High inflationary scenario demands localisation of operations

Updated: Sep 30 2008, 07:14am hrs
India, as a logistics service destination needs big distribution centres especially with the coming of the SEZs. However, the current high inflation scenario requires the logistics firms in the country to act more smartly. John Gattorna, visiting professor at the Macquarie Graduate School of Management, and a global expert on supply chain management and logistics talks about emerging areas for logistics and supply chain services in India and the outlook of the sector in the scenario of global slowdown to Ashutosh Kumar of FE.

Which are the emerging sectors the logistics and supply chain services providers should target in India

There is a fantastic opportunity in the chilled and fresh foods arena, irrespective of the financial crisis. With the emerging retail revolution and big retailers setting shops in India in partnership with the Indian companies, logistics services in the sector is clearly an opportunity for both domestic and international players.

Also, opportunities abound in more traditional areas like oil and gas. Oil refineries need logistical support for effective supply chain management of the refined products and petrol, which is not happening in a proper manner now. Textile and clothing sector is also important given that global brands source their products from India to distribute them across their supply chains globally.

How much investment do you see coming in for providing logistics services to the new sectors that you talked about, in say two to three years

It is difficult to peg the investment in the monetary terms. But providing complete logistical support to these sectors requires huge investment in infrastructure and technology. Apart from that it also requires a good deal of investment in talented workforce to provide these specialized services.

In India the logistics cost is almost around 14% of the GDP, compared with around 8% in the US. what should the service providers do to curtail this cost

The cost of providing logistics services is high because of lack of infrastructure to support such activities. Once you get the road infrastructure and other support infrastructure in the metros, the technology managing the last mile connectivity, and third party logistics only then a reduction in the cost will start coming down, beginning in 2010 and 2011.

What policy level initiatives need to be taken to address the issue

A major issue that needs to be addressed on a priority basis is making land available to companies setting up operations in the country. We do need land for building road infrastructure, warehouses and developing facilities at the ports.

Do you see upgrading to IT-enabled service dispensation as a move forward in cutting the cost

IT-enabled services used here is sufficient enough to provide an improved visibility to operations. The technology used in logistics services in India is better than China but China has got better infrastructure than India. The next step where there is a huge scope of tech application is reverse logistics. This will help cut cost and ensure optimum utilisation of the resources even during the return journey to the destination.

Ideally how much percentage of the revenues should be invested for tech upgrade and how much cost reduction would it entail

A company like Walmart, invests around 2 to 3% of their turnover for tech upgrade. An investment like this can not only ease the operations and improve infrastructure but can also bring national logistics cost coming down to 10%.

How do you see the growth of the logistics sector in the context of the rising inflation and an overall slowdown in the sectors like manufacturing, automobiles and FMCG, which are one of the major logistics clients

Well this is a situation which will force the logistics firms in the country as well as globally to act more smartly. One is that in a situation like this the cost could be shared. Also this could force localisation of operations and slightly move away fromglobalisation. Manufacturers rather than making the products at one place and sending them across to some other place, will localise the product manufacturing near the assembly centres. This will push the industrial activities, which in turn will be good for the logistics sector.

Are there any advantages that India, as a logistics service destination enjoys over its global counterparts

There will be consolidation in the big cities like Mumbai, Delhi, Calcutta, Chennai and Bangalore. We need big distribution centres especially with the coming of the SEZs. There are logistics hub and rail links coming up. India is in the process of building up while others might be stuck.

What are the grey areas in the Indian logistics and supply chain management that need immediate attention

Getting new infrastructure built quickly is very important, which need immediate attention. There is a need to combine big hubbing with the already existing infrastructure. But a timely and fast action needs to be taken.