The Indian logistics industry has come a long way from being a labor intensive during 60’s to the present technology oriented system that provides wide range of logistics services.
Traditionally, manufacturing companies in India managed their own logistics requirements in-house. The country then gradually evolved from the stage where the Indian organizations outsourced their labor requirement in order to avoid labor related problems. Subsequently, basic services such as transportation and warehousing were outsourced to different service providers known as the (Second-Party Logistics) 2PL service providers. With the increasing demand, the service providers started providing integrated services together with other value added services, while the organizations focus on the core competencies and streamline their supply chain.
The present form of logistics industry in India is still in its infancy and is highly fragmented. There are thousands of logistics companies, ranging from the international giants to the highly localized small players in the country. As the logistics industry in India is in nascent stage, there are a lot of logistics issues to be improved.
Traditional transporters, freight forwarders and courier companies are rapidly transforming themselves into integrated logistics service providers by incorporating other activities like inventory management, order processing, collection of bills, sales and excise duty documentation in order to effectively utilize their existing assets and experience. The gradual deregulations over the 1990s, which includes the opening up of sectors to foreign MNC investments, full liberalization of current account transactions and the largely permissible of capital account transactions, have further boosted the logistics industry.
Indian auto logistics
Global and Indian auto and auto components industry is increasingly focusing on innovative supply chain and logistics practices to balance costs, improve service levels and increase product diversity amid the growing global competition. Global auto components logistics is estimated to be around $51.38 billion in 2006, which is 2.45% of the sales and is likely to increase to $91.58 billion in 2015.
In India, logistics cost in automobiles industry accounts for 2-3% of sales whereas in auto components industry it’s around 3-4%. Indian auto logistics industry is estimated to be at Rs. 34.71 billion in 2006-07. Reverse logistics cost in Indian auto and auto components industry is estimated to be around 0.5-1% of auto and auto components industry. About 90% of the auto component Industry outsources their logistics requirement to 3PLs.
Auto supply chain & logistics is one of the most advanced logistics in India with concept such as JIT, JIS, Jumbuki, etc. Despite all the infrastructure & tax challenges implementation of 3PL, 4PL, IBL, OBL and in-plant logistics initiatives are quite prevalent & advanced unlike in other industries. Other industries too need to benchmark themselves with the Auto SCM and logistics models.
In conclusion, logistics and SCM in India is still a far distance to the US and Europe even compared to Singapore and China. This is primarily because of infrastructure and other tax/legal hurdles, considering it as least important part of the value chain. However the turnaround is round the corner and the entire economy will reap benefits of a robust logistics structure and practices once in place.
By Vineet Agarwal, Managing Director, TCIL