Growing Pains

Booming Indian market still has a lot of supply chain work to do


The numbers are staggering.

According to the International Monetary Fund, India is the world’s 10th-largest economy by market exchange rates, at $1.53 trillion (U.S.), and the fourth-largest by purchasing power parity (PPP), at $4.06 trillion. With its average annual GDP growing at 5.8 percent for the past two decades and at 10.4 percent during 2010, India also is one of the fastest growing economies in the world.

Following market-based economic reforms in 1991, India has become one of the fastest growing major economies, and is considered a newly industrialized country. With more than 1.2 billion citizens reported in the 2011 provisional Census, India is the world’s second most populous country. Its 467 million workers make it the world’s second-largest labor force. The service sector makes up 54 percent of the GDP, the agricultural sector 28 percent, and the industrial sector 18 percent.

It makes for an intriguing and complex supply chain challenge. In a recent report, Optimizing the Supply Chain in India: Promise and Peril, Deloitte Consulting said, “The traditional methods of supply chain design and management do not always apply in the Indian context, owing to its complex tax regulations, non-standardized transportation, uncertainties across the value chain, and low rate of technology adoption.”

Authored by Darin Buelow, Raman Nath and Mohan Ram Akella, the report went on to say, “Designing an India supply chain catering to over a billion people, spread across several hundred cities and more than half-a-million villages is a formidable task in itself. Considering the regional variations, complex tax structure, infrastructure obstacles, rising customer expectations and the uncertainties involved, the use of scientific methods may seem infeasible. Yet, a scientific approach enabled by technology is a better, and may be the only, way to tackle a challenge of such magnitude.”

Infrastructure

Technology is indeed beginning to slowly carve out improvements in the supply chain in India, says David Frenzel, VP Contract Global Logistics for APL Logistics. And 3PLs are playing a role.

“Warehousing, for example, traditionally is very manually focused,” he says. “Global standards are being adopted. Customers we have in India, including major multinationals, are moving from in-house operations to bring in best practices to manage their warehouses or are moving domestic space and labor to someone like us to bring in Warehouse Management Systems.

It can often take six to nine months just to get the necessary permits to open a warehouse in India, and the cost and number of permits varies by regions. The typical warehouse in the country also is much smaller than in other countries, often as small as 5,000 to 25,000 square feet.

“There are major global technology providers in TMS and WMS in India, with a number of local companies and local investments. They want to bring logistics to the next level in transportation, as well as warehousing.”

One of the problems, however, is lack of sufficient infrastructure, especially in the transportation area. “It’s a major complaint and concern. It’s real,” says Frenzel. “Roads, rails and ports are all a challenge to economic growth.”

How bad? The Deloitte report says, “India has one of the worlds’ largest road networks, yet less than half of the roads are paved and only about 7,000 kilometers (4,349.6 miles) are four lane roads, significantly lower as compared to China’s over 34,000 kilometers (21,126.6 miles). These national highways account for less than 2 percent of the total road network, but carry 40 percent of traffic. As a result, despite spending more of its GDP on logistics than developed nations, India will still face logistics challenges for years to come.”

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