Reducing Logistics Cost in India The Scope and Impediments
Logistics is a complex discipline with several different fields of emphasis. Companies need to manage their logistics with a balance between cost and performance
Companies map out the transportation path of their goods into a supply chain, or a path of transport that they use repeatedly to have goods shipped to them or to customers. When goods travel, they are moved using a combination of travel methods that includes ships, trucks, trains and aircrafts. Companies use logistics to manage the timing and location of their goods in transport as a component of their overall supply chain management.
Logistics is defined as the management process for the movement of goods across country or across the globe. Some companies manufacture products that rely on the use of raw goods from other countries, while other businesses choose to locate their entire product manufacturing plants overseas.
Keeping production costs low by producing or sourcing raw goods in other countries or states allows companies to make more profit, but the logistical costs of transporting and storing products can eat into those profits. Business owners can benefit from understanding logistics, and the detailed costs involved, in maximising their margin and minimising cost.
The unprecedented growth in India’s manufacturing, retail and infrastructure sectors over the last few years have brought in big transformation in the functioning of the logistics and supply chain sectors in the country. While the logistics sector has indeed taken the challenges head on and there has been marked improvement in service delivery in the last few years, one aspect that continued to be a reason for worry for the country is the increasing logistics cost. In spite of all attempts, logistics cost in India is above global average even today.
Logistics companies, which were mere transportation or warehousing service providers for big manufacturers in the past, had to reinvent their strategies so that they could offer integrated logistics and supply chain solutions to fulfill the growing demands from their customers.
Being an important factor that reflects on overall competitiveness of products in the global market, it is high time we took remedial measures to curtail this cost. While the logistics cost is less than 10 per cent in most of the global markets, the same is around 13 per cent in India.
Logistics cost is really high and there is scope for reduction. In an increasingly competitive environment – process optimisation and cost management have assumed key competitive advantages as companies have realised that scale is the key and a significant differentiator.
Logistics Cost includes:
• cost of transport activities, for each mode;
• cost of storage or warehousing activities;
• cost of time value or investment in goods in a logistics system, including the added value of transportation;
• cost of physical form changes required for effective and/or safe transport, storage, and handling;
• cost of marking, identifying, recording, analysis, as well as data transfer and handling;
• cost of stacking/unstacking activities;
• cost of added packaging required;
• cost of material transfer activities;
• cost of consolidation/deconsoli-dation activities;
• cost of information and tele-communications integration;
• cost of logistics system management;
• cost of unavailability of goods (when required).
In general, the costs of transport activities and non-physical handling activities, such as an inventory and related time costs constitute the majority of logistics costs.
Factors Liable for High Logistics Cost:
1. Infrastructure
The biggest factor which is responsible for the escalation of logistics cost is poor infrastructure. The cost of transportation is rather high and there are a lot of wastages which remain unrecorded. Financing the maintenance of transport infrastructure, managing urban congestion, supply chain disruption on account of poor rural connectivity, loading of environmental costs as an integral project cost are few of the challenges before the transport industry. While the country may be able to offer cost advantages due to lower labour or production costs, factors like higher transportation cost, and damages and wastages enroute push the cost. Although it is well known that a well-developed logistics infrastructure can lead to significant savings in terms of service levels, inventory costs and processing time, India continues to spend relatively more on logistics due to inadequate infrastructure.
The need of the hour is to have specific infrastructure in the logistics space, from roads, rails, ports and world-class logistics parks to sustain the growth. Infrastructure has crucial role to play in speeding up existing processes and in creating new processes for cost optimisation. Infrastructure plays an important role in development. Road infrastructure is a bottleneck though over 70 per cent of freight t