After the proposed introduction of GST from July 01, 2017, the Indian industry will have to overhaul key area of the way their business is done with special emphasis on logistics. Pharmaceutical companies are no exception. In fact, due the peculiar nature of the pharma business, they will have to adapt their operations, and especially their supply chain in the post-GST era.
To start with, they will have to assess the impact of GST on their supply chain network as well as process and develop a supply chain operating model to suit the GST regime. It will be important to structure their source location, manufacturing locations, hubs, and pickup and delivery branches as per the required structure for smooth chain operations; to set up DC/RDC at the right location and align distributors, suppliers & customers with their structure.
Training employees about GST norms and rules; and re-designing the supply chain organisation structure are of vital importance. The industry will have to open additional distribution hubs and work towards rationalization of the C&FA model, etc. As a result, logistics and distribution will evolve as a competitive advantage through improved service levels, faster turnaround times and better fill rates at lower costs.
Pharma companies will have to plan their working capital rightly through proper inventory management, optimal cash flow management; and thereby arriving at a right costing and pricing of products.
Since GST is designed to create a more rational tax-sharing relationship between the Central Government and the State Governments, it is necessary to focus on appropriate contract management. To this end, it is imperative to have well-defined and proper long-term and short-term contracts as well as automated contract renewals and above all, drafting contracts as per geography’s (Central/State).
Technology is going to play a significant role in the success of the industry after the introduction of GST. Leveraging technology to renew master data and transactional data in the ERP system as per GST norms, procuring planning solutions-based tools and brining changes in the system for tax application by entity or process will be vital.
As far as the cash flow is concerned, a major impact will be seen as a result of the likely significant reduction in the inventory cost of distribution. Tax refunds on goods purchased for resale will lead to this benefit. Similarly, distributors are also expected to experience cash flow from collection of GST in their sales, before remitting it to the government at the end of the tax-filing period.
With the implementation of GST, cost of any service, including logistics, will be considered as a value-add, and the manufacturer will get tax credit for the service tax paid. Refund of accumulated credit on account of an inverted tax structure will also be due to them.
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