PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO.

1, 2009

School of Economics and Management

TECHNICAL UNIVERSITY OF LISBON

RECENT DEVELOPMENTS IN THE PRACTICE OF SUPPLY CHAIN

MANAGEMENT AND LOGISTICS IN INDIA

Celik Parkan
Long Island University – C.W. Post; Management Department

Rameshwar Dubey
University of Petroleum & Energy Studies – CMES,Dehradun

Abstract

The Indian manufacturing and service industries are at a defining moment of rapid advancement
and explosion, which is expected to take the country to the next level of global competitiveness. This
paper reviews the recent events that have shaped the country’s economic and business landscape and
argues for the urgency of a significant modernization of its logistics and supply chain management prac-
tices.

Key words: retail supply chain management, TPS (Tata Production System)

JEL Classification: M10, O14

INTRODUCTION

With the Indian economy growing at more than 8% annually and manufac-
turing in double digits, the logistics sector in the country is at a point of inflection.
The current economic growth enablers include INR (Indian Rupees) 14 trillion
worth of infrastructure development, introduction of VAT (value-added tax), and
development of organized retail and agricultural processing activities.

Correspondence Address: Celik Parkan, Long Island University, C.W. Post, Department of Man-
agement, 720 Northern Blvd., Greenvale, NY 11548, USA, e-mail: cparkan@liu.edu.

73
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

Significant foreign direct investments (FDI) in electronics, automotive and

automotive component manufacturing are expected to lead to improved market
opportunities in India. In addition with increased competition, and companies
focusing on improving efficiencies and better product distribution and reach, the
trend towards outsourcing the logistics function globally has been on the rise. The
global logistics industry is estimated at USD3.5 trillion and logistics costs typi-
cally range between 9% and 20% of gross domestic product (GDP). In India the
logistics market is estimated to account for 13% of the GDP and is expected to
continue to grow to 20%.
The key enablers and growth drivers of India’s logistics industry are:

• Strong economic and market growth: Fortunes of the logistics industry are
inextricably linked to economic and market growth. India’s GDP grew at a
fairly fast compound annual rate (CAGR) of 6.7% during the period from
2001 to 2006, which has resulted in 18-19% growth of its EXIM (export/
import) trade.
• Infrastructure development and regulatory changes.
• INR 14 trillion have been spent on infrastructure improvement across vari-
ous sectors, with the introduction of VAT (value added tax), and compa-
nies are now beginning to move up from a smaller state level. Before
the implementation of VAT, the tax system in India was very complicated
and every state had its own set of rules, which represented a hurdle for
operating in the most cost effective manner and prevented defining ware-
house footprint, thus violating the application of the all important logistics
“least distance” principle. The following example illustrates how lack of
uniformity in taxation in India acted as a barrier in defining supply chain.
ACC Limited has 5 cement plants in Eastern India, including West Bengal
and Jharkhand. These states have their own tax rules that discourage the
movement of finished goods from Jharkhand to destinations in West Ben-
gal. The cement plant in Jharkhand is closer to some of the destinations
in West Bengal than the company’s plant that is located in West Bengal.
Since any finished product, such as cement bags, that is sold within a
state benefits from a 50% tax exemption, cement produced in and shipped
from Jharkhand is at a disadvantage. VAT brings a degree of tax uniformity,
which now applies to all supply chains nationwide.
• Increased FDI in agribusiness and retail sectors: India’s global acceptance
as an emerging outsourcing location for manufacturing and service in-
dustries as well as its fast growing domestic market have stimulated FDI
in consumer durables, electronics, and automotive and automotive com-
ponents. Significant expansion has been taking place in domestic retail
businesses and agribusiness, which is driven mainly by the push towards
74
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

organized retail activities and export opportunities. These sectors face very
complex supply chain related problems and therefore are the largest us-
ers of supply chain solutions and outsourced logistics services, and thus
will likely be the driving force for the growth of the Indian logistics sector.
In order to meet the growing demand for logistics solutions in transporta-
tion (inbound and outbound), warehousing, CFS (container freight station)/
ICD (inland container depot), RFID tagging, XPS (express cargo), and ERP
(enterprise resource planning), providers of integrated logistics and supply
chain solution tools will flourish at an accelerated rate. Concepts of third
party logistics (3PL), 4PL and then 7PL are expected to become common
place in the not-too-far distant future in India.
• Lower cost of ownership to drive organized logistics business: With en-
hanced competition, companies are now looking to third party outsourcing
in an effort to improve efficiencies and have better product distribution
and reach. Logistics companies are established due to visible investments
in fleet enhancements, IT systems, warehouses, and overall supply chain
systems. Most organized businesses such as express cargo, supply chain
management (SCM) and 3PL are expected to achieve a CAGR of 20 to
25% over the next five years. New sectors like warehousing are likely to
grow at a CAGR of over 40%.

Among these key enablers the increased FDI in agribusiness and retail sec-
tors has played a particularly prominent role in changing the face of Indian logis-
tics & supply chain practices.

LITERATURE REVIEW AND METHODOLOGY

According to the Planning Commission, the Indian economy is expected to

grow on average at 9% per annum during the 11th Five Year Plan period from
2007-08 to 2011-12. Consistent with a GDP growth rate of above 8%, it is
expected that the road freight industry will grow at a CAGR of 9.9% from 2007-
08 to 2011-2012. Road freight volumes have been targeted at 1,231 billion ton
kilometers by 2011-2012. These dramatic changes have motivated researchers
to focus on the practice of supply chain management and logistics in India with
particular emphasis on the recent developments. Our literature review is therefore
restricted to the key relevant areas for the purposes of this paper, namely, the
flourishing market, strong FDI’s in retail, agribusiness and automotive sectors,
and the implications of VAT and lower cost of ownership. During the last two
decades, globalization has emerged as a major force for shaping business strat-
egy, leading firms to develop products designed for a global market and to source
75
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

components globally (Cooper, 1993). This has led to more complex supply chains
requiring larger involvement of managers in logistics functions (Sahay, 2006).
The congested roadways and ports have caused significant delays to movements
of goods and have affected the performance of 3PL (third-party logistics) service
providers (Manda, 2006). The complicated tax structure, deep-rooted corruption,
and excessive bureaucratic control have also been barriers for 3PL service provid-
ers in their attempt to provide the best logistics solutions for their clients. Despite
many challenges, several factors are driving the growth of the Indian 3PL market
and the need for IT-enabled supply chain management has risen to an urgent level
(Narkhede and Mantha, 2008).
The approach we have adopted in developing this paper is one that involves
the investigation of the recent developments in the practice of supply chain man-
agement and logistics in India through an examination of the cases of a select
group of high-growth areas including agribusiness, retail business, the automotive
sector, and 3 PL’s. This is an appropriate approach for organizational and man-
agement studies (Yin 1994) when applied from a critical realistic perspective.
Saunders et al. (2003) state that a case based analysis has the potential to clarify
the questions of “why, what, and how.” While it is clear that observations based
on few instances - i.e., firms in specific industries - cannot be readily general-
ized to the entire industry, Hartley (1994), for example, argues that statistical
generalizations might be out of date by the time they are used for policy decisions
whereas scrutiny of practices or processes to obtain descriptive information may
prove to be very valuable. In the present study, which was conducted over a pe-
riod of one and half years, semi-structured interviews and secondary data were
used to gather information and data.

AGRIBUSINESS, RETAIL, AND AUTOMOTIVE SECTORS

A brief discussion of the agribusiness and the fast growing retail business
and automotive sector in India would be useful in understanding these sectors
and the effect of the change they are going through with respect to the supply
chain and logistics functions in the country.

The case of the Indian agribusiness: Opportunities for the logistics

firms created by current conditions of agriculture sector supply chains

India is the world’s largest producer of fruits and the second largest producer
of vegetables. However, neither the farmers nor the consumers benefit from the
potential advantages of being such a large scale producer primarily because of
76
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

inefficiencies in the country’s distribution systems and inadequacies in the man-

agement of the supply chains that support the agro-industries. A study conducted
by the Indian Institute of Management Bangalore (IIMB) reveals that the ratio of
retail price to producer’s price is between 3 and 4.1, which is one of the highest
in the world, as the result of significant losses incurred in the supply chain. For
example, the cumulative waste for potatoes and tomatoes as they move from the
producer to the consumer on their supply chains has been observed to be 24%
and 40%, respectively. This clearly represents great potential for agriculture based
industries to improve their logistics and drastically reduce waste, which, in turn
would lead to greater revenues, higher margins, and consistent quality. One would
expect that both government and private initiatives can help develop world class
infrastructure for storage and transshipments.

India’s thriving retail sector

Studies conducted by A.T. Kearney and other agencies on India’s retail mar-
ket suggest that great challenges await the country in building its infrastructure to
world standards. These reports focus on the issues highlighted below:

• India tops the annual list of most attractive countries for international retail
expansion, according to AT Kearney's Global Retail Development Index
2006. The $270-billion Indian retail market is growing at the rate of 13
per cent and its organized sector grew nearly 48 per cent in 2006 at pre-
vailing prices. The projected growth rate for the organized sector is about
40 per cent for 2007 and with the progressively greater participation of
major international and Indian corporations this growth will likely reach 45
per cent per year over the next few years.
• Food and grocery retail is by far the single largest block, currently esti-
mated to be worth Rs 743,900 crore. More than 99 per cent of this sector
is claimed by kirana stores.

The organized retailers have not been able to exploit many opportunities
particularly because of the difficulties they have encountered in the follow-
ing areas:

- rising real estate prices;

- loosely-knit distribution networks in the country’s hinterland;
- underdeveloped supply chain and logistics practices; and
- unavailability of skilled manpower.

77
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

Reliance Fresh Stores is hiring overseas talent to build up its management

capabilities, which India currently lacks. It has appointed Peter Brach-
er from Asda Wal-Mart as special adviser for Reliance Fresh stores, and
Kevin Pleass from Tesco, UK, to coordinate store design and construction
space.

• Increase in organized retail activity with greater quality retail space.

An estimated 100 million square feet of quality shopping centre space by
2007-08 would generate retail sales of over Rs 50,000 crore ($11 bil-
lion).
Concurrent with the growth in organized retail, the present two square feet-
per-capita retailing space will rise 15-20 per cent by 2010. By 2010 about
300 million square feet of additional retail space will likely be generated.
• Mall development has been steady - currently there are about 200 op-
erational malls (including some nearing completion), and this number is
expected to rise to almost 600 by the year 2010. Of the new malls that
are coming up, 40 per cent are concentrated in smaller cities. According
to an ICICI study, malls are estimated to become a Rs 38,447 crore ($8.3
billion) sector by 2010, leading to space related issues for the expected
15,000+ new outlets, 100 hypermarkets, 500 department stores and
2,000 supermarkets. Organized retailing in small-town India is growing at
50-60 per cent a year compared to 35-40 per cent in the large cities.
• According to a Frost & Sullivan research, the overall Indian 3PL market,
estimated at about US$890.3 million in 2005, is expected to grow at a
compound annual rate of 21.9 per cent to reach US$3,556.7 million by
2012.
Foreign retailers have demonstrated that managing operations innovatively
via effective technology interface can provide a significant competitive ad-
vantage to retailers. Wal-Mart leverages IT to track supply chain processes
like cross-docking. Similarly, Tesco has high-reliability delivery systems
in place. A leading retail chain could be managing as many as 400,000
products. It is not possible to manage such volume and magnitude without
a comprehensive and sound IT policy. Existing and imminent competition
from global stalwarts will have to be met squarely, and for this, modern
technology and systems infrastructure are imperative. Key benefits of IT
implementation include: operations integration; timely flow of information
and faster decision making; reduction in design-to-delivery time; reduc-
tion in processing costs; real-time monitoring and control; and security of
operations.
• A streamlined supply chain can cut down costs on warehousing by more
than 20 per cent. In addition to collecting sales data by POS (point-of-
78
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

sales) application and ordering and tracking inventory through merchan-

dise systems, companies can add customer profiling to the roster of IT-
enabled functions. In the context of a Rs 55,000-crore organized retail
sector, which is projected to grow at over 40 per cent annually for the next
four years, the scope for logistics support is tremendous. Reliance Retail
is investing Rs 8,000 crore in backward integration, market development,
and location sourcing. Reliance Retail’s rural business hubs (RBH) play a
vital link in its supply chain. Bangalore-based Jubilant Group is investing
heavily in their supply chain to acquire the capability to deliver fresh pro-
duce from their captive farms to hypermarket shelves within 24 hours.
• Indian retail is attracting some of the leading global logistics support pro-
viders that promise to deliver an assortment of catalogued foreign prod-
ucts to the retail stores within seven days. Currently, logistics support to
the retail sector is largely being outsourced to specialist service providers
and only a few of the large players have focused on developing in-house
supply chain and logistics systems. Shop-fit and support investments in
retail are slated to go up nearly 12 times to $30 billion over the next five
years. Scope for organized retail is over Rs 200,000 crore ($45 billion) by
2010. Leading retailers’ sales grew by more than 50 per cent from 2005
to 2006.

The Automotive Sector

The Indian automotive sector is exploding. TATA Motors’ remarkable growth

has led to the realization of the urgency of rethinking and restructuring the exist-
ing logistics and supply chain practices. The automotive world is talking about
Ratan Tata’s first four-wheel drive car from its Singur Plant, which will be priced
at less than $2300 US. The potential success of TATA’s lowest price car will no
doubt be due mostly to a world class supply chain excellence. While TATA is the
most notable example of the increasing role the automotive sector is playing in
India’s economy, there are others that are not far behind in the race of achieving
the supply chain excellence that drives large FDIs in India in the manufacture of
small and mid size vehicles as well as two-wheelers. It would not be unrealistic to
expect that the literature on operational and supply chain issues will soon include
many cases that showcase Indian automotive companies’ management practices
to illustrate effective modern management approaches, including TATA, Sundaram
Fastners, and Bharat Forge.

79
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

ISSUES, TRENDS, AND CHALLENGES IN LOGISTICS MANAGEMENT

The logistics infrastructure requirements to meet the growing demand of one

the fastest growing nations in the world are huge. In response to those require-
ments the following sectors are expected to grow as supported by statistics shown
in Table 1: XPS (express cargo), courier, warehousing, CFS (Container Freight Sta-
tion), ERP solutions (SAP connectivity is in nascent stage) and RFID tags. In the
next 5 years the market size of sectors such as CFS and warehousing is expected
to be much greater than in 2006, which points to the hidden potential of the
logistics sector as FDI and export/import activities increase and signal the acute
need for world class CFS/ICD, warehousing (VSAT linked), XPS (express cargo).
India spends a disproportionately higher amount on logistics than other coun-
tries relative to its GDP. The global logistics expenditure in 2005 was estimated
to be about $3.5 trillion. The US logistics, valued at over $900 billion, was 10%
of its GDP, and it accounted for more than 25% of global logistics expenditure.
India currently spends 13% of its GDP on logistics, which is much higher than
the global average. (See Figure 1.) Even a reduction of 1% would correspond to a
saving of $7-8 billion per year.

TABLE 1

Estimated Industry CAGR

Logistics Sectors Market size in 2006
(%)
Courier 22 billion INR 20-25
XPS 40 billion INR 20-25
Warehousing 45 million Sq Ft 40
Container train 25 billion INR 15-20
CFS 3 million TEUs 15-20
Source: CMIE

In the next three years the Container Train sector followed by the Container
Freight Station/Inland Container Depot will grow significantly (Figure 2). This will
provide an opportunity for private enterprise to enter these sectors where, until
now, government-owned companies have had the monopoly. The high growth of
the logistics sector necessitates the involvement of private enterprises to prevent
significant potential opportunity losses. CFS/ICD (Container Freight Station or In-
ternal Container Depot) not only provides warehousing solutions, but offers pack-
aging solutions and custom clearance support; therefore, it can be regarded as an
integrated logistics solution provider.
80
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

FIGURE 1

Logistics-related expenses in 2005 as % of GDP in selected countries

Percentage
30

25

20

15

10

0
l
a
na

ly
ru

n
y

a
o

SA
il
a

ga
an
an

di

pa
az

ad
ic
in

U
Ita
Pe

hi

In

r tu
iw

U
ex
nt

Ja
Br

an
C

Ta
ge

Po
er

C
G
Ar

FIGURE 2

Sector level CAPEX over the next three years

Trucking/XPS: 3.8

Offshore: 2.5

Container: 16.3

Miscelaneous: 4

Warehousing: 2

CFS/XPS: 5.4 Total: INR 34 bn

81
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

Capex % is expected to grow in arithmetic progression from financial year

2005 to 2009, as shown in Figure 3.

FIGURE 3

Capex as % of sales

FY05
FY09E
17%
23%
FY06
FY08E 17%
22% FY07E
21%

The recent enormous growth in the retail sector and the still huge untapped
market attract domestic giants like Reliance Industries limited, Aditya Birla group,
RPG group as well as global retailers like Wallmart, Tesco, Metro and many
others. This, in turn, necessitates the construction of world class warehouses to
serve as distribution centers and offer packaging solutions, consolidate invento-
ries, and most importantly store finished goods and even support procurement/
sourcing activities, a key to success in the retail sector. Warehousing has been
provided at port/rail points by government-owned logistics service providers like
Central Warehousing Corporation, CONCOR, Balmer Lawrie. However we are also
witnessing the interest of private companies in providing warehousing services as
shown in Table 2.

LOGISTICS REVOLUTION IN INDIA

In response to the pressing need for seamless supply chains, many state
governments are considering creating logistics hubs, which has the potential to
revolutionize the supply chain practice in India by improving the turnover time of
trucks whose waiting times need to be reduced. A logistics hub involves moving
material from a plant or distribution centre by means of 10-wheelers (multi axle
trucks) or trailers and unloading it at a hub or transshipping it into 6 wheelers,
82
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

TABLE 2

Logistics sector snapshot in India:

Market size Projected

Logistics sector Growth drivers
in 2006(INR mn) growth%
Courier 22 Domestic growth 20-25
XPS 1
40 FMCG , retail, auto, others
4
20-25
Warehousing 45 million sq ft. VAT, outsourcing 40
Trucking NA GDP, domestic cargo growth 12
Container 25 EXIM and domestic trade
5
15-20
MTO 2
NA EXIM trade 8
CFS 3 million TEU s
3
EXIM growth 15-20
1
XPS: Express Cargo
2
MTO: Multimodal Transport Operator
3
TEU: Twenty-foot equivalent unit
4
FMCG: Fast moving consumer goods (also known as consumer packaged goods, CPG)
5
EXIM: Infoline-Export/Import Data
Source: Industry, Edelweiss research.

which will further deliver material to the original destination. This will overcome
issues like the “no entry” for 10-wheelers or trailers during daytime into major
cities to prevent traffic jams; thus reducing the idle time as well as the lead time
of the 10-wheelers. Currently the movement of heavy vehicles is not allowed in
major cities, which brings to a halt the truck movement through cities, which, in
turn, causes delays. Logistics hubs will distribute the load into smaller fleets that
can freely move through cities with minimum disruption. The benefits are two-
fold: resource (trucks) utilization is improved and lead times are reduced.
Indian Railways is beginning to play an important role by facilitating the
increase of the share of the major retailers in the organized retail business from
the existing level of 3%. The Indian Railways is planning to cash in on its huge
land holdings by teaming up with private companies including Reliance, Future
Group, Adani and Bharti and other players to set up retail agro-outlets at railway
stations. Indian Railways, which holds 43200 hectares of land and has about
7,000 stations that are spread across the country, expects private companies to
set up warehouses for farm produce and run refrigerated conditioners for their
agri-retail businesses. Indian Railways also expects investments through a public
private partnership (PPP) scheme.

83
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

The major hurdles faced by India’s logistics industry

Logistics issues are difficult to resolve and those in the business of plan-
ning, designing, and managing logistics operations are frustrated for numerous
reasons, some of which are noted below:

• lack of well-defined standards and processes in the logistics industry;

• poor infrastructure;
• inadequate reliable information and less than competent use of informa-
tion technology;
• lack of skilled manpower; and
• too many unorganized companies (small players operating without any
specific guidelines)

Enhancing the efficiency and effectiveness of Indian logistics is a Herculean

task that would require concerted efforts on the part of all the stakeholders in-
cluding government and industry bodies. While, in general, the logistics industry
suffers from an image of denigration, there have been several success stories
where it has performed well by adopting modern practices. The auto components
and automobile industry, e.g. Bharat Forge & Sundaram Fastners, have managed
to provide high quality service to domestic as well as international customers at
moderate cost. Organized retailers are employing sound logistics and supply chain
practices to source and procure from the agriculture sector. For example Reliance
Fresh’s success lies in strategic sourcing and procurement. A growing India means
agricultural growth, construction boom, and the need for infrastructure based
connectivity.
In addition to learning from the best practices around the globe, the deci-
sion makers of logistics in Indian can learn from the innovative practices followed
by some of the leading industry sectors in the country to improve the overall
productivity of their supply chains and operations. As it moves towards value
chain excellence, the supply chain and logistics industry can also leverage Indian
leadership in the IT industry. IT has played an enabling role globally in improv-
ing logistics services. Effective use of IT can, to an extent, neutralize some of the
constraints posed by infrastructure-related problems. The key to success in supply
chain and logistics practices lies undoubtedly in adherence to better standards,
procedures, and processes.
The government needs to play a key role by working on hard and soft infra-
structure. Hard infrastructure would mean investments in rail, road, ports and wa-
terways, pipelines, and airports. Soft infrastructure would require enabling policy
structure and support for human resource development for the logistics industry.
One of the major problems faced by the logistics industry is that, despite being a
84
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

major link in the system, it does not enjoy industry status. Consequently, logistics
service providers do not have access to low-interest funds and other incentives
available to other industry players.

RFID in India’s supply chain and logistics practices

RFID (Radio Frequency Identification) is an automatic identification method

of storing and remotely retrieving data using tags or transponders. The application
of RFID is currently in a nascent stage in India. Unlike EM (Electro-Mechanical)
and RF (Radio Frequency) systems used in the USA and UK for decades, RFID-
based systems move beyond security to become tracking systems that combine
security with more efficient tracking of materials, including easier and faster
charge and discharge, inventorying, and materials handling. A RFID system has
three components: (1) RFID tags that are electronically programmed with unique
information; (2) readers or sensors to interrogate the tags; and (3) a server or
docking station on which the software that interfaces with the automated library
system is loaded.
Currently the cost of the tags, readers, and business process changes such
as integrating RFID codes, associated data fields and existing database systems
is high, which presents a considerable challenge to potential adopters of RFID.
RFID-based technologies are being used primarily at pallet/case levels to help
optimize the goods receipt and hand-over processes, which provides inventory
visibility between the receiving dock and the shop floor. However as a critical
mass is reached, many costs will eventually drop. In 2000, the most basic tags
cost approximately $1 each. In 2003, the cost per tag ranged from about $0.25
to $0.40, and today it is $0.20. As adoption increases and refinements in manu-
facturing technology occur, the prices are bound to fall to $0.05 or less at which
point RFID will begin to become a common practice in India.
Retailers in India fully expect that the use of RFID will soon spread to the
manufacturing and agri sectors. Discussions are already in progress with respect
to the benefits of the application of the RFID technology in the cement sector in
reducing pilferages and also lead times.

DISCUSSION AND CONCLUSIONS

The Indian Logistics industry is valued roughly at Rs. 90 billion of which

70% belongs to the unorganized sector. The industry is estimated to grow in the
roads sector by 13%, the ports sector by 9.5% and the rail sector by 6%. This will
be possible with the implementation of the Golden Quadrilateral Program, Nation-
85
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

al Maritime Program, introduction of freight corridors in rails and the implementa-

tion of VAT. New technologies like RFID and GPS have great potential provided
that the industry is prepared to meet the requisite expenses. Volume increases as
well as global competition have been leading to lower prices for such technolo-
gies. Cargo containerization is growing at 25% globally whereas the growth rate
in India stands at 5%. Wide scale use of RFID and GPS technologies should help
achieve a higher growth rate approaching 14% annually.
The Indian economy is on a significant upsurge and the auto sector plays
a key role in its growth. It is one of the core sectors of the economy, which has
forward and backward linkages with several key sectors. Therefore, it has a strong
multiplier effect and is capable of being the driver of economic growth. Having
contributed 5 per cent to GDP during 2005-06 and nearly 5 per cent to the total
industrial output, the automotive sector has become a significant contributor to
the nation’s treasury. The auto sector’s turnover in India is $10 billion with the
auto-component sector alone contributing $2.7 billion. The logistics sector ap-
pears to have evolved from one that focuses solely on basic transportation to a
sophisticated and comprehensive supply chain. This transformation has played
an important role in the success of the automobile industry in India.
When the two main cost categories of a supply chain in India - distribution
costs and inventory-related costs -, are examined, the following conclusions can
be reached:
Distribution costs: The literature review shows that nine industries (chemi-
cals, metals & metal products, non-metallic mineral products, diversified, food &
beverages, transport equipment, machinery, textiles, and miscellaneous manu-
facturing) show that they incur distribution expenses that amount to 4.5% of net
sales; outbound and inbound expenses accounting for nearly 3% and 1.5% of net
sales, respectively.
Inventory value and inventory holding costs: The calculated value of inven-
tory held and holding costs are around 13% of net sales based on the weighted
average cost of capital across the same nine industries.
The total of distribution and inventory costs, approximately 17% of net sales,
is, by any measure, a large percentage, which the country needs to lower to at
least 12-13%. This can be facilitated by adopting the best practices.
It is said that IT is the lifeblood of supply chain. Based on the surveys con-
ducted by various agencies, nearly 20% of the respondents in India claim that
IT expenditures account for approximately 0.5 to 1% of net sales. Interestingly
about 20% of the respondents could not quantify their IT expenses. There ap-
peared to be a strong awareness among the respondents of the potential of the
RFID technology.
As India’s retail sector continues to open up, domestic logistics companies
will not hesitate to make significant investments to expand their portfolio of ser-
86
 PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

vices. It is expected that in the next two years the logistics sector will have un-
dergone major changes, offering a wide spectrum of services. On the basis of a
literature review and observation, we can conclude that the Indian logistics sector
is at the beginning of a strong growth path. Not only will this take place in retail,
there are other growth drivers including manufacturing and FMCG, in addition to
the auto component sectors.

Limitations of the research paper and scope for further research:

The paper is based on a literature review and a case study of industry that
explored recent developments in logistics and supply chain in India. There is tre-
mendous scope for researchers to establish empirical findings on the impact of
3PL’s on the Indian logistics sector and to investigate what major road blocks are
impeding growth in the retail sector in India.

Acknowledgements:

The authors are grateful to the co-operative members, as well as to the

public, private, and non governmental organizations members who shared their
valuable views and allowed access to project information.

87
PORTUGUESE JOURNAL OF MANAGEMENT STUDIES, VOL. XIV, NO. 1, 2009

References

Arnold, J.R.T., Chapman, S. N. and Ramakrishnan, R.V. (2007), Introduction to Materials Manage-
ment, Fifth Edition, Pearson Education, New Delhi.
Chopra, S. and Meindl, P. (2001), Supply Chain Management: Strategy, Planning and Operation,
Prentice-Hall, Englewoods Cliffs, NJ.
“Corporate India takes to SCM” (2002), An ETIG-IIMM Survey of Organization Structures of Supply
Chain Departments in India Inc, April 2002, The Economic Times.
Dubey, R. and Singh, T. (2007), “Role of Networking Model in taking Strategic Logistics Decision
- Plant to Market connectivity - Contribution vs. Minimum Logistics Cost”, XI annual Interna-
tional conference of the Society of Operations Management (SOM) at SIOM Nashik, 21-23
Dec, 2007.
Edelweiss Securities Research Report (2006).
Hartley, J., Case Studies in organizational research. In Qualitative Methods in Organizational Re-
search, edited by C.Cassell, and G.Symon, 1994 (Sage: London).
“India Logistics Outlook 2007” (2006), Market research report, Bharat Book Bureau, New Delhi.
Langley, C. J. Jr., Allen, G. R. and Thomas, A. D. (2004), Third-Party Logistics Study Results and
Findings of the 2004 Ninth Annual Study, A Capgemini white paper report.
Mahadevan, B. (1997), “Are Indian companies ready for Just-in-Time, “IIMB Management Review,
9, no. 2 and 3: 85-92.
Narkhede, B.E., Mantha, S.S. (2008), “An Empirical Investigation Of the Investigation of IT-Enabled
Supply Chain on Performance of the Organization: A Case study”, Proceedings of the Interna-
tional Conference on Issues and Challenges in Supply Chain Management (ICSM) at IT - BHU
Varanasi, March 28 – 30, 2008.
Ohno, T. (1992), Toyota Production System: Beyond Large-Scale Production. Productivity Press
(India) Pvt. Ltd., New Delhi.
Sahay, B.S., Maini, A., Gupta, A.K., and Gupta, R.K. (2002), “Changing the mindsets for success
in supply chain management”, Vikalpa, 27, no. 3: 39-43.
Saunders,M.,Lewis,P.and Thornill,A.,Research Methods for Business Students(3rd edn),2003 (Fi-
nancial Times Prentice Hall: Harlow).
“The Global Retail Development Index”, AT Kearney (2006) survey report.
Viswanadham, N. (2007), Can India Be The Food Basket For The World? Working paper series
Indian School of Business, Hyderabad, India (unpublished work).
Vrat, P.S.Mittal, and K.Tyagi (1993), “Implementation of JIT in Indian Environment: A Delphi Study,”
Productivity, 34, no. 2: 251-256.
www.siamindia.com/scripts/gross-turnover.aspx, URL of the Society of Indian Automobile Manu-
facturers.
Yin, R.K, (1994), Case Study Research: Design and Methods (2nd edn), (Sage: London).

88