Logistics

Investors concerned about lack of supply chain infrastructure

Mamuni Das | Updated on May 01, 2011 Published on May 01, 2011

As a percentage of GDP, the logistics costs are much higher for India and China than the Western countries.   -  BL

Increasingly, companies are turning to efficient supply chain practices to cut costs.

Complex tax regulations and lack of supporting supply chain infrastructure are key concerns for international companies investing in India. This was told to Business Line by Mr Rick D. Blasgen, President and CEO, Council of Supply-Chain Management Professionals, who visited India recently for a logistics summit. CSCMP is a US-based body, which conducts research and training programmes in the supply chain sector.

“Fundamentals such as lack of wide enough roads to enable moving large trucks; and not being able to consolidate manufacturing under one roof to move products to the store are some the concerns about supply chain in India,” Mr Blasgen said based on his interaction with companies.

Refrigerated supply chain, for goods that need temperature protection from points of manufacture to consumption, is another area that requires improvement, he said.

For instance, Volkswagen had to enter into a special contract with a logistics player here to design trucks for transporting its cars. Mr Soren Stade, Head of Export Logistics, Volkswagen, India, said: “In Europe, we have large, standardised trucks (to move cars). We also have customised boxes.”

TAX STRUCTURE

Referring to the differential tax structure across States in India, Mr Blasgen said: “The Government needs to do more to allow India to be a global, competitive entity. I understand it is difficult to move inventory across States, given the tax differences…That is just adding costs to goods because of regulation.”

He cited examples of how Europe and the US have been tackling similar issues over time. Some European countries have eliminated certain inventory taxes to allow trading to be relatively free.

“In the US, holding inventory in one State could be costlier than holding it in another. That has been balanced (through tax readjustments) because they drive jobs,” he said.

Mr Blasgen said correlations have been established between companies' financial success and the depth and sophistication of their supply chains. Dell terms its supply chain the biggest leverage point it has; while Spanish clothing manufacturer and retailer Zara says: “supply chain is the business model.”

The supply chain function is on the radar of top company executives now. “The CEOs and CFOs are observing the supply chain costs more keenly now,” he said.

SUPPLY CHAIN COSTS

Increasingly, companies are turning to efficient supply chain practices to cut costs. The cost of logistics in the US was 7.7 per cent of gross domestic product (GDP) in 2009, against a relatively higher 17.9 per cent of GDP in 1980, according to CSCMP's State of Logistics Report.

Logistics costs in Europe are significantly lower due to a combination of shorter distances and well-established transportation infrastructure, including movement by rail, rivers and highways. On average, logistics costs represent 7.15 per cent of European GDP, the CSCMP report said.

As a percentage of GDP, the logistics costs are much higher for India (11-13 per cent) and China (15-16 per cent).

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Published on May 01, 2011
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