Mahindra Logistics

time to reconfigure your transportation system

The proposed introduction of GST from July 01, 2017 is poised to usher in major changes in the way India does business. One of the biggest impacts is expected to be on the logistics, supply chain and transportation sectors because the new tax structure is going to iron out glitches in movement of goods across the country.

Experts believe that GST will provide a mandate to redesign the supply chain without worrying about the hitherto complex tax considerations and thus, it has significant implications on logistics costs. Among other things, it is expected to consolidate primary movements and the entire chain will require fewer consolidated warehouses. This would mean that primary movement can be consolidated by allowing the use of bigger vehicles and more frequent FTL movements. As far as the secondary movement is concerned, more distributor points would be served from one warehouse. In fact, there would be a higher number of geographically dispersed distributor points which would be served from one warehouse.

When trucks travel longer distances, it calls for lower and more reliable transit time to maintain the agreed service level. In the post-GST scenario, lower transit time is expected due to lower scrutiny at State borders with simplification of taxation and related documentation.

As a result, the buffer inventory, kept for delays and/or uncertainties arising out of transport delays, can be reduced, contributing to overall profitability. A company can operate more efficiently by opening larger but fewer number of warehouses. Consolidation of warehouses will also contribute to lowering of inventory costs; and consolidation of freight operations will lead to need for larger and fewer trucks and thus operators will be able to reap benefits of economy of scale. As a result, transportation systems need to be reconfigured not only to synchronize business operations with the post-GST regime but to also obtain optimum benefits from the new reality.

The industry will have to thus think of creating new logistics dispatch models, thereby creating more opportunities to explore alternative distribution models. These models will require larger trucks for primary transport. It will also imply reduction in primary freight cost due to consolidation of freight.

The industry experts also foresee the following key changes:

  • Transport Optimization on Primary will happen due to emergence of organized players.
  • Innovation on Secondary as DC may move towards manufacturing locations.
  • Supply Chain re-engineering will require 3PL experience, capability, tools, techniques and an information technology (IT) set-up.
  • This will usher in a wave of organized 3PL players into the market.
  • Shift from in-house Supply Chain Management (SCM) to supply chain outsourcing to leverage change in taxation, infrastructure and business demand of enhanced customer experience.
  • Re-engineering of SCM will be driven on the backbone of automation, to handle larger volumes per WH (WMS) , more accurate and reliable track & trace (GPS, TMS, Control Tower)
  • Upgradation to a skilled work force for project execution, project management and contract management will be needed within 3PL and customer organizations.
  • Demand for Service Level contracts governed by IT will lead to increased demand for Value Added Services from customers for 3PL organizations.

In summary, overall impact of GST on transportation will be

  • Primary transportation will be using bigger & efficient trucks which drives down cost per kg as well as reduction in inventory carrying cost due more predictive transit time.
  • Secondary transportation cost will go up, but the same will be compensated by reduction in primary transportation, warehousing & inventory carrying cost. With more number delivery nodes to be catered, 3PL needs to come with technology driven innovative routing as well as milk-run deliveries & combination large & small trucks with cross dock at strategic locations.
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