Is the GST delay a boon for setting right the supply chain?
The April 2016 deadline for the GST implementation has fizzled out without a mention in the first phase of the budgetary session. The next timeline that is being touted may be a good 15 months away. People are pinning their hopes on some positive developments in the second session of the budgetary session of Parliament that begins on the 25th of April. However, it is for sure that people believe that GST is going to be a reality sooner or later. The question is, do we sit idle during this time or make use of it effectively?
The delay in the GST offers a golden opportunity for the industry to set its house in order and gear up for the inevitable change. Although the action on this front can already be seen in many proactive industries, the biggest area that should be targeted is the supply chain and logistics. The industry that is heavily dependent on this area can reap the benefits of the GST in a big way. The planning and action must start now, in order to avail the benefits at the time of the GST implementation.
The biggest advantage of GST will be that India will become one large market where the goods will move seamlessly across the state borders. The difference in VAT rates and the Octroi duty payable for state entry will all be done away with. To save on the CST a large number of industries have opened warehouses in every state and were moving goods there as a stock transfer. This is the time to take stock of the situation and decide the locations where the company warehouses need to be kept.
A 10 to 20 per cent reduction in the number of warehouses can mean huge savings for the company.
Depending on the type of the industry it may translate to a 5 to 10 per cent reduction in the inventory cost alone. Then there will be savings in the warehouse rental/maintenance cost. With the smart city concept taking shape and the road network getting an impetus it would be the right time for the companies to strategize their warehouse locations and also reduce their numbers.
Another transport experiment that was in the limelight recently was by the use of waterways. In the coming times, the transport by sea route and railways will become a viable option in addition to the road highways. With the GST coming in, the sourcing supply chain will also need to be visited. With the seamless travel across the states in place, a source in Chennai may turn out to be a better alternative than a source in Jaipur for an industry in the National Capital region.
Since the strategically located warehouses may have to cater to a larger number of customers, their IT upgrade, inventory management and people training may have to be looked upon. The companies may also consider sending bigger container loads of material to the new strategic warehouses to save on logistic costs. The companies can hire consultants or work with their own experts, to work out the blueprint for their supply chain now, in order to benefit from the anticipated GST implementation in 2017.