India’s economy is entering a year of uncertainty. It is vital for supply chain leaders to understand the challenges before them and position themselves well to overcome them.
India’s historic massive economic growth has been decelerating for some time now. The quarter ending September 2019 had the country’s slowest growth in the past six years at only 4.5 percent year-over-year. Consumer confidence is also at its lowest point since 2014 with no real indication this decline will slow. Efforts by the government to stimulate growth by reducing corporate taxes and lowering the Reserve Bank’s repo rate from 6.5% to 5.15% are likely to help in some economic areas, but forecasting the greater macroeconomic ecosystem remains difficult.
This uncertainty is forcing business leaders to ask tough questions like how to prioritize “must have” investments and how to accelerate time-to-value when implementing new capabilities. To effectively address these questions, supply chain leaders should find a seat at the table alongside top leadership and be prepared to address the following challenges:
Supply chain networks are transforming to support e-commerce growth
Delivering products at the promised time and at the desired cost while simultaneously providing your customers with the product and packaging quality they’ve come to expect is the textbook definition of “e-commerce nirvana.” Both online and traditional retailers, along with a growing number of direct-to-consumer manufacturers, are facing increased pressure to achieve this goal without exception. Added to this complexity is the growing wealth of India’s middle class and subsequent demand upticks in Tier 2 and Tier 3 cities. Meeting this demand is going to require investment in a scaleable distribution network and last mile operations—one which provides reliable order and tracking visibility. Some organisations may also want to consider consumer pick-up points to eliminate last mile delivery roadblocks.
Labor and technology investments must be balanced
Double digit growth in e-commerce and the increasing maturity of the logistics and warehousing industry is continuing to shift and evolve talent requirements. On the one hand, the implementation of automated systems and robots along with other technology-enabled tools are increasing the level of competition among employers to attract highly skilled workers. Most experts agree that improving technology will not replace human workers, but rather require them to have new and advanced skills. On the other hand, there is a growing deficit of low skill labor available to operate these same logistics facilities. Organisations must carefully consider this trade-off between labor and technology to ensure long-term success and profitability.
Find ways to leverage favorable transport policy changes
Logistics costs make up more than 13 percent of India’s GDP, and the government has introduced several policy changes in an effort to reduce it to less than 8 percent. The implementation of GST has already led to an estimated 20 percent reduction in turnaround time for trucks crossing state borders. These faster transit times are expected to lead to warehouse consolidation which will further reduce primary transportation costs. Unit costs will also be lowered by the 20 to 25 percent allowable increase in payload capacity.
Dedicated Freight Corridors (DFC) will provide electrified rail corridors—to eliminate switching from electric to diesel locomotives—and allow longer freight trains, double-stacked containers, and an 80%+ increase in average speeds from 35-40 kilometers per hour to 65-75 kilometers per hour. The recent push to develop an extensive network of inland and coastal waterways should also help in expediting intermodal options. All together, these policies are creating new opportunities to optimize your transport strategy and generate cost savings.
Inventory and assets need to be optimized
Industries and market segments which are tied more loosely to consumers are experiencing softening demand. As a result, these businesses are being forced to seek innovative ways to extract value out of their existing tools and infrastructure. Heavy investment in this area over the past decade should pay off as data from advanced planning software can be used to improve planning performance and capture operational efficiencies. Those facing pressure to improve service levels should focus on inventory deployment and asset optimization. (This holds true for both B2B and B2C supply chains.)
Supply chains will grow greener
Supply chain operations are front and center when it comes to reducing environmental impact. And nations like India will become an even bigger international focal point for improving sustainability. Expect 2020 to see innovations in recycling and product packaging as the topic of sustainability gains traction among corporate leadership.
As the trends and challenges of 2020 start to become more clear in India, organisations that planned in advance will come out ahead. Developing strategies to address these issues early will increase your chances of success through this year and beyond.
