'Post-GST, large scale warehouse automation and IT investments will happen'

Interview by Sisir Pradhan | The Dollar Business 

The Dollar Business (TDB): While international logistics companies have gradually moved to IT-based operation, Indian companies still prefer to do it manually and they largely attribute it to keep costs low. Do you agree? Saravana Sastha K (SSK): Yes, manual operations are still continued in India as labour and space are relatively cheaper in the country compared to the regions that were early adapters of IT in logistics. However, there is an increasing demand for better service levels and cost-competitiveness in the supply chain industry in India. This demand is forcing many companies to adopt IT systems and grow their automation capabilities. TDB: Penetration of IT in logistics and warehousing management is still low in the country. Is it because of cost factor and lack of knowledge among logistics companies with regard to benefits of IT for their business? Or is there any other factor that has any role to play for which Indian logistics sector still don’t use technology extensively? 

Saravana Sastha K, Global Practice Leader – Business Consulting, ITC Infotech

  SSK: The main reasons for the Indian logistics sector not using technology extensively are: cost, return on investment and cash-flow issues. The industry till recently had not been able to attract the best of the talent and large scale investments. Let’s look at the transportation scenario in India - the logistics industry in India is still unorganised and highly fragmented. Small players (owning 6-20 trucks) make 75% of the market of roughly 3.6 million trucks. Their fate is linked to the industrial growth and the fluctuating interest rates. They do not have the scale to plan their working capital on investments in areas like IT. In recent past there has been significant increase in diesel prices (as high as 24% hike in a year) that have affected their viability significantly. Fuel costs are roughly 55% of the operating costs of a typical operator. So an operator’s profitability is linked to his costs and prevailing freight rates. But in a fractured market, most often the truck operators don’t have the bargain power on freight rates. Add to this the low average daily truck travel distance, high idle time, low return haul, lack of freight information aggregators etc.  The situation in the warehousing is not very different. There are issues in space utilisation, turnaround time and throughput primarily because of the fragmented nature of the industry, reluctance in implementing right automation and general lack of multi-modal interfaces etc. However, things are changing for the better now. The proposed GST (Goods and Services Tax) is expected to energise the logistics sector in India. The GST will abolish most of the indirect taxes, stock transfers will significantly be optimised. We would be seeing significant reduction in small warehouses while large and productive warehouses will be set up in key locations in an optimised national supply chain network. Large scale investments in warehousing to improve scale, flexibility and productivity through automation, process improvements and IT investments will happen. Smarter fulfilment, lower cost of operation, controlled environment for perishable products, cross-docking, traceability and multi-channel serviceability, etc. will drive huge investments in smart IT systems and automation in WMS, material handling, automated pallet racking, storage and retrieval systems. There is a lack of skilled labourers in this industry and this will also be another important driver for increasing penetration of IT and automation in the Indian logistics industry. TDB: Give a brief outline about your contribution (IT solution offerings) to the logistics sector, especially in warehousing sector in India and other parts of the world and who are your major clients? Moreover, how different are the demands of your clients in India compared to your overseas clients? SSK: With the combination of our business advisory and IT applications teams, ITC Infotech provides solution designs for IT implementation and support services. In warehousing sector, we help our clients in Warehouse Design (Layout and Process), WMS selection, WMS Implementation, Warehouse Automation (Barcode and HHT) in India and abroad. In transportation, we help our clients in route optimisation, planning, load-building optimisation and Transportation Management System capabilities including tool selection, implementation and support. We are currently focused on few tools and would be scaling our overall team size and solution portfolio in the next couple of years. Our major customers are in the CPG (consumer packaged goods) industries, thanks to the deep domain knowledge gathered from supporting our parent company, ITC Group, which is one of the leading business conglomerates in India with one of the most complex and widespread supply chain network of hundreds of warehouses across India, reaching more than 4.3 million outlets. The significant difference between Indian clients, as compared to the ones in the developed nations, is lower adoption of functional capabilities in tools for transportation and warehousing. This is because of the various reasons explained above. There is also lower adoption and integration of specialised best-in-class tools like supply chain network optimisation, last-mile delivery execution etc. Most of the planning activities are manual in nature. Also in general warehousing, complexities are very different than other overseas clients, depending on maturity of warehouses by type and scale. TDB: You have been developing industry specific technology solutions. What kind of noticeable change that has come to the Indian warehousing sector, especially with regard to the use of IT-based solutions after the entry of organised and international logistics companies?   SSK: After the entry of organised logistics players in India, there is an increasing trend of IT investment and their management is being done by logistics service providers themselves under various pricing models. This improves the overall efficiency in the logistics industry. This trend is likely to increase with themes like logistics control towers and mobility solutions, which will further improve the visibility, visualisation and virtualisation in the logistics sector. TDB: With the increasing popularity of e-commerce and online retails stores in the country, there is a rising demand to deliver goods to some of the remote parts of the country within a limited time frame. And also in this business model there is a requirement for reverse logistics as well. Due to all these, has there been any demand from your clients to make any changes to your product offering to save on time and improve efficiency?   SSK: E-commerce in India is bringing significant changes in the logistics industry. There is a spurt in demand for last-mile delivery optimisation requirements and there are hardly any tools in the market to solve this in the Indian scenario. Some of the big e-commerce players have accumulated enough database on freight rates and cost of delivery from one point to another in India. They have also set up highly automated warehouses that are productive, flexible and error-free. But there is this constant challenge to improve speed and efficiency to retain customer and improve margins.  TDB:One of the issues raised by warehouse users is longer dwelling time at airports. To what extent   IT solutions can help in bringing down dwelling time at airports. SSK: The dwelling time in airport is not a key issue in India as the share of air freight in volume is significantly low. However, there is huge challenge in the dwelling time in ports, along the land route in check-posts between states. IT solutions in logistics will continue to improve visibility, advance notifications, planning and response time, which is necessary in the current scenario. For the logistics operators, IT tools can help predict the capacity and requirements of trucks better, and with the visibility of congestions and ETAs (Event Tree Analysis) in a multi-modal scenario. On the other side, IT adoption by government agencies in ports and road transport will reduce the time taken in information exchange for issue of permits, clearances, applicable tax payments etc. TDB: How do you see market scenario in logistics sector Post-GST? How IT can help supply chain companies to leverage their capability?  SSK: The current Indian tax structure has a major impact on the warehousing sector, this has split the warehouse operations by regions. Post-GST implementation, warehousing space is expected to get consolidated and at that time companies should holistically assess operating cost vis-à-vis IT automation benefits and move towards sophistication.   

October 10, 2015 | 3:49pm IST.