International Journal of Management, MIT College of Management, Vol. 2, No. 2, August 2014, pp.

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Logistics : Challenges, Look-ins in India

Pranav Kharbanda1

ABSTRACT
The logistics industry in India is evolving rapidly and it is the interplay of infrastructure, technology and new types of service
providers that will define whether the industry is able to help its customers reduce their logistics costs and provide effective
services (which are also growing). Changing government policies on taxation and regulation of service providers are going
to play an important role in this process. Coordination across various government agencies requires approval from multiple
ministries and is a road block for multi modal transport in India. At the firm level, the logistics focus is moving towards reducing
cycle times in order to add value to their customers. Consequently, better tools and strategies are being sought by firms in order
to enhance their decision making. The present study emphasizes upon a perspective on these issues, outline some of the key
challenges with the help of secondary information, and describe some interesting initiatives that some firms and industries are
taking to compete through excellence in managing their logistics. The research focuses on the importance of logistics capability
and its effect on firms performance in the e-commerce market. Logistics capability is perceived as the firms critical capability
in providing a competitive advantage in both traditional and e-commerce market environments.
Keywords : Logistics management, e-commerce market, multi model transport.

Introduction
The Indian economy has been growing at an average rate of more
than 8 per cent over the last four years (Srinivas, 2006) putting
enormous demands on its productive infrastructure. Whether it is
the physical infrastructure of road, ports, water, power etc. or the
digital infrastructure of broadband networks, telecommunication
etc. or the service infrastructure of logistics all are being
stretched to perform beyond their capabilities. Interestingly,
this is leading to an emergence of innovative practices to allow
business and public service to operate at a higher growth rate in
an environment where the support systems are getting augmented
concurrently. In this paper, the status of the evolving logistics
sector in India has been presented, innovations therein through
interesting business models and the challenges that it faces in
years to come.

The Current Scenario of Logistic

Infrastructure In India
Globally, the logistics industry is valued at US$ 3.5 trillion and
the Indian logistics industry is presently estimated at US$ 90
billion (Source: CII).The global logistics industry was valued
at US$3.5 trillion in 2007, whereas US logistics industry size
was around US$900 billion, 25% of the global logistics industry.
Logistics costs in India are estimated to be around 13% of
the GDP, which comes to around US$94 billion in 2006-07.
However, Indias spending on logistics industry is much higher

than the developed economies like the US (9.5%) and Japan

(10.5%). Presently, Indian logistics industry is highly fragmented
and is still evolving, with the top 100 listed players only having
a miniscule 2 per cent market share.
Only India among the BRIC nations has slipped on the World
Banks Logistics Performance Index. Indias ranking slipped to
46th in the 2012 World Banks Logistics Performance Index,
which measures logistics efficiency and is now recognized
globally. Five years ago, India was ranked 39. The drop in ranking
is a matter of concern for the country, which is expecting a lot
of foreign investment across sectors that require an efficient
logistics system.
The Indian logistics market, valued at $14 billion a couple
of years ago, is expected to grow at a CAGR (compounded
annual growth rate) of 7-8 per cent. It is felt that the growth will
continue, and might even scale newer heights, as the economy
is experiencing a retail boom with Western companies such as
Metro, Wal-Mart planning to start operation in this country, and
large local retailers such as Shoppers Stop, Pantaloon, RPG and
Big Bazaar planning to expand their operations in smaller cities.
India has one of the worlds largest road networks, with a total
length of 3.3 million kilometers. But much of this network
does not meet Western standards. The Indian road transport
market is forecast to rise to $40 billion by 2012 it is
currently $28 billion.

1. CPEM IIFT, Assistant Professor, Knowledge Institute, Delhi, F-296, 1st Floor, Mansarover Garden, New Delhi-110015 (India).

International Journal of Management, MIT College of Management, Vol. 2, No. 2, August 2014, pp. 5862
ISSN 2321- 6700 MIT Publications

Problems/Challenges in Logistics
Management in India
Logistics has always been a central and essential feature of
all economic activity. Despite this importance, there is a long
history of organizations paying little attention to their logistics.
They traditionally concentrated their efforts into manufacturing
products and considered the movement and storage of materials
as an uninteresting errand that formed part of the overheads of
doing business.
Recession in many markets, combined with new sources of
competition, has raised the consciousness of customers towards
value of service delivered to them by their service providers.
Accordingly, the logistics industry has consciously strived to
be at the focal point of strategy formulation and operational
excellence to continue in its endeavor for providing maximum
contribution in value creation. Globalization, consolidation,
technology advancements and outsourcing have led to growth in
the logistics services market. The capabilities of logistics service
providers are growing along with the changing expectations
of their clients. As the logistics services industry evolves,
competitors are moving away from asset-based commoditized
services to more strategic, information-based approaches. Some
of the challenges faced by Indian firms in logistics sector are:

Lack of sustained investment in planned infrastructure

like warehouses, transport centers, ICDs etc.

Cold Chain infrastructure is very sporadic. The concept

of Integrated Cold Chain is non-existent.

Major investments on these infrastructures have come from

Government agencies like CWC, SWC, CONCOR etc.

Current private sector initiatives are small and sporadic.

Private sector warehousing are of poor quality, small,

fragmented and does not meet infrastructure standards.

No quality standards or benchmarks are followed in infrastructure creation.

Key Council Insights and

Recommendations
While a lack of Logistics infrastructure is a burden, its also
an opportunity. Starting fresh means adopting the best supply
chain management principles, practices and technologies without
having to migrate or upgrade legacy approaches. Manufacturers
and retailers should devise a strategy to align with the organizedretailing infrastructure build-out, focusing key activities on
designing a multi-tiered distribution network, setting basic
transportation goals and expectations, and establishing solid
partnerships.

Design a Multi-tiered Distribution Network

The key to a successful distribution strategy will be proximity.
The tail that wags the distribution dog is transportation reliability.
Transportation reliability or, more accurately, unreliability, will
play a key role in determining the number of nodes required for
distribution and the inventory to support it. Pure flow-through,

59

or single-node distribution chains from plants directly to

retailers, will be non-existent. CPG and retail firms will require
significantly more infrastructure in India. For example, Reliance
plans to build between 65 and 80 distribution centers to support
its goal of $20 billion in revenue. Thats more than half the
DCs currently in Wal-Marts supply chain, which supports over
10 times the revenue. Even as Reliance and Wal-Mart build
distribution capability, manufacturers will have to match this
distribution, not only at the local level, but also at regional and
central points. These multi-echelon networks will replace lean,
single-tiered U.S. philosophies based on just-in-time principles.
Even firms with fast-moving goods will be required to set up
decentralized, multi-tiered distribution networks.

Rely More Heavily on Inventory

Lets face it, in the near term, Indias supply chains will not be
highly reliable. Shippers accustomed to reliability and speed
will have to reset expectations. To reduce the impact of highlyvariable transportation, brought about by inadequate logistical
infrastructure, firms must adopt inventory strategies similar to
those used in small-part service industries. While service parts
industries use inventory to buffer demand versus transportation
variability, the resulting network structure is the same. Firms will
need to stage inventory throughout multiple echelons to reduce
the impact of transportation variability and high transportation
costs. This multi-echelon staging will create networks with
many distribution points and double-handling of products. By
investing in additional capacity flow, like dock-doors and staging
floor space, firms will add more capacity for quick off-loading,
reducing the impact of increased transportation investments and
costs. The cringe factor of this strategy is reduced, considering
labor and warehousing combine for less than a quarter of Indias
logistics costs.

Reside Close to the Market

To buffer lead-time variability, firms should set up final
distribution within the independent, local markets they plan to
serve. By starting in only a few highly-concentrated cities, a
regionalized distribution scheme will enable firms to support
branded stores or distribution operations, while building
relationships with other local entities to expand their presence.
As volume grows and transportation improves, firms can convert
regional stocking facilities to flow-through and add centralized
facilities as sourcing and stocking points. However, to support
this more efficient multi-tiered strategy, firms will need to vie
for space now, as land grab efforts increase dramatically. Just
last year, retail real estate costs accelerated faster in New Delhi
than anywhere else in the world. While hot urban areas include
Hyderabad, Bangalore and Mumbai, second-tier cities are quickly
becoming targets of mall openings, accounting for 40 percent
of those scheduled through 2010. Longer term, about 200 cities
with under 2 million in population and 500 additional rural towns
will be used as retail hubs, each catering to over 1000 villages.

International Journal of Management, MIT College of Management, Vol. 2, No. 2, August 2014, pp. 5862
ISSN 2321- 6700 MIT Publications

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Use Technology to Provide Visibility and Collaboration

Establish a Core, Senior Logistics Team on the Ground

To manage the inevitable explosion in items they will eventually

carry, organized retailers are investing heavily in leading-edge
systems to create a data foundation for providing visibility and
optimizing operations. Early-stage retail ventures are starting
with leading-edge planning and execution applications from
SAP, Oracle, JDA, Manhattan Associates and i2 Technologies.
These systems will greatly aid supplier collaboration and enable
manufacturers to share in real-time information flow. They
also will make it possible for retailers to build accurate sales
histories from day one, creating a foundation for more robust
planning capabilities in network design, inventory planning and
transportation modeling.

Delivery success in the near term wont be based on technology,

but rather on relationships and communication. Firms wont
be able to manage transportation virtually from an office in
Chicago or Amsterdam. Instead, they will have to build a strong
physical presence in each region. Companies like Samsung have
successfully penetrated India by employing a core, experienced
operations team in each region. This team must be familiar
with the regional service providers, restrictions and statewide
regulations.

Select a key partner. Today, third-party logistics in India accounts

for a quarter of its transport industry, but is expected to grow
to over $125 billion by 2010. Including distribution, the 3PL
market is expected to hit $3.6 billion by 2012. This growth is
being fueled, in part, by large investments in automotive and
telecom manufacturing. 3PLs like Menlo are not only managing
distribution, but many are also offering innovative assembly and
manufacturing manpower, as well. And industrial real-estate
developers Prologis and Aeroterm are entering the market by
building on speculation. The partial introduction of the Value
Added Tax (VAT) in 2005 is expected to drive more industries
toward using 3PL services, since it benefits large warehouses in
hub cities huge investments many companies will want the
service providers to make.

Set Basic Transportation Goals and Expectations

In India, the transportation network consists of few highways,
small trucks and constrained speeds. It is projected that highways
will improve, as recently funded projects are completed. The
government has pledged to build 10,000 kilometers of new roads
and improve ports by 2010. But the bulk of the infrastructure will
likely come from private or foreign investment. For example,
Mukesh Ambani, Reliances chairman, is building a new port
city near Mumbai. His younger brother, Anil, is building a $4
billion suburban railway system in Mumbai. Several of Indias
other wealthiest business developers are focused on developing
energy for the country. As infrastructure improves, new market
entrants will need transportation strategies that:
Focus on high asset utilization. While labor in India is
inexpensive, compared to developed economies in the West,
equipment and fuel are not. Comparatively, labor is the highest
cost component in the U.S., but in India, its one-third the cost
per kilometer of fuel alone (Exhibit 4 shows a logistical cost
comparison between India and U.S.). Leveraging low-cost labor
to maximize the utilization of assets will be a critical element
to optimizing transportation strategies. By employing strategies
such as slip-seating, one driver can be changed-over with
another driver when his maximum driving time is reached, since
theres minimal financial impact to rest him for the day. Firms can
utilize team-driving to improve not only equipment utilization,
but also improve transit times and reduce variability.

Set rigid provider qualifications. Indias carrier base will continue

to consolidate and become more sophisticated as the shippers
they serve invest and demand higher service. In 2004, DHL
acquired Blue Dart to cover 13,000 locations in India. TNT
and Fed Ex are aggressively entering the market and both have
proven success rates creating global networks. In the meantime,
companies need to put in place a set of rigid qualifications to set
expectations for intermediaries and independent carriers. Firms
need to rigorously qualify and measure carrier performance and
communicate that data back to carriers.
Establish infrastructure others can use. Firms should consider
infrastructure investments as potential future profit centers.
Manufacturers will have an opportunity to not only build
infrastructure for themselves, but to create distribution and
transportation services that others can use. For example,
Mahindra & Mahindra, an automotive company, established
a business to manage its complex logistics processes. To take
advantage of this investment, they became a 3 PL to others in
need of logistics and distribution. Manufacturers can set up
local distribution where plants are located and retailers can
build infrastructure to support other non-competing retailers. To
mitigate concerns about carrier reliability, firms can benefit by
setting up dedicated fleets. To better utilize these assets, brokers
and intermediaries can be leveraged to fill backhauls.

Invest Early in Technology

Indias telecom industry is extremely advanced compared to other
industries. And while only 30,000 vehicles in the country have
tracking capability, thats expected to grow a total of 100 percent
over the next five years. Already, telecom and software firms are
scrambling for a slice of the 1.6 million-vehicles-a-year market.
Firms investing in this technology for their dedicated fleets will
find the infrastructure to support them substantial.

Focus on Establishing Solid Partnerships

Foreign firms that have been successful in India have done so
with the right local support. Local relationships are the true key
to success in India. Local companies can use their influence to
make or break an initiative. To truly make an endeavor successful,
firms should search for growing business groups with which to
develop sustainable partnerships. To name a few examples, Tata
Group is a diversified company known as a visionary in Indian
business, and Bharti has proven it works well with multi-national
partners. Firms need to look outside of traditional partnerships

International Journal of Management, MIT College of Management, Vol. 2, No. 2, August 2014, pp. 5862
ISSN 2321- 6700 MIT Publications

to companies in other industries like Telecom. Even with

limited supply chain experience, these potential partners possess
nationwide connections and have proven success in growing
businesses in this market. And while the big three Indian families
control 30 percent of the countrys GDP, partnering with them
can be challenging, since power and decision-making is confined
to a few key players. To avoid failure, companies should look
for firms with a proven track record of sustained partnerships.
Conclusion

The logistics industry will continue to be the focal point of strategy

formulation, operational excellence and information technology
to make maximum contribution in value creation for customers.
Globalization, consolidation, technology advancements and
outsourcing have only led to growth in the logistics services
market and this industry will continue to evolve in the coming
years. Industry research suggests that the interdependent factors
like globalization and consolidation, increased outsourcing,
security and risk management, technological advancements,
increased customer expectations etc. will shape the Global
Logistics Industry over the next 5-10 years.
Drivers like these and the push/pull pressures created by the
market forces will not only trigger structural changes in the
logistics industry resulting in specialization, consolidation,
outsourcing, service migration, new markets, new services but
will also create challenges around service, delivery, quality and
cost as customer needs become more demanding and complex.
SMEs, forming the core of the logistics industry, will be impacted
by this transition in a major way and will have to focus on
improvement of its internal operations, processes, technology
upgradation, resource utilization, service quality, customer
relationships, market intelligence, and financial strengthening,
in a nutshell in overall capability enhancement in order to
respond to and gain from the changing environment.
The government is indeed trying to introduce counter-measures
and shift freight transports from the roads to the rails. But, first,
the rail infrastructure must be expanded and the connections
to harbors and airports improved. The government should also
induce some of the better-performing PSUs, particularly those
engaged in infrastructure, such as power, transport, construction,
etc., to expand and speed up their investment programmes.
Finding resources for infrastructure development and speeding
up investment in this sector should receive top priority, for, as
the World Bank has observed, infrastructure is a key factor in
improving the lifestyles of the masses and addressing the pressing
issue of poverty.
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