With the cost of managing the supply chain of some companies going up to 40% of the total value-added in certain industries, companies are now exploring ways to become cost-effective. Janat Shah, professor of production and operations management at the Indian Institute of Management, Bangalore, talks to fe?s Saikat Neogi about the challenges faced by the industry and how deployment of IT can help bring down costs. He is also a special professor at the Nottingham University Business School in the operations management division. Excerpts:

Why should companies get serious about supply chain management process today? How significantly can it impact their profits?

Companies have managed supply chains for decades, but never in history did they have the variety they handle now, or the kind of competitive pressures they face now. Companies all over the world have realised that the difference between good and poor supply chain management can affect their profitability significantly. Globally, firms like Dell Computers and Wal-Mart have demonstrated the impact of supply chain management on business performance.

What are the challenges specific to Indian companies in managing an efficient supply chain?

Managing supply chains in a country like India has its own unique set of problems and challenges. For example, complex distribution structures, a large number of customers at the bottom of the economic pyramid, poor infrastructure and complex taxation structures are issues unique to India and require innovative solutions.

Indian companies have been investing in technology to improve supply chain. What more can they do?

Indian firms have not made enough investments in IT to improve supply chain performance. Over a period of time, major Indian IT firms have worked with global supply chain leaders and have developed strong capabilities in usage of IT. Given the global downturn, Indian IT companies have started focusing on Indian industry. So this may be a unique opportunity for the Indian industry to exploit the capabilities available with Indian IT industry. But at the same time they should not invest in technology for the sake of it. They must ensure that there is a linkage between IT investments and supply chain improvements.

What kind of best practices can Indian companies pick up from other countries?

Given the fact that the Indian economy is growing at 6-8 per cent annually despite the infrastructure bottlenecks, we have to look at the challenges in supply chain management that are unique to the Indian scenario. The goal is not only to understand and apply the concepts that have already evolved but to continue to look for innovations and solutions customised to meet the requirements of companies operating in the Indian scenario. It is obvious that significant improvements will come only from innovative solutions that can resolve supply chain problems that are specific to the Indian context.

How are companies working on the hub-and-spoke model in logistics business in India?

In the hub-and-spoke model followed in transportation industry, all the destinations (cities and towns) in the region are connected through a central hub. Because of poor infrastructure, complex taxation structures and undeveloped warehousing sector, hub-and spoke models have not been practised extensively in India. Some of the air cargo companies have started applying this model in India. In India, firms modify hub-spoke model by creating regional hubs instead of one central hub. This model also helps you to add new cities to network easily compared to point-to-point model. But if there is any problem at the hub (for example, bad weather), it can result in delays across the entire network.

Can organised retail help in streamlining the supply chain management in the country?

In developed markets, organised retail has played a very important role in streamlining supply chains. In India organised retail is still at an infancy stage. They are still trying to grapple with market-related challenges (appropriate formats and optimal assortment) and with the result they are unlikely to play a major role in supply chain transformation of the country. In the long run, they would play important role but in the short run they are not likely to play any major role in supply chain management innovations.

Which are the sectors that have good supply chain networks in place and what kind of lessons do they offer to other sectors?

Automobile sector and some firms in packaged goods sector have been leaders in supply chain management practices. On one hand we have firms like Toyota Kirloskar, Maruti Suzuki, Asian Paints and Marico, which have adapted good supply chain concepts to local conditions and in the process ensured remarkable supply chain performance. We also have cases like Amul and dabbawalas of Mumbai, which have succeeded by coming up with unique solutions to supply chain challenges in India. Of course, other sectors can learn a lot of lessons from these successful practices, but the challenge is to learn and adapt the best practices and not copy them.