Transportation & Logistics - Risks and Challenges
Road Transportation is an important link in the Indian Supply Chain context that facilitates productivity and competitive efficiency, leading to economic development of the country. It also plays a key role in bringing about the development of the remote regions by opening them to trade and investment and integrating them with the real economy. Despite its importance the transport sector in India has received scant attention. The inadequacy of transport infrastructure and lack of funding from government have been the crux of problems confronting the road freight sector. Transportation in India is one part of the overall supply chain in the country today with maximum potential to save costs. It can be optimized to a level where every partner in the business would reap benefits and will be able to harness its potential.
Logistics is a sector in the country which is still largely unorganized. The transporters with fleet size of less than six trucks actually make for almost 70 percent of the trucks operated in the country. Rates fixed by different transporters is a major issue for companies as the bargaining power of the transporters is fairly high in their own regions. Transportation for companies in heavy metal or steel industry is highly important but still in an unorganized state and they are always trying to reduce their costs. In order to address these issues pending for years now, the current government’s plan of interlinking the rivers within the country may end up opening new options for logistics within the country. However, such options would be based on the company’s prerogative looking into their product and the service levels they would like to achieve. There would be a very few supply chain businesses that could claim end-to-end visibility. The complexity of dynamic supply chains with many participants from manufacturers and retailers to freight logistics service providers to air, sea, road and rail carriers, makes capturing the overall supply chain a real challenge.
Transport for an industry like FMCG also poses great challenge as the product has to travel different levels and henceforth the toughest challenge comes at the last mile to reach the retail outlet. Cancellations due to everyday problems like truck availability, driver issues and environmental factors pose several supply chain risks. FMCG companies have a capacity of saving about 0.5-0.7% of sales through improvements in transport and distribution. In last mile distribution, the companies’ everyday face issues due to the ever increasing clogging on the roads in the urban cities and henceforth the delivery time and subsequently the lower service levels problems have been on the rise. Every company is trying to minimize the supply chain risks. Supply chain risks may be due to delays, disruptions in supply of material or even due to supply of trucks as and when required, improper forecasting, or risks due to unanticipated increase in procurement costs. Planning transport fleet size and linking it to the demand forecast is a major challenge to the supply chain and logistics managers. Forecasts in the real world are highly optimistic which makes the life of logistics manager difficult as he would have to increase the fleet size in accordance with the forecast and in times when efforts are being made to bring down the costs this would be of little help.
Refrigerated trucks are no newbies in the western parts of the world. The forecast for Ready-to-eat Food Market have been impressing high, the Indian cold chain market is projected to register a compound annual growth rate (CAGR) of about 23.88 per cent between 2014 and 2019, in revenue terms. Cold Chain has not taken up in India yet even though India is a fairly hot country. With the requirement of cold stores, a very important part of cold chain is cold trucks. Refrigerated trucks is the need of the hour as every year losses are borne by companies with inadequate infrastructure of cold warehouses and cold trucks. It has remained a challenge for these trucks to be able to maintain the specified temperature to prevent form either freeze or spoilage. Various companies like Nestle, Mondelez which serve confectionary products and even smaller companies are taking up initiatives to build up a good base for Cold Chains as a whole in the country. Cold chains are also required for pharmaceutical and chemical companies. Cold stores and temperature-controlled vehicles, for the transportation of vaccines and other medical products drugs have also created a significant need for cold chains besides the food industry.
There are third party logistics companies coming up in country with the likes MDLogistics, Agility etc. along with the big players of the market like DHL, DB Schenker, the smaller firms are trying to create a niche for themselves in the logistics sector. The new companies coming up definitely realize the high potential in our country and the growing infrastructure for road transport and business that can be made out of it. The smaller companies as they come up would provide more options and also help to make the sector organized with the rates and availability of trucks more streamlined. The use of technology has also helped a lot for the upcoming firms to be able to track the goods on real time basis with the use technologies like Radio Frequency Identification (RFID). The government also needs to play a critical role in promoting alternatives to just road transport and also promote and improve transportation modes like railways where more companies will chose railways if the time to delivery will be less. Even for road transport government should look at easing the inter-state border rules and policies to promote businesses.
This article has been authored by Anshul Kumar from T.A. Pai Management Institute
Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.
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