Posted in Operations & IT Articles, Total Reads: 401
, Published on 05 August 2016
A supply chain is basically the combined set of people, resources, knowledge, and activities which help in transporting the products from one place to the other. It encompasses activities related to conversion of raw materials into finished products useful for the end users. In a complex supply chain, the finished products re-enter the supply chain when the salvage value becomes recyclable. In terms of Purchasing Power Parity (PPP), India is the fourth largest country in the world which provides a lucrative opportunity to global companies. Also, the workforce in India is quiet younger in comparison to the other developed nations.
All of such factors make India fit to become a source of manufacturing and a big market for the products. However the various challenges facing Indian supply chain prevent the multinationals from entering Indian economy.
In the U.S., supply chain costs are around 8.5 percent of the GDP. But in India, Supply chain costs are as high as 13 percent of the GDP. India received ranked 119 out of 130 countries on an index that measures business ease of nations based on supply chain and other significant factors while the list is topped by countries like Norway which tend to avoid disruptions in their global supply chain operations. It has been estimated that the losses occurring due to inefficient supply chain are approximately 65 billion dollars per year. Clearly the supply chain in India suffers from a lot of challenges.
The supply chain in India suffers from both demand side challenges and supply side challenges. Demand side supply chain challenges in India are basically related to price and variety. India is a country full of diversity. One can encounter a new lifestyle, language and tradition after crossing 30-40 kms. So, it is not possible for a single manufacturer or a group of manufacturers to cater to the varied needs and wants of the consumers. It requires collaboration of manufacturers with local agents, distributors and retailers who are in contact with local consumers.
Supply side supply chain challenges in India are mainly related to poor distribution system, lack of mature third party logistics, tax complexities, dispersed markets, outdated technology and lack of proper infrastructure. For successful implementation of supply chain, great focus should be put on the infrastructure in the country. Undoubtedly, In India, the infrastructural impediments are hampering the industrial performance. India is proud to have world’s second largest road network totaling around 4.2 million kilometers but most of it is of poor quality. National highways in India comprise around 2 percent of the road network, but carry around 40 percent of the load. Shipments by the roads that generally take three days in the U.S can take as much as nine days in India. In India, ships can stay up to five days to dock at the ports which is not available in Europe. Also, there are very less logistic firms in India which have a fleet size of more than 100 trucks and very few trucks are provided with a GPS facility. Thus the real-time tracking of shipments is not possible. It is not only the inadequate means of transport that hold Indian supply chains back but there are certain other factors also. Higher fuel cost in India increases the transportation costs. A lot of delays happen due to load restrictions, numerous permits, excessive documentation work, public holidays etc. All of these result in high lead times, poor long term relationships and more transportation costs also. Due to presence of a large number of intermediaries, the product costs get artificially boosted up which decreases margins at the retail point of sales. Supply chains are becoming complicated and dynamic due to frequent changes in sourcing locations and smaller and frequent purchase orders.
The distribution centres are set up taking into consideration the tax laws. However, the operations inside these centres are not up to the mark leading to more expenses. The historical data is not maintained properly and is not available at the times when needed. Even if the proper data is available, due to poor IT, infrastructure, it is not utilized properly. As a result, the retail industry is not able to forecast the inventory requirements. Ultimately the inventory carrying cost would increase if more inventories are accumulated or the business would lose its customers if there are fewer inventories.
The above figure gives a view of normal supply chain. An efficient mechanism is needed to provide a link among all the different segments of supply chain. There should be no communication gap between two different segments and thus each segment would be able to fulfil the demands of the other. More and more of companies are realizing the importance of developing a comprehensive supply chain strategy which should be in sync with the overall business vision and mission statements. Adopting these initiatives requires great focus on all the channels in the total supply chain process to bring fruitful results. To reduce the risk of delays in procuring inventory or supplying finished goods, alternative modes of transport and new routes are desired. Third party logistics is handy to facilitate the functions of a supply chain. A lot of efforts should be made to ensure proper IT implementation which would help the manufacturers in forecasting the requirements of inventory. This would ensure that the production is scheduled according to the customer demands.
There is a new technology called Radio Frequency Identification (RFID) chips which communicate with each other. These chips are attached to the individual items. So all the data related to identification, location, temperature, condition etc. is traceable. The result of this technique would be immense. There would be no incidence of loss by theft since each product would be traced till it reaches its destination. As soon as any discrepancy is felt, the central server would ring an alarm with a notification. Soon after the notification is received, immediate actions can be taken. If the signals show that the goods might damage due to pressure or bad weather, the goods can be prevented from being damaged. Thus all the abnormal losses can be avoided. Additionally, the details related to the traffic, the expected time to reach the destination etc. would also be received. Specifically for the third party logistics, RFID is a boon which would help them increase their efficiency and reduce costs to the minimum.
In long run, a flexible supply chain should be built capable of adjusting according to the environmental, technological and other significant changes. To satisfy consumers’ needs and wants at different points of time located at different places, a flexible supply chain is required that can change according to dynamic requirements. In developed nations, the supply chain has reached at maturity stage. Those countries have well analyzed the various formats. Top companies have invested heavily worldwide towards infrastructure and technology to convert their supply chain formats into a reality. These include supply chain models for better inventory management, advanced methods for handling supply chain output and information systems to provide real time supply chain related information. Retail giant Wal-Mart is able to achieve top position because of its efficient and effective supply chain. Wal-Mart has made huge investment in Information and Communication Technology which provides them all the useful information to serve their customers better. The Indian manufacturers should have a look at the global supply chain models and choose the best suiting their requirements. Further, these models should be constantly updated according to changing requirements.
This article has been authored by Uma Bala from IIM Raipur