or present in rudimentary sense in Indian condition. To achieve competitive edge it is mandatory that all production and trading companies follow the basic tenets of supply chain management.  According to David & Edith Simichi Levi and Philip Kaminsky “Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandize is produced and distributed at the right quantities, to the right locations and at the right time, in order to minimize system wide costs while satisfying service level requirements” (2005: pp 1)

It means Supply Chain Management takes in to consideration every facility that has an impact on cost.  It plays a role in making the product confirm to customer requirements right from supplier and manufacturing facilities to warehouses and distribution centers and ultimately to retailers and customers.  The whole objective is to be efficient and cost effective across the entire system, total system wide costs, from transportation and distribution to inventories of raw materials, work in progress and finished goods are to be minimized.  Here, the emphasis is not only on minimizing transportation cost or reducing inventories but also on taking a system approach to Supply Chain Management.  Since Supply Chain Management revolves around efficient integration of suppliers, manufacturers, warehouses and stores, it encompasses the firms’ activities at many levels, from the strategic level through the tactical to the operational level (ibid. pp-2).  Thus Supply Chain Management is the systematic, strategic coordination of the traditional business functions and the tactics across within a particular company and across business within the supply chain for the purposes of improving the long term performance of the individual companies and the supply chain as a whole.  (Reji Ismail, 2008, PP-7).

Logistics, on the other hand, is that part of the supply chain process that plans, implements and controls the effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption, in order to meet the customers’ requirement.  Thus logistics is typically considered as a sub set of Supply Chain Management.  Logistics is involved at various stages of a supply chain; from supplier to plants, from plants to distribution centers, from distribution centers to stores, from stores to customers or any of these combinations.  In recent time, importance of logistics has become more important as transportation costs have risen, production efficiency has improved substantially and inventory is supposed to be reduced.  In the whole process computer technology has added several features at different stages.  Logistic competency is achieved by coordination network design, information, transportation, inventory, warehousing, material handling and packaging ibid, pp 10-15). 

Indian companies, even in the second decade of 21^st century are operating more in a fashion of standalone Unit than as a part of logistic management or Supply Chain Management.  Every company has to make up strategy to survive by itself.  Although companies can go for contract for different services including for developing network design, for providing different information or processing information timely, transporting product as per requirement or need, maintaining adequate inventory at the place of production or consumption or appropriate warehousing.  There is no guarantee that actual service would be delivered as per requirement or as per clause of agreement.  Any service partner can provide service as per its own sweet will or interest.  No company can rely that its service partner would be providing all services as per agreement and the judiciary system is so lax that virtually contract provisions could not be enforced timely in a meaningful manner.  In such situation every company has to make provision for extra cushion at every front and at every stage.  Such situation makes logistic management or Supply Chain Management meaningless.

Let us examine one by one.  Indian companies are relatively poor in maintaining proper information.  In any visit of any company would reveal that company managers are unable to point out how many staffs are posted and how many staffs are actually working, how many machines have been installed and how many machines are actually functional, how many hours a machine is supposed to work and how many hours these are actually functional, how many product a machine is supposed to produce and how many these have actually produced, how much raw material these machines are supposed to consume and how many these have actually consumed etc.  Thus this information is not accurately available.  All these are available on approximate level.  Due to this, there is always a big margin available at all levels leading to several distortion or mismanagement.  In such situation any information given is likely to be right or wrong.  Nobody can take responsibility that given information is correct and would not be wrong in any condition.

Next item for logistic is transportation.  In India, despite 67 years of independence basic transportation facilities are in rudimentary stage.  One of the major modes of transportation is railways and Indian Railways have done very less capacity addition since independence in terms of track kilometer, number of coaches, wagons and locomotives.  In last 60 years approximately 15 to 20 per cent capacity addition has been done whereas the population has grown four times and economy has grown almost 10 times.  In such situation the facilities available are quite inadequate looking to the quantum of market both in passenger and freight services.  The Indian Railways (IR), on its part has attempted to improve the performance by ensuring better turn round and higher loadability of freight wagon or higher number of coaches in passenger trains.  However, the capacity addition is miniscule looking to the greater demand of service.  In absence of major investment in the Indian Railways, it has not been able to break the bottleneck congestion prevailing between golden quadrilateral i.e. four metropolitan cities i.e. Delhi, Mumbai, Chennai and Kolkata or the diagonals along with all major cities of India.  Further, in freight traffic the IR has decided to concentrate on major bulk commodities like coal, iron ore, fertilizers, cement, food grain, other minerals, containers etc leaving all medium and small traffic in lurch, with no option, except to approach the road sector, which is highly unorganized.  Cross subsidy of IR is another major problem as to finance highly loss making passenger business the freight rate is increased abnormally high making even freight business highly unsustainable.  Pathetic condition of goods shed, highly uncertain loading or delivery of product with poor or no handling mechanism the entire spectrum of blue or white good commodity has moved away from the IR.

Roadways is the another mode of transportation.  Although, India is having one of the largest road networks in the world with about 41 lakh kilometers (Kms) in 2013 from approximately 4 lakh kms in 1951. The quality of such road, particularly those connecting to different villages or other inaccessible places are quite pathetic.  Many of such roads are not all season roads, particularly in monsoon season as a great part of India becomes totally inaccessible as these roads are not motorable.  The condition of national highways or Express ways which were 70,934 kms as on 2013 (India 2013, Publication Division, Delhi) were relatively better.  However, only 24% (17,194 kms) out of national Highways are having four or more lane whereas 52 %( 36,651 kms) are having double lane whereas 24% (17, 089 kms) are still single lane.  There is massive growth in the number of road vehicles.  These were 82 thousand trucks in 1950-51 which reached to 2,948 thousand trucks in 2001-02 and this is likely to be around 4,250 thousand in 2013-14.  There were 34 thousand buses in 1950-51which around 634 thousand buses in 2001-02 which are likely to be around 825 thousand in 2013-14.  Indian roads are highly congested, particularly around any medium or large city. (Jha, 2011a, pp 5).  Poor maintenance of road, poor vehicle design and poor traffic sense of vehicle users makes Indian road journey one of the worst.  Added to this is new trend of levying heavy toll tax, without any associated road maintenance service the matter becomes more complicated.  However, condition of roads are good in some of the states like Gujarat, Rajasthan, Maharashtra, Tamil Nadu, Punjab, Haryana etc are good.  As such there are 1, 54,522 kms of State Highway in India.

India has also over 1, 45,000 kms of navigable waterways.  However, these are not commercially exploited for passenger and freight transportation in a meaningful  manner as there is prevalence of unorganized sector with very poor ship design and extremely poor operating and other practices making it most dangerous mode of transportation where thousands of people get drowned every year.

For an industry dealing with gas, liquid or slurry, pipeline could be an option for transportation.  Oil companies like IOC, Bharat Petroleum etc are using pipeline to transport their products from Vadinar Coast near Kandla to Mathura and Panipat and several other locations through pipeline.  It is now almost forty per cent of POL transportation is being done through pipeline.  Pipelines have the highest fixed cost and lowest variable cost among transport modes.  High fixed costs result from the right of way, construction cost, requirement for control stations, and pumping capacity.  However, pipelines are not flexible and would remain limited to certain commodities and companies. (Reji Ismail, 2008 pp-103).

Air transport is the most costly mode of transport.  Its advantage is the speed with which a consignment can be transported.  Long distance transportation by air requires only a few hours in place of days together taken by other modes of transportation.  However, only high value items like medicine, electronic items, gold, silver, precious stones etc can afford the high transportation cost and this facility is available only in bigger cities of India.

It would be interesting to know why common carriers like Indian Railway are less compatible for logistic management or Supply Chain Management.  Common carriers have the responsibility to offer service at non-discriminatory prices to all.  At maximum they may indicate what commodity they would carry and if such service would be on a scheduled or unscheduled basis.  A common carrier is required to publish the rates it charges for transport service, supply adequate facilities, provide service to all points prescribed in its certificate of authority, deliver the goods within a reasonable time, charge reasonable rates, and refrain from discrimination against customers.  In such situation common carriers have been unable to forecast the number of customers or volume of traffic.  In contrast contract carriers provide transport services for selected customers.  They normally enter in to an agreement for a specified transportation service at a previously agreed cost for a single load or a number of loads over time.  This kind of situation becomes more compatible for logistic management or Supply Chain Management as a firm can demand and get a priority treatment over other customers if they have entered into a contract.  Further, here carriers are under no obligation to provide similar facilities to any other customers.  This helps in establishing and nurturing a long term relationship between two companies and thereby establishing a supply chain management.

These days the productivity of any company or firm is also decided by the fact that how much inventory is maintained at the time of production in the form of various raw material or unfinished product before the product is sent to the customer or in market for sale.  In the latest Japanese management of “Just in Time” (JIT) the emphasis is on maintaining lowest inventory so that different raw materials are collected at the time of production only and after production it is immediately sent to the customers.  1980s onward several Indian companies have tried to implement this system in their workplace.  But due to fragile nature of Indian supply system or transportation bottleneck, this could not be implemented successfully and Indian companies have to maintain a huge base of inventory preferably near the factory premise.  This usually adds a huge inventory cost.  Indian companies need to develop a scientific mechanism to assess the monthly consumption of different raw materials and develop a mentality of not having very big stockpile of different components, some time as long as two years or more, as it is being done presently.

Next stage is warehousing the finished product to serve the customer needs as soon as he is asking for the product in order to retain him.  Economic benefits of warehousing materialized when overall logistical costs are directly redacted by utilizing one or more facilities.  If adding a warehouse to a logistical system will reduce overall transportation cost by an amount greater than the fixed and variable cost of the warehouse than the total cost would be reduced.  The warehouse could be placed at different locations.  There could be ‘consolidation warehouse’ if customer wants a single transportation shipment for realizing lowest possible transportation rate from different production units which is consolidated at a single location before transportation.  There could be “Break Bulk” and “Cross Dock” warehouse where no storage is performed.  In break bulk operation combined customer orders are received and the transporter delivers them to different individual customers at destination without doing any storage.  For instance from a cement plant a rake of 40 railway wagons are loaded, transported for a distance of 700 kms and at destination the consignment is delivered to 8 different customers.  This reduces transportation cost for large shipment even when the customers get small size of consignment.  In Cross Dock even manufacturers are multiple along with multiple customers.  So at a common place entire commodities are consolidated on a given date, transported to destination and then distributed to different customers.  This kind of service can be provided only by an efficient logistic service provider and as the example of Western Railway in Gujarat shows only one company CTA logistics has been able to survive in the long run.

There are certain businesses where production is very long and consumption time is very short.  For instance toys are produced year round but being sold only during festive season.  On the other hand there could be certain products which can be produced in a very short time but is being consumed throughout entire year.  For instance, agricultural products are harvested at specific time with subsequent consumption occurring throughout the year.  Both situations require warehouse stockpiling at a massive scale.  Unfortunately in India this facility has not been developed properly and every year millions of tons of food grain are spoiled in open air, particularly during early monsoon.  Both central and state government, which have developed the policy of minimum support price for different crops procure huge quantity of food grains in different parts of country.  But there is no sufficient warehouse to stockpile these.  There could be warehouse in public sector, as in case of Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) or in private sector which normally works out at a smaller scale.  These days in the name of food security and food subsidy FCI gets every year huge government support.  But it functions very inefficiently and is unable to handle the quantum of challenge.

Private warehousing is usually considered less costly than public warehousing.  The major benefits of private warehousing include control, flexibility, cost and other intangible benefits.  It has more control since the enterprise has absolute decision making authority over all activities and priorities in the facility.  As such there is great dearth of private warehousing as the present investment policy does not support much for such infrastructural development where the investment is very huge and rate of return is very low.  For instance CWC constructed a warehouse at Kandala Port in 2008 by making an expenditure of `. 6 crores but it could lease it out only @ ` 30lakh per annum.  At this lease change the company would be able to receive its primary investment in 20 years without any interest.  This means that such infrastructural projects are highly un-remunerative and until and unless some financial incentives are offered from the Government of India like tax benefits etc or by State Government like land at nominal rate etc no investment would come forward.  In this respect the country is on the critical juncture and until and unless, a positive decision, in favour of these investments are done the country is leading to another disaster where one will find there is “Problem of Plenty” in the season of production and “Problem of Scarcity” after few month once season passes.  The initial sign of this trend is already visible in India when during 2012 Potato was being sold @ ` 2 in the month of December and it skyrocketed to `40 by the middle of 2013.  Similarly the rate of onion which was @  ` 2 to 3 in the beginning of 2013 reached up to `80-90 per kg in several parts of the country and became a big issue for the price rise.

Material handling is another emerging challenge for logistic management in India.  Except in few modern companies where some examples of mechanized material handling is being done, as seen in the plants of ESSAR, JINDAL, TATA or few other industrial units, in most of the Indian  companies material handling is a primarily manual activity.  In the entire breadth and length of country till now manual laborers have been relatively easily available and some of the backward states like Madhya Pradesh, Orissa and Bihar have been constant sources of manual labour in the entire country.  However, with the introduction of Mahatma Gandhi National Rozgar Guarantee Yojana  (MNREGA) now flow of manual labour is almost drying up.  In a few years from now, most of the Indian companies will feel the heat of the situation and they need to develop appropriate and proper mechanized and automatic mechanisms for material handling.  For this not only machines are to be developed, installed and made functional even packaging units has to be made compatible for the mechanized handling system.  Related with this is, entre spectrum of packaging of the consignment, which is available in Indian market.  Presently the packing industry of India is at the rudimentary stage.  A large number of commodities available in the market are being made available in poorly designed packages or in loose condition.  There is requirement of change of the attitude of the Indian industries and they need to develop mentality of proper packaging so that it is easy to handle, track and store in a more appropriate manner.  This also needs proper technological development along with appropriate investment so that a proper shape takes place.

Thus here we have seen how by and large Indian industry is not in a position to sustain proper environment of logistic management or supply chain management.  But, with a greater integration of Indian economy in the world economy the call of the hour is to develop proper mechanism for logistic management and supply chain management in all spheres of life to reap the benefit of globalization of the economy.

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