However, despite these issues, we see significant emerging opportunities for strengthening the Indian retail supply chain. If stakeholders in the supply chain proactively work towards realising these opportunities, it will result in significant gains for the sector. Selected major opportunities include -
Outsourcing to third-party players and use of cold chain to strengthen the supply chain — Currently the level of logistics outsourcing in the Indian retail sector is very low. It is estimated that only 30 percent of organised retailers outsource the logistics function. Selected major retail players have developed their own logistics companies to serve retail businesses. Outsourcing of logistics makes economic sense for retailers, enabling them to focus on their core activity of retailing. Also in view of future stringent carbon emission norms and rising fuel prices, third-party supply chain solutions will be critical for businesses. That said, large investments are needed for the third-party logistics industry to ramp up, create more sophisticated services, etc.
Network redesign to reap benefits of Goods and Services Tax (GST)-The GST regime is scheduled to be implemented in April 2010 (although it might be delayed). With the simplification of the indirect tax structure, there is an opportunity to realign supply chain management purely on business needs. Selected benefits that retailers can avail include –
In the GST regime the tax paid by the logistics company can be offset later on in the chain, reducing the cost of outsourcing and providing an impetus to third- party logistics players.
Tax efficiency considerations will not overwhelm other factors in warehouse location decisions. This will allow rationalisation of the locations to improve supply service levels to the stores.