By J. S Lamba
Supply chain management is defined as “to plan and coordinate all activities necessary to achieve desired level of delivered service and quality at lowest possible cost”. The scope of logistics includes entire gamut of activities starting from the procurement and management of raw materials through delivery of final product to the end consumer. The ultimate purpose is to satisfy the customer needs by establishing linkages of people at all levels in the organization directly or indirectly to the market place. In the discipline of supply chain management the emphasis is on total landed costs in the hands of end consumers and the aspect of piece meal costs are discouraged. Efficient supply chain management has direct impact on earnings per share, return on assets, working capital, cash flows and profit margins.
Thus, the ultimate objective of supply chain is to link the market place, distribution network, manufacturing process and procurement activities, so as to provide higher levels of goods and services for the consumers yet at a lower cost.
As per KPMG report Indian Supply Chain industry is garnering an annual turnover of US $ 135 billion.
While in India in the last decade or so we have taken long strides in creating infrastructure and removing bottlenecks, our supply chain costs are still amongst the highest in the world. In USA the supply chain costs range from 9 to 10 percent of the GDP, in India these are as high as 13 to 17 percent. On the other hand, the aspect of customer service or customer delight is given an absolutely back seat and not even talked about which is critical for survival of the business in modern day.
There seems to be a need for detailed analysis as to where we are going wrong and what needs to be done. This article attempts to address these issues.
At Government level, there seems to be a lot of planning taking place for creating the infrastructure and removing the bottlenecks, however, at ground level we see very little shaping up and plans mostly remain on paper. Added to this is the slow decision making and lack of project / program management skills for handling mega projects resulting in huge cost and time overruns. This has a cascading impact on other ongoing and future projects as the resources are diverted to complete the current projects rather than starting the new ones. This also has a cascading impact on the yet to start projects as the costs go up before even starting the project. It is also seen that the lack of systems approach in planning and execution of projects is seen to be missing thus resulting in suboptimal benefits from the completed projects. Ironically since the independence, inspite of our country having beautiful navigable rivers and more than 7500 kilometers of coast line, the government has given very scant attention to the inland waterways and coastal shipping. This mode of transportation is cheapest and most environmental friendly.
At the corporate/ individual entrepreneur level, the end users of supply chain infrastructure created by government agencies, there are yet another set of problems which are peculiar to our country and very rarely found in other parts of the world. Fragmented ownership of transport fleet, low tonnage vehicles plying on roads occupying road space, lack of discipline in the drivers, obsolete and aged vehicles frequently breaking down on the roads, poorly maintained roads with potholes, lack of proper maintenance infrastructure for roads and vehicles, overloading of vehicles, lack of driving etiquettes and awareness/ training to the drivers, congestion at ports, lack of awareness of environmental aspects, delays due to various types of self created impediments like check points and toll/tax collection points, complex regulations affecting logistics decisions, Bureaucracy and obsolete processes, lack of last mile infrastructure to deliver goods to end consumers, are some of the aspects.
The industry is fraught with poor warehousing facilities resulting in large amount of losses and deterioration especially of the perishable goods
In our country due to lack of growth of rail infrastructure, and inefficiencies of government controlled railways, the additional haulage is being brought to road transport industry which amounts to suboptimal usage and once again increases the costs. As per Tata Steel, per tonne/kilometre costs for Indian rail freight are three times that of China.
An added to above aspect, India is implementing the use of information technology for the whole world, but ironically technology absorption in our country is at the lowest end. Use of tracking technology for vehicles, RFID, Automated storage and retrieval systems in warehouses, optimum layout and design of warehouses, material handling and storage systems, automation of toll collection technology, inventory optimization techniques which bring added efficiency to the practice of supply chain are glaringly missing. Some of the reasons for these aspects being neglected are absence of trained supply chain professionals in the organizations, lack of awareness on the direct and indirect benefits of these technologies, lack of skills for using these technologies, reluctance to change and accepting “this is good enough” attitude, availability of abundant labour at a fairly low cost.
What can be the direction:
There is an urgent need for integrated strategic planning involving industry and government agencies. Similarly integration of operational aspects of supply chain at various points between government and industry would help in removing the bottlenecks and improving the efficiencies of supply chain. Emphasis on creating world class infrastructure without any compromise on quality or functionality would benefit the end consumers.
Integration of transport networks using information technology (IT), warehousing and distribution facilities, elimination of artificially created barriers, state of the art training starting from drivers, fleet owners and various managerial levels in supply chain, greater emphasis on water transportation with added incentives for this sector, use of specialists like 3PL and specialized handling service providers would go a long way in making industry cost effective.
It must be realized that ultimately the end consumer pays for all the inefficiencies of the system and he is the ultimate looser without any fault of his. The intent should be to bring tangible benefits to this segment by providing efficient and predictable supply chain.
About the author:
Prof. J. S Lamba is the Professor & Area Chairperson Supply Chain K J Somaiya Institute of Management Studies and Research, Mumbai, India