GST and its impact on creating global benchmark in supply chain management
12 Aug 2017 GST and its impact on creating global benchmark in supply chain management
(This article was originally published in IndiaRetailing.com – link)
While manufacturing in India is set to grow at a CAGR of 13.5 per cent, the country is still far behind in terms of supply chain management. Various estimates suggest that logistics cost in India is 2-3 times in comparison to the global standard. While poor infrastructure, weak distribution system, fragmented market, and lack of technology adoption are some of the challenges that are impacting the optimization of supply chain. India’s complex tax infrastructure has also created a perpetual roadblock in the ecosystem. With products typically being taxed twice, many retailers had to maintain a higher inventory than what was actually required.
GST will have a defining role in streamlining the supply chain and inventory management for retailers. The structure of supply chain management is influenced by differential taxes based on geographical location. By eliminating the location-based barrier through the current GST policy, the Government has expanded the options for retailers in terms of setting up inventories based on the requirement of the customers. This will invariably reduce the cost of procurement and delivery for the retailers. The reduced expenditure can go a long way in setting better service standards that will help in the customer acquisition process.
One of the key differences between Indian warehousing and their global counterpart is in terms of building an efficient and sufficient infrastructure. While Indian logistic market has matured quite steadily, yet the industry faces challenges in terms of matching the demand supply gap given the growing location constraints and transportation roadblocks. The GST regime will allow the supply chain network design to be purely based on logistics cost and customer service and provides a greater flexibility into supply and demand matching. Retailers can now build bigger and fewer warehouses, clubbing multiple smaller warehouses to create a single strategic inventory to meet demands of multiple locations. This will also lead to considerable reduction of unorganized supply management system.
While the advantage of uniform taxation system is evident in terms of supply chain improvement, GST can play a significant role in helping manufacturers expand their vendor base beyond state boundaries and modify their sourcing models with the help of GST. This will clearly change the stock management strategy for quite a few manufacturers and bring in more efficiency and transparency in the whole supply chain ecosystem.
Although, post GST regime will bring in a structured warehousing system, the long term success of its implementation will depend on the uniform acceptance of the new tax structure by all stakeholders. Ample preparation, quick turnaround in terms of building processes and uniformity in business transaction will play a analytical role in consolidating the supply chain management. Vendors, especially in logistic companies also need to bring in a minimum standard in process orientation so that the whole process of supply chain management becomes hassle free and convenient for all stakeholders. The earlier system of unstructured logistic management led by the influence of middle-men need to be replaced by a robust last mile delivery process.
The post GST regime will enable in building an optimal warehousing model which in turn will make our supply chain management globally competitive and set newer benchmarks. With freight time expected to come down by 30-40 per cent and logistic costs by 20-30 per cent, The boardroom discussions and meetings of having a seamless, efficient and smooth running supply chain will come to reality. Indian retailers can now focus more on quality of product and elevating standard of customer satisfaction.
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