You are on page 1of 58

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Introduction
SUPPLY CHAIN MANAGEMENT (SCM)
A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished products to
customers. Supply chains exist in both service and manufacturing organizations,
although the complexity of the chain may vary greatly from industry to industry and
firm to firm.
Supply chain management is typically viewed to lie between fully vertically
integrated firms, where the entire material flow is owned by a single firm and those
where each channel member operates independently. Therefore coordination between the
various players in the chain is key in its effective management. Cooper and Ell ram
[1993] compare supply chain management to a well-balanced and well-practiced relay
team. Such a team is more competitive when each player knows how to be positioned
for the hand-off. The relationships are the strongest between players who directly pass
the baton (stick), but the entire team needs to make a coordinated effort to win the race.
Below is an example of a very simple supply chain for a single product, where
raw material is procured from vendors, transformed into finished goods in a single step,
and then transported to distribution centers, and ultimately, customers. Realistic supply
chains have multiple end products with shared components, facilities and capacities. The
flow of materials is not always along an arbores cent network, various modes of
transportation may be considered, and the bill of materials for the end items may be both
deep and large.

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

To simplify the concept, supply chain management can be defined as a loop: it starts
with the customer and ends with the customer. All materials, finished products,

Information and even all transactions flow through the loop. However, supply chain
management can be a very difficult task because in the reality, the supply chain is a
complex and dynamic network of facilities and organizations with different, conflicting
objectives.
Supply chains exist in both service and manufacturing organizations, although
the complexity of the chain may vary greatly from industry to industry and firm to firm.
Unlike commercial manufacturing supplies, services such as clinical supplies
planning are very dynamic and can often have last minute changes. Availability of
patient kit when patient arrives at investigator site is very important for clinical trial
success. This results in overproduction of drug products to take care of last minute
change in demand. R&D manufacturing is very expensive and overproduction of patient
kits adds significant cost to the total cost of clinical trials. An integrated supply chain
can reduce the overproduction of drug products by efficient demand management,
planning, and inventory management.
Traditionally, marketing, distribution, planning, manufacturing, and the
purchasing organizations along the supply chain operated independently. These
organizations have their own objectives and these are often conflicting. Marketing
objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on
inventory levels and distribution capabilities. Purchasing contracts are often negotiated
with very little information beyond historical buying patterns. The result of these factors
is that there is not a single, integrated plan for the organization---there were as many
plans as businesses. Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain management is a strategy
through which such integration can be achieved.

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

i.

History of supply chain management


The term supply chain management (SCM) was coined by Houlihan in
1985. Supply chain management is the management of the flows of material and
information, which are managed between facilities such as vendor, manufacturer and
distributor. It performs functions of procurement of material, transformation of material
into the finished goods and distribution of these finished goods to customers. Its strategy
is to coordinate the various organizations objectives in order to increase the efficiency
of the entire supply chain.
Thomas & Griffin classified the operational coordination of the supply
chain management into three categories;
(I) buyer vendor coordination,
(II) production-distribution coordination and
(III) inventory- distribution.
A supply chain management is a network of firms activities,
organizations, and the technologies that performs the function of procurement of raw
material from vendor firms, transformation of this material into intermediate and
finished products and distribution of this finished products to the customers.

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

ii.

Conceptual Study of Supply Chain


Management
Globalization also brings foreign competition into markets that traditionally
were local. Local companies are thereby forced to respond by improving their
manufacturing practices and supply chain management. Experience shows that the gains to
be made in cost, lead-time and quality through working in partnership with customers and
suppliers are significant.
Supply chain management (SCM) is the process of planning, implementing
and controlling the operations of the supply chain as efficiently as possible. Supply Chain
Management spans all movement and storage of raw materials, work-in-process inventory,
and finished goods from point-of-origin to point-of-consumption.

Ganeshan and Harrison have yet another analogous definition:


A supply chain is a network of facilities and distribution options that
performs the functions of procurement of materials, transformation of these materials
into intermediate and finished products, and the distribution of these finished products to
customers.
According to Wikipedia.org:
Supply Chain Management (SCM): Supply chain management is the
process of planning, implementing, and controlling the operations of the supply chain
with the purpose of satisfying customer requirements as efficiently as possible. Supply
chain management spans all movement and storage of raw materials, workinprocess
inventory, and finished goods from pointoforigin to pointofconsumption.
The definition one American professional association put forward is that
Supply Chain Management encompasses the planning and management of all activities
4

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

involved in sourcing, procurement, conversion, and logistics management activities.


Importantly, it also includes coordination and collaboration with channel partners, which
can be suppliers, intermediaries, third-party service providers, and customers. In
essence, Supply Chain Management integrates supply and demand management within
and across companies. More recently, the loosely coupled, self-organizing network of
businesses that cooperates to provide product and service offerings has been called the
Extended Enterprise.
Logistics is that part of the supply chain process that plans, implements,
and controls the efficient, effective flow and storage of goods, services, and related
information from the point-of-origin to the point-of-consumption in order to meet
customers' requirements.
The broader view of SCM is depicted in the below figure in a simplified
supply chain network structure.

This would explain the basic difference between

Logistics and SCM. Supply Chain is inter-company integration of business process and
relationships and where as Logistics is intra-company integration.

Providing enhanced value to customers at the least Total cost Value, Velocity and
Visibility
5

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

iii.

Participants in the Supply Chain


In its simplest form, a supply chain is composed of a company and the
suppliers and customers of that company. This is the basic group of participants that
creates a simple supply chain. Extended supply chains contain three additional types of
participants. First there is the suppliers supplier or the ultimate supplier at the beginning
of an extended supply chain. Then there is the customers customer or ultimate customer
at the end of an extended supply chain. Finally there is a whole category of companies
who are service providers to other companies in the supply chain. These are companies
who supply services in logistics, finance, marketing, and information technology.
In any given supply chain there is some combination of companies who
perform different functions. There are companies that are producers, distributors or
wholesalers, retailers, and companies or individuals who are the customers, the final
consumers of a product. Supporting these companies there will be other companies that
are service providers that provide a range of needed services.

Producers:
Producers or manufacturers are organizations that make a product.
This includes companies that are producers of raw materials and companies that are
producers of finished goods. Producers of raw materials are organizations that mine for
minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the
land, raise animals, or catch seafood. Producers of finished goods use the raw materials
and subassemblies made by other producers to create their products.
Producers can create products that are intangible items such as music,
entertainment, software, or designs. A product can also be a service such as mowing a
6

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the
producers of tangible, industrial products are moving to areas of the world where labor is
less costly. Producers in the developed world of North America, Europe, and parts of
Asia are increasingly producers of intangible items and services.
Distributors:
Distributors are companies that take inventory in bulk from
producers and deliver a bundle of related product lines to customers. Distributors are
also known as wholesalers. They typically sell to other businesses and they sell products
in larger quantities than an individual consumer would usually buy. Distributors buffer
the producers from fluctuations in product demand by stocking inventory and doing
much of the sales work to find and service customers. For the customer, distributors
fulfill the Time and Place functionthey deliver products when and where the
customer wants them.
A distributor is typically an organization that takes ownership of
significant inventories of products that they buy from producers and sell to consumers.
In addition to product promotion and sales, other functions the distributor performs are
inventory management, warehouse operations, and product transportation as well as
customer support and post-sales service. A distributor can also be an organization that
only brokers a product between the producer and the customer and never takes
ownership of that product. This kind of distributor performs mainly the functions of
product promotion and sales. In both these cases, as the needs of customers evolve and
the range of available products changes, the distributor is the agent that continually
tracks customer needs and matches them with products available.
Retailers:
Retailers stock inventory and sell in smaller quantities to the
general public. This organization also closely tracks the preferences and demands of the
customers that it sells to. It advertises to its customers and often uses some combination
7

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

of price, product selection, service, and convenience as the primary draw to attract
customers for the products it sells. Discount department stores attract customers using
price and wide product selection. Upscale specialty stores offer a unique line of products
and high levels of service. Fast food restaurants use convenience and low prices as their
draw.
Customers:
Customers or consumers are any organization that purchases and
uses a product. A customer organization may purchase a product in order to incorporate
it into another product that they in turn sell to other customers. Or a customer may be the
final end user of a product who buys the product in order to consume it.
Service Providers:
These are organizations that provide services to producers,
distributors, retailers, and customers. Service providers have developed special expertise
and skills that focus on a particular activity needed by a supply chain. Because of this,
they are able to perform these services more effectively and at a better price than
producers, distributors, retailers, or consumers could do on their own.
Some common service providers in any supply chain are providers of transportation
services and warehousing services. These are trucking companies and public warehouse
companies and they are known as logistics providers. Financial service providers deliver
services such as making loans, doing credit analysis, and collecting on past due invoices.
These are banks, credit rating companies, and collection agencies. Some service
providers deliver market research and advertising, while others provide product design,
Engineering services, legal services, and management advice. Still other service
providers offer information technology and data collection services. All these service
providers are integrated to a greater or lesser degree into the ongoing operations of the
producers, distributors, retailers, and consumers in the supply chain.
8

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Supply chains are composed of repeating sets of participants that


fall into one or more of these categories. Over time the needs of the supply chain as a
whole remain fairly stable. What changes is the mix of participants in the supply chain
and the roles that each participant plays. In some supply chains, there are few service
providers because the other participants perform these services on their own. In other
supply chains very efficient providers of specialized services have evolved and the other
participants outsource work to these service providers instead of doing it themselves.
Examples of supply chain structure are shown in diagram below

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

OBJECTIVE

10

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Objective

To Understands real supply chain practices

To Know the cold chain system

To study the current scenario of Indian Logistics Industry


To study the impact of Logistics industry

To know the importance of international cooperation in the field of


SCM among industrial form and trading institution
(i) To study the role of global 3PL service providers in India

Scope of the study


11

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Scope of the study

Scope of the study

Scope of the study


Scope describes the areas covered in a research whereas limitations are the
circumstances that were not considered in the research

It extends to whole Indian global supply chain


12

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

It extends to Indias export and import


It also extends to logistic industry

13

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Data Collection & Interpretation

THE GLOBAL SUPPLY CHAIN

14

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

With increased globalization and offshore sourcing, global supply chain


management is becoming an important issue for many businesses. Like traditional,
supply chain management, the underlying factors behind the trend are reducing the costs
of procurement and decreasing the risks related to purchasing activities. The big
difference is that global supply chain management involves a company's worldwide
interests and suppliers rather than simply a local or national orientation.
Because global supply chain management usually involves a plethora of
countries, it also usually comes with a plethora of new difficulties that need to be dealt
with appropriately. One that companies need to consider is the overall costs. While local
labor costs may be significantly lower, companies must also focus on the costs of space,
tariffs, and other expenses related to doing business overseas. Additionally, companies
need to factor in the exchange rate. Obviously, companies must do their research and
give serious consideration to all of these different elements as part of their global supply
management approach.

Advantages of Global Supply Chains


Reduced total costs
Inventory reduction
Improved fulfillment cycle time
15

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Reduce cycle time


Increased forecast accuracy
Productivity increase
Improved capacity
Expand international connections ,
Increase intellectual assets
Delivery improvement

International influences on SCM issues or factors


Costs
Local labor rates
Local space cost
International freight tariffs
Currency exchange rate

Custom duty
Duty rates differ by commodity and level of assembly
Duty drawback
16

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Impact of GATT / WTO: changes over time


Transfer pricing
Duty suspension

Taxes on corporate income


Different markups by country
Tax havens and not havens
Make vs. Buy effect

Export regulation
Export licenses
Denied parties list

Time
Lead time
Cycle time
Transit time
Export license approval cycle
Customs clearance

Participants in the Global Supply Chain


17

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

The major participants in global supply chain management are

Exporter
Exporter custom
Logistic (service provider)
Importer custom
Importer

18

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Participants in the Global Supply Chain

19

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Logistics Management Function

Logistics is the process of movement of goods across the supply chain of the company.
This process is consisting of various functions, which have to be properly managed to
bring effectiveness efficiency in the supply chain of organization. The major logistical
function are shown in figure

1.

Order processing:

The starting point of physical distribution activities is the processing of customers


orders. In order to provide quicker customer service, the orders received from customers
should be processed within the least possible time. Order processing includes receiving
the order, recording the order, filling the order, and assembling all such orders for
transportation, etc. the company and the customers benefit when these steps are carried
out quickly and accurately. The error committed at this stage at times can prove to be
very costly.
Order processing activity consist of the following
20

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Order checking in any deviations in agreed or negotiation terms


Prices , payment and delivery terms
Checking the availability in of the material stocks
Production and material scheduling for storage
Acknowledge the order, indicating deviation
2. Warehousing:

Warehousing refers to the storing and assorting products in order to create time utility.
The basic purpose of the warehousing activity is to arrange placement of goods, provide
storage facility to store them, consolidate them with other similar products, divide them
into smaller quantities and build up assortment of products. Generally, larger the number
of warehouses a firm has the lesser would be the time taken in serving customers at
different locations, but greater would be the cost of warehousing. Thus, the firm has to
strike a balance between the cost of warehousing and the level of customer service.
Major decision in warehousing is as follow:
Location of warehousing facility
Number of warehousing
Size of warehouse
Design of the building
Ownership of the warehouse

3. Inventory Management:
21

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Linked to warehousing decisions are the inventory decisions which hold the key to
success of physical distribution especially where the inventory costs may be as high 15
as 30-40 per cent (e.g., steel and automobiles). No wonder, therefore, that the new
concept of Just-in-Time-Inventory decision is increasingly becoming popular with a
number of companies. The decision regarding level of inventory involves estimate of
demand for the product. A correct estimate of the demand helps to hold proper inventory
level and control the inventory costs. This is not only helps the firm in terms of the cost
of inventory and supply to customers in time but also to maintain production at a
consistent level. The major factors determining the inventory levels are: The firms
policy regarding the customer service level, Degree of accuracy of the sales forecasts,
Responsiveness of the distribution system i.e., ability of the system to transmit inventory
needs to the factory and get the products in the market. The cost inventory consists of
holding cost (such as cost of warehousing, tied up capital and obsolescence) and
replenishment cost (including the manufacturing cost).
4. Transportation:

Transportation seeks to move goods from points of production and sale to points of
consumption in the quantities required at times needed and at a reasonable cost. The
transportation system adds time and place utilities to the goods handled and thus,
increase their economic value. To achieve these goals, transportation facilities must be
adequate, regular, dependable and equitable in terms of costs and benefits of the
facilities and service provided.

5. Information:

22

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

The physical distribution managers continuously need up-to-date information about


inventory, transportation and warehousing. For example, in respect on inventory,
information about present stock position at each location, future commitment and
replenishment capabilities are constantly required. Similarly, before choosing a 16
carrier, information about the availability of various modes of transport, their costs,
services and suitability for a particular product is needed. About warehousing,
information with respect to space utilization, work schedules, unit load performance,
etc., is required. In order to receive all the information stated above, an efficient
management information system would be of immense use in controlling costs,
improving services and determining the overall effectiveness of distribution. Of course,
it is difficult to correctly assess the cost of physical distribution operations. But if correct
information is available it can be analyzed systematically and a great deal of saving can
be ensured.
6. Facilities:

The Facilities logistics element is composed of a variety of planning activities, all of


which are directed toward ensuring that all required permanent or semi permanent
operating and support facilities (for instance, training, field and depot maintenance,
storage, operational, and testing) are available concurrently with system fielding.
Planning must be comprehensive and include the need for new construction as well as
modifications to existing facilities. Facility construction can take from 5 to 7 years from
concept formulation to user occupancy. It also includes studies to define and establish
impacts on life cycle cost, funding requirements, facility locations and improvements,
space requirements, environmental impacts, duration or frequency of use, safety and
health standards requirements, and security restrictions. Also included are any utility
requirements, for both fixed and mobile facilities, with emphasis on limiting
requirements of scarce or unique resources.

RELEVANCE OF LOGISTICS INTERNATIONAL MARKETING


23

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Marketing experts have recognized that for developing a position of sustainable


competitive advantage, a major source is superior logistics performance. Thus, it can be
argued that instead of viewing distribution, marketing and manufacturing as largely
separate activities within the business, they need to be unified, particularly at the
strategic level. One might be tempted to describe such an integrated approach to strategy
and planning as Marketing Logistics. Business can only compete and survive either by
winning a cost advantage or by providing superior value and benefit to the customer.
In recent years, numbers of companies have become aware that the market place
encompasses the world, not just the India .As a practical matter, marketing managers are
finding that they need to do much work in terms of conceptualizing , designing , and
implementing logistics initiatives to market effective globally. Following are the reasons
behind the extension of logistics activities at global level to do business internationally.
The magnitudes of global business are:
Increase in the magnitude global business.

Business is relying on foreign countries to provide a source of raw materials and


markets for finished goods.
Fall of global trade barriers.
Increase in Global competition.

24

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

THE INDIAN LOGISTICS SECTOR :


Wars have been won or lost on the strength of logistics capability or lack of it. Although
quite an old concept, logistics has been becoming efficient only since the globalization
wave of the early 1990s and hence, the businesses supported by it, worldwide, have been
pushed for competitive balance-sheets, providing consumers a better product/service and
yet adding value to its investors.
Triggering intense competition, globalization, coupled with liberalization, forced both
private and public firms to commit themselves to making available to their customers the
right material of right condition, at the right time and place at the lowest cost be it a
product or a service.
The World Bank, in a recent survey connecting to Compete: Trade Logistics in the
Global Economy has developed a Logistics Performance Index (LPI) that can serve as a
benchmarking tool for measuring performance of businesses along a countrys logistics
supply chain. The Bank study asserts that countries that are able to connect to the global
logistics web would not only have access to vast new markets but also remain a part of
the global trade growth. The report avers that it is not the income of nations but their
undergoing trade expansion that determines their logistics efficiency, as the survey
shows that nations with increasing trade (imports and exports) to GDP emerged as the
out-performers on the LPI scale relative to their income levels. It also warns that those
countries whose links with the global logistics chain are weak are bound to face large
and growing costs of exclusion from international trade. India trails behind China on
important indices such as customs procedures, overall infrastructure quality,
international shipment, logistics competence and tracking of shipments, but is ahead of
the latter on the domestic logistics efficiency front.
Healthy economic growth in India is increasingly supported by robust industrial growth.
One of the relatively lesser known but significant sectors that support almost all
industrial activity - the logistics sector - is also witnessing this growth as a follow
25

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

through. However, not withstanding its importance and size (INR 4 trillion), it has
traditionally not been accorded the attention it deserves as a separate sector in itself.

Country

LPI Score

USA

3.85

UK

3.84

Singapore

4.19

India

3.07

China

3.64

Mexico

2.64

The level of inefficiency in logistics activities in the country has been very high across
all modes. With the evolving business environment creating a strong demand pull for
quality and efficient logistics services, core issues around enabling infrastructure,
regulatory environment and the fragmented nature of the industry are being overcome
gradually.
The required pace of efficiency and quality improvement will demand rapid
development of capabilities of logistics service providers. And with logistics being a
service oriented sector, skill development will emerge as a key capability while skill
issues exist in varying degrees in all segments of logistics; those segments where the
gaps are not only wide but also widening at a relatively fast pace. The most severe and
immediate requirement for skill development is found to be in the road freight and
warehousing segments.
Indias spend on logistics activities - equivalent to 13 percent of its GDP is higher than
that of the developed nations. The key reason for this is the relatively higher level of
inefficiencies in the system, with lower average trucking speeds, higher turnaround time
at ports and high cost of administrative delays being just a few of the examples.
26

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

These inefficiencies have arisen over the years from a combination of a non-conducive
policy environment, extensive industry fragmentation and lack of good basic
infrastructure. India's indirect tax regime discouraged large centralized warehouses and
led, over time, to fragmentation in the warehousing sector. At the same time, the absence
of a single logistics 'champion' (whether in form of a ministry or otherwise) in the
government (or industry) led to a disintegrated approach to development of the sector.

Country

Logistics Cost/GDP

India

13%

U.S.

9.9%

Europe

10%

Japan

11.4%

Extensive fragmentation meant the incapacity of industry players to develop the industry
as a whole and poor support infrastructure, such as roads, ports and telecom, led to a
situation where the opportunity to create value is limited.
However, much of this is changing with the government now demonstrating a strong
commitment towards providing an enabling infrastructure and creating conducive
regulations. There is significant current and planned investment in infrastructure to the
tune of (INR 15 trillion) over the next few years and an increased emphasis on publicprivate partnership. At the same time, regulations around rationalization of tax structures
and prevention of overloading for example are creating an environment of positive
change. Players now have the opportunity to leverage economies of scale,
complemented with better infrastructure, to provide integrated logistics solutions which
are cost effective.
In addition, the evolving business landscape and increasing competition across
industries, is creating the need for more efficient and reliable logistics services than what
27

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

exist today For example, rapid growth of organized retail and the need to reach out to the
large untapped rural markets in India are necessitating development of strong back end
and front end supply networks.
Fundamentally, a fragmented industry with low average scale - and consequent limited
investment and market development capability - is worst placed to serve these needs. It
is not surprising therefore that there is a frantic pace of consolidation and organic growth
that the industry is witnessing (refer box and figure 4). While logistics service providers
are struggling to keep pace with the growth, logistics service users with limited or no
outsourcing are finding it increasingly difficult and / or undesirable to manage this noncore activity in-house. The result is a wide need gap that is seemingly widening much
faster than it is being filled.

28

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

It is in this context that capability development of logistics service providers assumes


critical importance. While rapid development across all dimensions of organizational
capability will be required to achieve and sustain demand growth, logistics being a
service industry, manpower capabilities assume utmost 5 importances. The sector
currently employs about 40 million people, a number that will rise rapidly with
exponential growth expectations in the sector. 6 A look at the financials of a set of 80
logistics companies in India across sectors reveals that manpower spends comprise 8-10
percent of overall sales of the sector.
This roughly translates to about an INR 500 billion spend on logistics manpower in the
country annually. Only about 13 -14 percent of the overall manpower costs are spent on
non-salary, manpower development items (welfare, training etc.). This share for the
unorganized companies would expectedly be much less.
As against this leading global logistics companies spend around 20 percent of their
employee expenditure on non-salary items. This lack of focus on developing manpower
and skills for the logistics sector has resulted in a significant gap in the numbers and
quality of manpower in the sector. This gap, unless addressed urgently, is likely to be a
key impediment in the growth of the logistics sector in India, and in consequence, could
impact growth in industry and manufacturing sectors as well.
This underscores the need for identifying areas where such manpower and skill gaps are
critical, and developing focused action plans to improve the situation. In the next
section, we analyze each segment of the Logistics sector in India to identify the skill
gaps that exist in each. These gaps are then prioritized to identify key focus areas, and
the action that needs to be taken to bridge the gaps.

SIZE OF THE LOGISTICS MARKET IN INDIA:

29

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is
the backbone of Indian Economy. Our industry is growing at a rate of 8-10% annually
and has been a crucial contributor in the growth and development of the Indian
economy. In the near future, Traditional Logistics services like Transportation and
Warehousing would continue to growth at a good rate. However, the big ticket growth
would come from the Value Added Logistics services in the near future.
At present, Outsourced Logistics accounts for only one-third of the total Logistics
market in India, which is a significantly lower proportion vis--vis the developed
markets. Growth in this industry is currently being driven in India by over USD 300
billion worth of infrastructure investments, the phased introduction of VAT, the
development of organized Retail and Agro-processing industries, along with a strong
manufacturing growth. In addition, we expect strong Foreign Direct Investment inflows
in the Indian markets, which would lead to increased market opportunities for providers
of Third-Party Logistics in India.
Therefore, India possesses substantial opportunities for growth in the Supply Chain &
Logistics industry in the coming years, notwithstanding the temporary jolt due to the
economic slowdown.

LOGISTICS ON A HIGH GROWTH TRAJECTORY


The Indian logistics sector grew by 8 to 10 per cent annually between 2002 and 2007.
Several factors have favourably impacted the growth of the logistics industry, like the
country's changing tax regime, growth across major industry segments such as
automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence
of organised retail. With escalating competition and cost pressures, companies are
increasingly focusing on their core competencies by outsourcing their logistics
requirements to third party logistics (3PL) players.
The future of the Indian logistics and warehousing industry is currently governed by
three key factors
30

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

a) BURGEONING DOMESTIC DEMAND


Emergence of organised retail:

Globally, retail has been a key growth driver for the logistics industry and India is no
exception to this phenomenon. Organised retail in India has been growing at over 30 per
cent year-on-year.
The total retail industry in India is expected to 1 grow from US$ 320 billion in 2006 to
US$ 421 billion by 2010. The growth of organised retail has created demand for
specialised logistics services, wherein every retailer relies on strong logistics and
warehousing infrastructure for the success of its business. This changing business
environment should give further impetus to the logistics sector by generating increased
demand for high-quality and efficient logistics and warehousing services.

Increase in foreign trade:

In 2007, the Indian economy witnessed a growth of 13 per cent in exports and 17 per
cent in imports. India's current share in global trade is around 0.8 per cent and is
expected to increase to 1.6 per cent by 2012. Robust growth in foreign trade will
increase the demand for good quality and timely logistics and warehouse services.

India becoming a manufacturing hub:

The world over, India is being recognised as a destination for outsourcing of custombased, high-technology manufacturing activities. According to Confederation of Indian
Industries (CII), India will emerge as one of the global 'manufactured product'
outsourcing hubs and reach revenues of approximately US$ 50 billion by 2015. In order
to remain cost-competitive, contract manufacturers will be required to provide integrated
logistics solutions that will bolster the cost savings potential of the outsourcing
31

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

initiative. The increasing trend of outsourcing will, in turn, drive strong demand for
logistics solutions in the country.

b) Reducing logistics costs

The logistics cost in India which includes inventory holding, transportation,


warehousing, packaging, losses and related administration costs is estimated at
approximately 13 per cent of GDP and is high when compared to the corresponding
figures for major economies India's multi-layered tax regime, infrastructure bottlenecks
and other inefficiencies have been the primary reasons in keeping logistics costs high in
India.
Under the existing tax structure, 2 per cent Central Sales Tax (CST) is levied on interstate sales. As a result, companies have had to maintain small warehouses and depots in
every state in order to avoid paying CST on Inter-state sales. These multiple warehouses
have resulted in high inventory costs, increased working capital and other overheads. A
simplified tax regime will help logistics players service multiple markets and offer endto-end solutions far more efficiently and at much lower costs.
As per the World Bank's report on the Logistics Performance Index, a 0.5 per cent
decrease in logistics cost leads to 2 per cent growth in trade and a 40 per cent increase in
the range of products that get exported out of the country.

From multiple taxes to a simplified tax regime:

Union Budget 2008-09 has proposed the phasing out of Central Sales Tax (CST) 201011. Once implemented, this measure will promote outsourcing of logistics operations
and encourage the creation of large warehouses at key strategic locations that could
operate on the 'hub-and-spoke' model. The implementation of Value Added Tax (VAT) in
32

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

2006 has played a role in reducing logistics costs. The proposed implementation of
Goods and Service Tax (GST) could lower logistics costs further. According to the
Confederation of Indian Industry (CII), improvement of logistics and warehousing
industry can make Indian industries more cost-competitive, thereby enabling a GDP
growth of 11 to 12 per cent, from the existing 7 to 8 per cent.

c) Improvement in infrastructure

Transportation in India accounts for nearly 40 per cent of the total cost of production.
One of
The major barriers faced by the Indian logistics industry have been the lack of quality
physical infrastructure. However, India's core sectors are witnessing a significant
change. The country is expected to increase its infrastructure development spend from
4.7 per cent of GDP in 2007 to 8 per cent of GDP by 2012. This increased spend will
help boost the logistics industry. However, delays in critical projects may lead to a
failure of this measure to provide the much needed impetus to the growth of this sector.
Better connectivity to small towns and cities is another area planners need to work upon.
Road transportation is currently the most dominant form of transportation with more
than half of the goods in the country being moved by road. Almost every mode of
transportation in India is fraught with inefficiencies.
For instance, ports that are vital for foreign tradehave very high turnaround times
when compared with statistics for other countries. Similarly, the railways, which were a
popular mode for freight transportation (especially the movement of bulk goods), have
lost ground to road transportation due to limited access to smaller towns. Air, on the
other hand, is a costly mode and its use is restricted to courier shipments. It is rarely
used for bulk transportation.

33

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Supply Chain Management in Automobile Industry

Overview of Indian automobile industry


Indian automobile industry is riding high with vast economic growth rate
of 8.4% in 2008-09. The industry has been growing at CAGR of 16.33% from 2002-03
to 2008-09 in terms of production. Booming IT/ITES sector, manufacturing industry
(namely textile, pharmaceutical and engineering) and real estate have contributed to this
high growth in automobile industry in the country.

This is easy to understand because the per capita disposable income of the people has
gone up remarkably. Over the last five years, per capita personal disposable income has
gone up by around 8%, which has increased purchasing capacity of the people in the
country. Other factors have also contributed to this high growth in Indian automobile
sector. These include lowering age of first car users, shorter replacement cycles, rising
duel income families, new technology, which is lowering cost of ownership, low car
penetration in the country and most importantly growing steel production in the country.
In addition, wide variety and easily available financing options are also some of the
major reasons for surge in demand for automobiles in India.

34

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Automobile Production Trend in (000 units)

Domestic sales have grown at CAGR of 14.27% from 2002-03 to 2008-09. The
commercial vehicle segment, in particular, has increased at CAGR of 24.35% during the
above-mentioned period; whereas total sales of passenger cars in domestic market have
increased at CAGR of 14.02%. In terms of production, commercial vehicles have
registered a CAGR of 24.55% from 2002-03 to 2008-09; while passenger vehicles have
registered a CAGR of 18.24%. There is a declining trend in mopeds production as well
as in sales in the domestic market. During 2002-03, mopeds production and sales have
declined at CAGR 2.93% and 5% respectively.
35

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Exports on a roll
The significant development in Indian automobile sector is the
outstanding growth of its exports. From 2002-03 to 2008-09, total exports of automobile
sector has gone up at CAGR of 44.56%. Exports of motorcycle segment have registered
highest annual growth rate of 71.42% during this period. This has clearly indicated that
Indian automobile sector is going global.

Export Trend in Indian


Automobiles (000 units)

36

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Cold chain system

37

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Cold chain system


A cold chain is a temperature-controlled supply chain. An unbroken cold
chain is an uninterrupted series of storage and distribution activities which maintain a
given temperature range. It is used to help extend and ensure the shelf life of products
such as fresh agricultural produce, processed foods, photographic film, chemicals and
pharmaceutical drugs.

Uses
Cold chains are common in the food and pharmaceutical industries and
also some chemical shipments. One common temperature range for a cold chain in
pharmaceutical industries is 2 to 8 C but the specific temperature (and time at
temperature) tolerances depend on the actual product being shipped.
This is important in the supply of vaccines to distant clinics in hot
climates served by poorly developed transport networks. Disruption of a cold chain due
to war may produce consequences similar to the Smallpox outbreaks in the Philippines
during the Spanish-American war.
Traditionally all historical stability data developed for vaccines were
based on the temperature range of 2-8 C. With recent development of biological
products by former vaccine developers, biologics has fallen into the same category of
storage at 2-8 C due to the nature of the products and the lack of testing these products
at wider storage conditions.
The cold chain distribution process is an extension of the good
manufacturing practice (GMP) environment that all drugs and biological products are
required to adhere to, enforced by the various health regulatory bodies. As such, the
distribution process must be validated to ensure that there is no negative impact to the
safety, efficacy or quality of the drug substance. The GMP environment requires that all
processes that might impact the safety, efficacy or quality of the drug substance must be
evaluated, including storage and distribution of the drug substance.
38

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Cold chain concept


A Cold Chain is a system which provides a series of facilities for maintaining ideal
storage conditions for perishables from the point of origin to the point of consumption

Farm

Pack house

Cold storage

39

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Retail
Reefer van

Recent trends in Global Supply Chain

40

outlets

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Trend 1:

Globalization

Globalization, the ratio of a companys value creation outside the home


country, is gaining momentum, according to our survey results. Respondents
consistently rank acceleration of supply chain globalization as a top priority over the
next several years and note that they are reducing management of supply chain functions
within their home country and shifting these functions to other locations. This trend is
consistent regardless of a companys focus industry or current supply chain maturity.
Among the 300 surveyed companies, 42% of all manufacturing activities
and 38% of final assembly have already been globalized. The primary shift of
manufacturing and assembly operations has been to low cost country destinations
including China, India, and Eastern Europe. As a result, support functions such as
warehousing and procurement have also been globalized in support of international
locations.
The trend toward globalization is ongoing, with four out of five surveyed
companies planning to shift additional functions offshore by 2010. While transition of
manufacturing and assembly functions will grow only moderately, by 2010 more than
half of the companies total operations will be located outside the original home country.
This years survey shows a new trend: a high rate of growth with respect
to the globalization of product and technology development. While these functions have
traditionally been kept at a companys headquarters, the need to adapt products to
international markets and lack of qualified R&D personnel are driving the trend toward
increased globalization. By 2010, off shoring of R&D and technology development
activities will almost double.
41

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

The trend to outsource IT and other shared services such as HR and


Finance is decelerating, as most of the surveyed companies have already achieved
anticipated benefits from off shoring these functions.

42

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Risk of globalizing the supply chain


The material and labor cost benefits gained as a result of increased
globalization are not without risk. The majority of survey respondents report that they
have experienced issues with product safety and quality as a result, with more than onefifth saying that these issues are frequent and serious. In some cases, decisions to
offshore products have been reversed because quality problems could not be resolved.
The incidence of product safety and quality problems varies by industry.
Automotive and industrial equipment companies are the most likely to experience major
issues, and electronics and consumer goods companies are the least likely.
In addition, the surveyed companies named on-time delivery of critical products
as well as overall product / supply availability as major risks when globalizing their
supply chain.
Companies have developed numerous ways to minimize disruption related
to quality and delivery issues. Increasing the frequency of on-site audits is the most
commonly cited approach, followed by physical deployment of their companys
resources within the suppliers location, increased inspection, and increased supplier
training. Industry leaders are more likely to focus on deployment of their own resources
within supplier locations while followers rely more on supplier audits.
Other risk mitigation strategies mentioned frequently include consistent
dual sourcing strategies, early integration of product development and supply chain
Management and late customization of products in home market facilities.

43

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Major Globalization Risks and Means of Mitigation

44

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Analysis

45

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

46

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

1. Logistics performance of Index of India with other countries:

Country

LPI Score

USA

3.85

UK

3.84

Singapore

4.19

India

3.07

China

3.64

Mexico

2.64

47

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Interpretation: The Logistics Performance Index (LPI) and its indicators provide the first
in-depth cross-country assessment of the logistics gap among countries. As the above
graph shows that LPI score of USA, UK, Singapore, India and Mexico, indicates the
performance of logistics in global transport and logistics hubs. Also as the performance
of developed countries in logistics are high as compare to the developing nation.
Singapore has high performance in global logistics as compare to other countries also
gain rank 1st among all by World Bank. USA, UK, Mexico and China are ranked in
logistics performance in global market at 9th, 14th, 56th and 30th respectively. India is
ranked 39th in the Global market show the high logistics performance than in the global
market.
2

LPI top 10 countries of low income group :

48

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Country

LPI score

India

3.07

Vietnam

2.89

So Tom and Principe

2.87

Guinea

2.71

Sudan

2.71

Mauritania

2.63

Pakistan

2.62

Kenya

2.52

Gambia

2.52

Cambodia

2.50

Interpretation: This graph shows that India had performed well among all the low-income
countries. India has scored 3.07 LPI score and ranked 1st among all other low income countries.
This shows the among the low income countries Indias performance in global transportation
and logistics hubs is better.

3 Logistics cost contributed from GDP in different countries :

49

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Country
India
U.S.
Europe
Japan

Logistics Cost/GDP
13%
9.9%
10%
11.4%

Interpretation: Above graph show that in India logistics cost high than developed
countries and contribution in GDP is 13 %. High logistics cost is due to the incomplete
and under developed infrastructure, non conductive policy, environment, indirect tax
regime and extensive industry fragmentation.

4 Share of 3PL in overall industry:

Country

Share of 3PL in overall

India

Logistics
10 %
50

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

U.S.
Europe
Japan

57 %
30 %
80 %

Interpretation: Above graph shows that in Japan share of 3PL in overall industry high
as compare other developed countries is 80 %. In India share of 3PL is 10 % show that in
India 3PL service provider are less.

5. Revenue generated from 3PL:


Year

Revenue (mil. USD)

2005

890

2008

1622
51

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

2012 E

3556

Interpretation: The above graph shows that 3pl share in the logistics industry
increased with the increased in revenue of the 3PL in the logistics industry in India .

52

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Limitation

53

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Limitation of study
The study is based on the secondary published in news papers, books and journals of the
researcher. So some time data witch is publish by the researcher can not analysis fresh
stimulation means old &wrong data is collected by the inbuilt error.
This study based on only Indias global supply chain

54

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

55

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

CONCLUSION

Indian Logistics industry is continuously improving its performance in the


global logistics industry by improvement of customs, trade-related infrastructure, inland
transit, logistics services, information systems, and port efficiency help to provide trade
goods and services on time and at low cost. The World Bank's 2007th Global Logistics
Report ranks India 39 amongst 150 countries in terms of logistics performance during the
year as well as its future potential.

56

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Bibliograp
hy

57

AN ANALYSIS OF GLOBAL SUPPLY CHAIN MANAGEMENT- INDIAN PERSPECTIVE

Book:
Global Supply Chain Management:
Author -Masaaki Kotabe, Michael J. Mol 2006

International Logistics: Global Supply Chain Management:


Author- Douglas C. Long 2003

Global Logistics and Supply Chain Management

Author- John Mangan, Chandra Lalwani, Tim Butcher - 2008

Websites:
www.google.com
www.scribd.com
www.thehindu.com
www.supplychain-forum.com

www.supply-chain.org

58