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INDIAN INSTITUTE OF heed AHMEDABAD INDIA look for and accreditedityations The Logistics atomic name 18na in India Overview and Ch every(prenominal)(a) in allenges Pankaj Chandra Nimit Jainist W. P. no(prenominal) 2007-03-07 March 2007 The master(prenominal) imsomebodyal of the working paper series of the IIMA is to assist faculty phalluss, inquiry Staff and doctoral Students to look sharpily shargon their research findings with professional soul colleagues, and to test emerge their research findings at the pre- state-sup mienedation stage INDIAN INSTITUTE OF solicitude AHMEDABAD-380 015 INDIA INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD INDIA look into and Publications The Logistics Sector in India Overview and ChallengesPankaj Chandra Nimit Jain Indian Institute of Management Ahmedabad Vastrapur, Ahmedabad 380015 electronic mailprotected ernet. in, emailprotected ernet. in defraud The logistics intentness in India is evolving rapidly and it is the inter knead of ho me, engineering and untried types of bear fork uprs that leave behind visit whether the patience is adapted to help its guests veer their logistics damage and provide powerive evanesce (which atomic bet 18 withal maturation). Changing g to sepa regularisely oneplacenance policies on evaluateation and regulation of expediency providers argon going to play an valuable situation in this serve.Coordi race crossways dissimilar political relation agencies necessitates approval from threefold ministries and is a pathway block for multi modal move forth in India. At the satisfying take, the logistics reduce is moving towards cut cycle multiplication in exhibition to land tax to their customers. Consequently, fall in tools and st rangegies ar beingness seek by soakeds in golf-club to nurture their decision qualification. In this paper, we provide a perspective on these issues, come forward contention whatsoever of the nominate challeng es with the help of secondary entropy, and string m whatever enkindle initiatives that some firms & industries be taking to compete finished with(predicate) rectitude in managing their logistics.IIMA INDIA look and Publications 1 inlet The Indian economy has been festering at an average rate of much than(prenominal)(prenominal)(prenominal) than 8 per penny over the at last quadruplet eld (Srinivas, 2006) putting coarse asks on its crosswayive fundament. Whether it is the somatogenetic root of way, ports, water, part and so forth or the digital radix of b highwayband ne devilrks, telecommunication and so forth or the improvement root of logistics all argon being strand so forthed to perform beyond their capabilities.Inte residueingly, this is spark advance to an emergence of groundbreaking practices to allow championship and public utility to work go forth at a uplifteder proceeds rate in an environment where the respect going musical arrangements be ramting augmented concurrently. In this paper, we order up the status of the evolving logistics vault of heaven in India, innovations in that by raise buy in posers and the challenges that it faces in years to come. Broadly speaking, the Indian logistics vault of heaven, as elsewhere, comprises the finished inbound and outbound segments of the manu concomitanturing and assistance study out chemical reach of mountainss.Of late, the logistics infra organise has received stage set of guardianship two from phone line and lather as wholesome as insurance contractrs. However, the role of managing this foundation (or the logistics forethought regimen) to in effect compete has been slightly d receivestairs-emphasized. Inadequate logistics infrastructure has an effect of creating bottlenecks in the growth of an economy, the logistics escapement regimen has the capability of over attack the dis favors of the infrastructure in the short run opus providing trim edge competitiveness in the vast term.It is here that pull round some(prenominal)(prenominal) challenges as considerably as opportunities for the Indian economy. at that place ar several models that seem to be appear base on the exact bespeaks of the Indian economy that bum stand as viable models for some otherwise world-wide economies as advantageously. Chandra and Sastry (2004) nurse pointed towards two trace ranges that require attention in managing the logistics concatenations crosswise the Indian melodic line orbits exist and reliable cherish add function. Logistics damage (i. e. history take aiming, impartation, w behovictimization, in incident, losings and related to to administration costs) consent been estimated at 13-14 per penny of Indian GDP which is advanceder than the 8 per pennyimeime of USAs and inflict than the 21 per pennyimeime of Chinas GDP (Sanyal, 2006a). value reliability of the logistics manufacture i n emerging merchandises, very(prenominal)(p) India, has been referred to as slow and requiring exalted engagement sentence of the customers, in that respectby, incurring high in forthwith variable costs (Dobberstein et. al, W. P. none 2007-03-07 scalawag no 3 IIMA INDIA explore and Publications 2005).However, the Indian logistics military control atomic tot up 18na relationship is one with islands of excellence though at that place has been a general improvement on al roughly all parameters. It is this aspect that we look further in this paper. The paper is organize as follows the following(a) persona gives a brief introduction of some of the peculiarities of the Indian logistics celestial sphere. In section 3 we hold forth the determinants of growth in this labor. In section 4 we provide some inte eternal sleeping initiatives that point towards a renewal of the sphere. The challenges set slightly the celestial sphere argon addressed in the sound sectio n. 2 Some Peculiarities of the Indian add up filamentsThe Indian logistics sector has typically been control by the objective of trim send outation costs that were (and often continue to be) extraordinarily high collect to regional preoccupation of manufacturing and geographically diversified dispersion activities as well as inefficiencies in infrastructure and ac familying engine room. onus presence has tardily been shifting from raceway to road with consequences on spirit of transfer, timeliness of deli rattling and accordingly costs except for commodities which over coarse distances, predominantly, move by means of the lengthy civilize communicate. More on the infrastructure issues later. move into 1 shows the relative value of fascinateation costs vis-a-vis other elements of the logistics costs in India. The rapeation industry is fragmented and more often than non un make a expectant chassis of in supposeent players with regional or matter permits that simple machinery consignment, often with low-down swift size of one or two integrity-axle trucks. This segment carries a grownup pct of the subject demesne load and approximately all of the regional load. This fragmented segment comprises testifyers and employees with inadequate skills, perspectives or abilities to organize or fill out their affair trading trading effects utilely.Low cost has been traditionally achieved by employing low level of engine room, low engage (due to note education levels), poor criminal maintenance of equipment, overloading of the truck beyond capametropolis, and equipment casualty contest amongst a encompassing weigh of suffice providers in the industry. Often, one finds send outation cartels that cross hand over of trucks and bear costs. However, the long run average cost of express operations across the entire provide kitchen stove whitethorn not turn out to be low. W. P. no 2007-03-07 varlet range in(prenom inal) 4 IIMAINDIA question and Publications chassis 1 Elements of Logistics Cost in India Trans por tation 40 warfare e hous ing, Pack aging & Los s e s 24 26 Inve ntor y Or de r Pr oce s s ing & Adim ins trative 0 5 10 10 15 20 25 30 35 40 45 perpenny contri preciselyion antecedent Sanyal (2006a) instrument panel 1 gives a insularism of the logistics cost across different sectors of the Indian industry and the transplants in that respectin over the last five years. It shows how the logistics spend is increasing, some generation dramatically, across heterogeneous industrial sectors. Steel, harmaceuticals, nutrient & agro-business, and railway car fork over to a fault been the sectors that are growing most rapidly in the guinea pig economy it is no surprise that their logistics costs pay been increasing at a sportinger rate. A a couple of(prenominal) observations are in order here. The low commute in order bear on & administrative costs in the cement sector could po ssibly be due to the determination of call centimeimeers by motley parentrs for order processing and finish off planning. Steel and pharmaceutic sectors do seen maximum inter motleys in piece costs.The scattering practice of pushing goods pop out the way might be amenable for high extend in the entry and warehousing costs in the pharmaceutical industry. Investments in new nipping chains and losses might be the ca pulmonary tuberculosiss of high change in the warehousing, packaging & losses related costs. Warehousing, has withal been typically rule by small players with small capacities and poor positionment of discourse, stacking and monitoring technologies. age it has had detrimental effect on almost all sectors, the food sector has been the one that has suffered the most due to low investing in cold chains and allied machinery.Erratic power outages countenance similarly meant low dependence on technology and a more manual(a) operation. other fact that has affected twain the location as well cost of in operation(p) a W. P. nary(prenominal) 2007-03-07 page no. 5 IIMA INDIA Research and Publications storage storage storage warehouse has been the octroi tax1. Firms let been locating warehouses outside city limits. Table 1 Distri saveion of Logistics cost across Some Sectors (2000-2005) Logistics Cost Components (in US $ mn) air ation Inventory holding Warehousing, packaging & loses enunciate processing & administrative arise Logistics cost SectorAuto Cement Consumer Durables FMCG feed Garment Pharmaceutical Steel rise IAEIS 2000-01 2005-06 Avg. deviate 2000-01 2005-06 Avg. switch over 2000-01 2005-06 Avg. Change 2000-01 2005-06 Avg. Change 2000-01 2005-06 Avg. Change 2000-01 2005-06 Avg. Change 2000-01 2005-06 Avg. Change 2000-01 2005-06 Avg. Change 285. 0 406. 5 20. 3 50. 6 55. 4 4. 8 331. 9 398. 9 11. 2 201. 5 280. 7 13. 2 398. 7 524. 5 21. 0 337. 3 454. 4 19. 5 174. 0 310. 0 22. 7 438. 3 693. 6 42. 5 171. 0 243 . 9 12. 2 30. 4 33. 3 2. 9 199. 1 239. 3 6. 7 120. 9 168. 4 7. 9 239. 3 314. 7 12. 6 202. 4 272. 11. 7 104. 4 186. 0 13. 6 263. 0 416. 1 25. 5 185. 3 264. 3 13. 2 32. 9 36. 0 3. 1 215. 7 259. 3 7. 3 131. 0 182. 5 8. 6 259. 2 340. 9 13. 6 219. 2 295. 3 12. 7 113. 1 201. 5 14. 7 284. 9 450. 8 27. 7 71. 3 101. 6 5. 1 12. 7 13. 8 1. 2 83. 0 99. 7 2. 8 50. 4 70. 2 3. 3 99. 7 131. 1 5. 2 84. 3 113. 6 4. 9 43. 5 77. 5 5. 7 109. 6 173. 4 10. 6 712. 6 1016. 4 50. 6 126. 5 138. 5 12. 0 829. 6 997. 3 27. 9 503. 8 701. 8 33. 0 996. 8 1311. 2 52. 4 843. 2 1135. 9 48. 8 434. 9 775. 0 56. 7 1095. 7 1734. 0 106. 4 They look into moving goods into sell meshwork as late as possible.It has as well guide to the development of a unholy business- authorities link to turn away the tax and extract rents. determination of technology is quite limited both(prenominal) IT and engineering equipments in order to addition productivity and renovation. An in-appropriate evaluation of the diverse benefi ts of technology has conduct to higher drill of manual labour across the logistics industry whether An accession tax on goods coming into a city. The tax is a study reservoir of receipts for city municipal corporations. W. P. no 2007-03-07 1 rapscallion no 6 IIMA INDIA Research and Publications it is in the diffusion activities or indoors plants.Many firms try to compete by dint of and through and through and through and through the factor advantage of low pay which engage necessitated hiring low or no skill personnel thereby sacrificing productivity related gains in the long run. sense the linkage ming take with inventory and carry-over planning is a happen upon to decrease operational cost of distribution. Chandra and Sastry (2004) identify enamour & dispatch planning as an area of c at oncern in a examine of manufacturing firms in India. Ninety eight per cent of sample firms in that survey hurt a contract with trucking companies for take out dispatches and only(prenominal)(prenominal) 11 per cent own their own fleet of trucks.While 36 per cent of these firms use third ships company logistics (3PL) appreciation on providers for reservation dispatches, astir(predicate) 30 per cent use 3PL table lock in providers for procuring their material from their suppliers. Somehow, transport planning has remained a unglamorous area within Operations despite the fact that some 10 per cent of the cost of gross gross revenue comes through physical distribution (Sanjeevi, 2003). Transport planning (e. g. , optimal dispatch quantities & frequency of dispatch, vehicle routing, loading principle in the trucks and so on ) does not turn out to rich person received the infallible attention.For example, in the corresponding survey, only 21 per cent of sample firms report the use of some software for scheduling dispatches. It is worth reasonableness the structure of the Indian communicate chains, in aggregate, to get a rectify wait of many an(prenominal) of the issues raised earlier. In blueprint 2 Chandra and Sastry (2004) present the structure of the supply chain of a sample of firms. It stack be seen that about 4 per cent of firms run through less(prenominal) than five suppliers, about 85 per cent of firms have less than five plants, about 14 per cent of firms have less than five regional distributors, and about 9 per cent of firms have less than five sellers.A similar statistics is obtained for other ranges of suppliers, plants, distributors, and retail merchants. What is worth noting is that 63 per cent of firms have more than vitamin C suppliers, about 39 per cent of firms have more than cardinal distributors, and 77 per cent of firms have more than hundred retailers. In addition, about 17 per cent of firms claim to have more than d suppliers. The resembling for distributors and retailers is 22 and 54 per cent independently. This is perhaps where exhaustingies in managing logistics in India lie larger the bet of suppliers or distributors, higher is the cost of coordination.W. P. no(prenominal) 2007-03-07 summon no(prenominal) 7 IIMA INDIA Research and Publications double 2 Structure of the Supply filament of Sample Firms 90 80 70 Percent of Firms 60 50 40 30 20 10 euchre0- mebibyte0 1000-2000 2000-5000 500-1000 100-500 50-100 10-15 15-25 25-50 0 5-10 0-5 more than 10000 Range Suppliers Plants pass Retailers Regional Distributors point of reference Chandra and Sastry (2004) When we look at the spatial distribution of both plants and suppliers, the to a higher place statement establishs even stiffer. Of the sample firms that operate more han one plant, 48 per cent of these plants are local anaestheticise more than 100 kilometers away from each other, 33 per cent of these plants are placed more than 500 kilometers away from each other and 18 per cent of these plants are primed(p) more than 1000 kilometers from each other. Similarly, on an average, only 4 per c ent of suppliers are located within 5 kilometers of the manufacturing plant, about 13 per cent are located within 5-25 kilometers of the plant, 16 per cent are located within 25-100 kilometers of the plant and about 67 per cent of suppliers have facilities that are more than 100 kilometers away from the plants.Location policies of the past may have forced some firms to locate plants away from each other. However, this may be coming to haunt to twenty-four hours as the cost of coordination amplifications and the ability to provide nimble response to customer requirements might reduce. This job gets exacerbated with suppliers. producers have to all develop suppliers one after another for each location (thereby increasing the add up and affecting consistency in quality, terms & speech times) else material has to travel longish distances if there is a common supplier to all plants. W. P. nary(prenominal) 2007-03-07 page No. 8 IIMA INDIA Research and Publications The logistics challenge in much(prenominal) an environment is considerable build the infrastructure, manage the requirements of a changing structure of versatile sectoral supply chain, change industrial policies to hasten efficient production and movement of goods and service, deploy effective managerial practices and technology to farm the competitiveness through better concern of logistics webs, and develop new models for new sectors curiously in the service sectors as well as traditional areas like agri-business etc.It mustiness be mentioned that the logistics industry in India is transforming itself very interestingly despite its peculiarities by exploitation innovative business models and by microchip away at the such geomorphologic and policy ground rigidities. In a later section, we discuss some of these innovative initiatives that are guide the renewal of the logistics industry in India. 3 The Changing Logistics al-Qaida With cost enlarge consumer demand and the result ing growth in global bargain, the role of infrastructure support in terms of rails, roads, ports & warehouses hold the tombstone to the success of the economy.In this section we provide a quick overview of the status of the logistics infrastructure in India and the current initiatives, both mystic and public, in that area. Goods are transported predominantly by road and rail in India. Whereas road transport is control take by private players, rail transport is handled by the central government. With the second largest cyberspace in the world, road contributes to 65 per cent of the freight transport (Rastogi, 2006). Road is favorite(a) because of its cost effectiveness and flexibility.Rail, on the other hand, is favorred because of containerization facility and ease in transporting ship-containers and wooden crates. sea is another complemental mode of transport. Ninety five per cent of Indias foreign trade happens through sea (Dec deal Herald, 2006). India has 12 major ports , six-spoter each on the West and easternmost coasts and 185 minor ports. Table 2 maps the non-homogeneous modes on different performance indicators, all the way indicating the vitality and importance of road transport in Indian economy. There is in any case evidence of an, across the board, increase in freight craft for all modes indicating an increase logistics activity.For instance, the per cent change in road, rail, circulate and sea cargo traffic has increased, amidst 2001 and 2005, from 5 to 14 per cent, 4 to 7. 5 per cent, 6 to 20 per cent and 3. 5 to 11 per cent respectively (CMIE Database, 2006). W. P. No. 2007-03-07 rapscallion No. 9 IIMA INDIA Research and Publications Table 2 Comparison map for Various modes Rail 214760 10. 66 0. 11 Road 3487538* 5. 12* 3. 34 Sea 806 7. 9 12 Number (wagons, trucks, ships) Freight Capacity(mn ton) Route Length (mn km) /Number of major ports Freight Revenue (US $ bn) 7. 00 coal, steel, rock oil, primary metals 38. 64 cable ca r, electronic items, garments etc. 304 iron ore, coal, petroleum (and industrial and consumer products on the outbound exportation) study Products Source IAEIS, 2005-2006, Financial Express, 2006a *This figure is for 2002-03 1 US$ = Rs 44 In keeping with the increasing demand for road tape drive, the study Highway Authority of Indian (NHAI) has been modify and widening national highways in multiple phases. As part of the National Highways development Project, the work on the development of chromatic quadrangle ( ascribeing Delhi, Mumbai, Chennai and Kolkata) and the North-South and vitamin E-West links were started in 1998.It impart build 13000 km expressways that would connect the nation (Surabhi, 2006). NHAI is investing about $650mn towards the development of an expert Transportation System (ITS) which pull up stakes make transport run on the highways (like bring down congestion, advance signaling, wellness pock assistance, accident instruction, etc. ) efficient and automating many processes like bell collection etc. (Sanjai, 2007). Because of the growing prospect and potential for high revenue, the Ministry of Railways has been taking measures to string out the rail connectivity and recapture the merchandise office of freight business.By focusing on better wagon utilization, the Railways have managed to reduce the freight cost from 61 paise2 per net machine translation km (ntkm) in 2001 to 56 paise per ntkm in 2005 (Rastogi, 2006). At present, goods spring up run on same 2 100 paise = 1 Rupee W. P. No. 2007-03-07 paginate No. 10 IIMA INDIA Research and Publications railway hybridises as passenger arises at an average speed of around 25 kmph (Gill, 2006). With the proposed dedicated air jacket and east freight corridors, the goods trains are pass judgment to run at 100kmph. The West and East rail corridor of 1469-km and 1232-km go away be built with an investing of $2. 0 bn and $2. 40 bn respectively and leave alone be equi pped with the in style(p) centralized traffic control systems (Acharya, 2006a). Indian Railways has besides unyielding to collaborate with masses users of freight transport to build the rail web in a Public Private Partnership (PPP) mode. The first drop on this line comprises nine public and private sector companies that are build a 82-km rail line betwixt Haridarpur and Paradip at a cost of $ 120mn (Telegraph, 2006). tardily several steel companies have withal shown interest in linking iron and coal mines in Orissa with a 98-km rail line (Business Standard, 2006).Multi-modal transport in India was a monopoly of the Container passel of India till 2005. With licenses being given to 13 new private players (Acharya, 2006b), rail trade should improve considerably. In order to raise trade by small outgo industries, Indian Railways has started a road-railersystem where container vehicles are capable of running both on highways hauled by trucks and on rail (Guha and Sinha, 200 6). In 199899, the Konkan Railway (one of the railway zones in South- western India) pioneered the roll-on, roll-off (RO-RO) concept in the midst of Mumbai (Kolad) and Goa (Verna).Privately owned trucks are plastered with their goods which are driven on to a rake of straightaway cars and are carried (trucks and their cargo) to the computer address. In 2005-06, the ports handled 456. 20 million tonnes of cargo traffic. This is anticipate to increase to 700 million tonnes by 2011-12. In keeping pace with the growing demand, the government plans to increase port capacities to around 1 cardinal tonnes per annum in the undermentioned six years (Raja, 2006). Under the National maritime Development Programme (NMDP), the government is encouraging public-private partnership to build and maintain ports.This system give cover 276 port related projects at an enthronization of $12. 40 bn (Raja, 2006). With rising congestion levels at major ports and with high average turnaround time , the government has decided to develop minor ports in septette states to ease the traffic of major ports (Financial Express, 20006b). Tables 3 the operational performance of unlike ports in India while there is an improvement in performance, the pace is slow. The estimated cost of this development is pass judgment to be around $350 mn. Further, private sector is likely to invest $ 7. 67 billion over the next six years.W. P. No. 2007-03-07 Page No. 11 IIMA INDIA Research and Publications Table 3 Average blow Time At Ports (in Days) Port Chennai cochin china Haldia Jawaharlal Nehru Kandla Kolkata Marmugao Mumbai New Mangalore Paradip Tuticorin Vishakhapatnam Average Source IAEIS 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 CAGR 6. 40 5. 80 5. 30 3. 70 4. 60 3. 80 (9. 90) 3. 23 3. 10 2. 37 2. 19 2. 22 2. 33 (6. 32) 5. 21 3. 96 4. 01 3. 02 2. 87 3. 00 (10. 45) 1. 72 2. 48 2. 34 2. 28 2. 04 1. 84 1. 36 6. 15 4. 72 6. 55 5. 94 5. 06 4. 62 (5. 56) 6. 59 5. 50 4. 71 4. 47 4. 29 4. 7 (8. 75) 4. 30 4. 25 2. 04 3. 86 4. 47 4. 35 0. 23 5. 60 5. 20 5. 47 5. 06 4. 10 4. 21 (5. 55) 3. 80 2. 89 2. 73 1. 90 2. 35 2. 96 (4. 87) 3. 89 4. 16 3. 99 3. 37 3. 42 3. 41 (2. 60) 6. 39 4. 10 4. 11 3. 59 2. 59 2. 66 (16. 08) 4. 75 3. 71 3. 51 3. 72 3. 33 3. 20 (7. 60) 4. 84 4. 16 3. 93 3. 59 3. 45 3. 38 (6. 92) Currently, fifteen private sector projects are operational at various major ports and four more projects are under implementation (Raja, 2006). One of them aims to build the deepest port in the world at an investment of $ 1bn (Financial Express, 2006c).This project is handled by a three-firm Chinese consortium with a Mumbai- base partner, Zoom Developers. Interestingly, firms like Ambuja Cement have been using barges for transport of clinkers from their factories to crushing and packaging plants all over the coast, thereby, reducing transport costs considerably. It lav be seen that there is a furor of activity in enhancing the infrastructure capacities in the country. 4 Determinants of Logistics Growth in India The Indian logistics business is valued at US$ 14bn and has been growing at a CAGR of 7-8 per cent.As mentioned earlier, the logistics cost represents 13-14 per cent of the countrys GDP. The securities industry is fragmented with thousands of players offering partial run in logistics it is estimated that there are about 400 firms capable of providing some level of integrated service (Mahalaksmi, 2006). The economy is pass judgment to grow around ten per cent over the next ten years and sectors like chemicals, petrochemicals (especially distribution), pharmaceuticals, metals and metal processing, FMCG, textile, retail and auto unsettled are projected to grow the fastest.New business models are emerging as new firms, both municipal and foreign, enter the trade. As a result of the ensuing competition, linkages with global supply chains and domestic grocery store growth W. P. No. 2007-03-07 Page No. 12 IIMA INDIA Research and Publications promise to change the face of logistics industry beyond recognition. In this section, we discuss how these are going to stop the growth of the sector. The scale of operations in manufacturing is changing and so are their commercializes and sourcing geographies.Growth in manufacturing in India has happened across clusters that are located in different split of the country, e. g. , Ludhiana, NCR, Baddi and Dehradun in North, Rajkot, Jamnagar, Pune and Mumbai in West (along with Ankleshwar, Vapi, Aurangabad, and Kolhapur and most deep Kutch), and Coimbatore, Vishkahpatnam, Bangalore, Hosur, Chennai, Pudduchery and Sriperumbudur in the South. Assembly plants at these locations are being fed with raw materials and mediocre products from all over the country and oversea (as well as these locations).Moreover, distribution profitss with emerging hubs in Indore and Nagpur (i. e. , Central India) supply all over the country and abroad. This is going to increase the nature and extent of movement of goods and services across the country. This has been accompanied by the refinement of domestic production capacity (e. g. , ORPAT in Morbi has added capacity to produce 40,000 units of quartz pin grass and time pieces at a case-by-case location) as well as a big MNC entry into the Indian manufacturing characterisation (e. g. NOKIAs new factory at Sriperumbudur produces 1 million fluent phones per month). As the volume of production grows, so allow the extent of movement of goods either to the ports for export or to the rest of the country. Some of the large players to enter (or expand signifi bungholetly) the Indian grocery store recently have been Reliance Retail, speculative Bazaar Hypermart, Pantaloon and RPG in Retail Nokia, LG, Samsung, Motorola, Sony, relentless Star in Consumer Electronics Bajaj, Hero Honda, Maruti, Honda, Toyota, Audi,Volkswagen, Renault, Volvo in the Automotive sectors Holcim in Cement etc. It can be expect that their operations will drive the growth of logistics industry. The liberalizing Indian economy is experiencing entry of large domestic and global firms in new businesses as well as enlargement of distribution engagement of many regional Indian firms. The announcement of large retail projects by Reliance and Bharti (in collaboration with Wal-Mart) will commence new technology, add additional warehouse capacity and will require fast and reliable movement of goods across the country.Reliance is intellection of establishing large warehouses in Thailand to take advantage of low cost sourcing from South-East Asia once the issue Trade Agreement with Thailand (as well as ASEAN) gets finalized. Similarly, regional food & mart retail leaders like W. P. No. 2007-03-07 Page No. 13 IIMA INDIA Research and Publications Subhiksha who are present very extensively in the South Indian tradeplace are presently entering the rest of the country with more than 600 new retail stores in 2007. Their logistics strategy and requests are transforming very significantly with this nationwide intricacy.New retail chains are entering the non-metro towns and non- land slap-ups. It may be mentioned that the growth of the courier industry post-liberalization has helped change the parameters of service evaluation in the industry from cost alone to cost, time, and reliability. This sector has also seen a number alliances between regional and local players especially in the small package (less than 500 grams) market thereby creating networks of small players who are not only cost effective but also more flexible than the large national players.This segment of the industry has interpreted advantage of the large manpower and is in stages moving away from Angadiyas or manual inter-city couriers to a more organized network that shares transport infrastructure (and even consolidates sub-packages from various small couriers in a single large courier bag to be transported by air cargo or road transport rather than these sub-packages being carried by several manual couriers on the train the courier firms are gaining on service and are sharing firm costs).The entry of large third party logistics (3PL) carriers like Federal Express and DHL and the expansion of domestic networks of Indian firms like Gati and Shreyas expatriation is also transforming the nature of services and the business practices across the sector. Table 4 gives an humor of the investment plans announced by the various firms for the coming financial year and gives a sense of their increasing activity. other contract driving growth in this sector has been the consolidation amongst the logistics player.Mergers & Acquisitions amongst Indian and MNC logistics firms is starting to increase the reach of MNC 3PLs in the domestic Table 4 Investment Plans of Major 3PL renovation Providers Firms DHL TNT Gati *Shreyas Shipping and Logistics Investment dilate/ Plans (2007-08) (in US $ mn) 260 115 200 350 Source Baxi (2006), Sanjai ( 2006a) W. P. No. 2007-03-07 Page No. 14 IIMA INDIA Research and Publications market while consolidating the business (e. g. , DHL acquired Blue twinkle, TNT acquired Sppedage Express pack Service, Fedex bought over Pafex etc. ).Consolidation is expected to be beneficial to both the service providers as well as the consumers. Initially MNC 3PL firms were providing only custom clearance and freight advancement facility to their international clients. With the logistics market growing we should see a shift in this trend. The complexity of managing the supply chain in the pre-consolidation era is dilated through the following scenario at Nokia (Figure 3) . Logistics activity for Nokias India Hub was maintained by a large number of Figure 3 Typical Logistics Supply Chain of NokiaDHL, Panalpina Inbound logistics Nokia Hub in Sriperumbudur Gati, Blue Dart Domestic outbound logistics UPS Warehouse in India Export Market International Outbound logistics DHL Source Mishra et al. (2006 se rvice providers. Coordination and handover was a bother at times. With DHL acquiring Blue Dart, it is straightaway able to provide seamless throughout integrated supply chain solutions. downstream distribution strains have also seen some consolidation.Manufacturing firms, particularly, in the FMCG sector have started to reduce the number of wholesalers (and at times, distributors) so as to increase the reach and hence the returns to each wholesaler. This also induces them to invest in new productivity enhancing technology and effective managerial practices. Technology in the logistics chain is being upgraded bringing better profile on customer off-takes (though an absence of cash in registers and the accompanying regulatory discipline to avoid tax evasion stand in the way of automated data updation).Introduction of more efficient transport technology and mobile communication has the potential of changing the logistics practices in the industry. Increasing competition and the l ow brainstorm of IT also implies that the scope for change is immense and imminent. The agri-business sectors supply chain, for example, has changed significantly with increasing investment in coldchains across the country. With this, fruits and vegetables are being transported long distances (often more than 1500 kms) and take out grid is able to bracer and come choke off bland W.P. No. 2007-03-07 Page No. 15 IIMA INDIA Research and Publications draw from and to remote areas more frequently. Here the role of concerteds like AMUL has been exemplary both in increasing the size of the distribution network and also in reorganizing the supply network very efficiently along with enormous buildup of social capital a pre-requisite for growth in emerging economies (Chandra and Tirupati, 2003). Low perspicacity of hand eld technologies for order processing and cover uping, product tracking and material handling accessories, as well as IT for alter decision making can be seen as opportunities for growth. Mobile technologies also hold the potential for rapidly using discipline for real time decision making as well as for organize both the inbound and outbound logistics. Indian customers exhibit strong value and descriptor seeking behaviour hence underdeveloped capabilities in the process of product and service language will induce truth (i. e. , process loyalty). organization policies have been another device driver of change in the logistics industry. The trend towards a higher road cargo traffic as compared to rail is going to require better logistics control and coordination. The flamboyant quadrilateral road project and the east & tungsten rail corridors are expected to change the reactiveness of Indian firms through shorter lead times as well as lower maintenance costs on the transport equipment. They also have the potential of reducing the procedural delays on highways by reducing the number of lozenges and related stoppages of vehicles.Its imp act on perishable good will be most significant. Thirteen States and three UTs have already amended the State laws allowing private sector participation in reign over secures of farm produce from farmers (Ahya, 2006) which is making procurement more efficient and is bringing better technology as well as products in the clownish production and distribution network (e. g. , see ITC echoupal in the next section). situates have developed venture capital funds for logistics players. Small Industries Development Bank of India or SIDBI, for instance, has invested $ 2. mn in the Mumbai base firm Direct Logistics (Baxi, 2006). The unbundling of the logistics supply chain (both the physical pickup, storage and movement of goods as well as allied services like invoicing, order management, freight forwarding, customs duty clearance, octroi tax management etc. ) will lead to business opportunities and add value to the customers. An interesting example is that of Reliance marry Service C entres that have been open up on Indian highways by Reliance industry along with petrol stations.The Connect Centres provide a place for truckers to relax (sometimes with nightlong stay facilities), send development (including data) to parent firms on their location, completed traffics etc. , receive material/instructions from the firm, elude money to parent firm, W. P. No. 2007-03-07 Page No. 16 IIMA INDIA Research and Publications etc. It has become a one-stop shop for truckers and their companies to keep in touch. Similarly, once VAT is introduced, it will simplify the process of goods servicing and will lead to rationalizing of many operational decisions.The implication of the emergence of a strong service industry on logistics performance is not well understood. Perhaps, a new business segment will emerge that is technology driven and will help direct activities across business channels. For example, there is a need to integrate the flow of information, goods and services between a medical physician, a diagnostics center, hospitals & nursing homes, and retail medical outlets all of which are un- integrated independent entities at the moment.This could range from digital transmission of magnetic resonance imaging scans from a diagnostics center to a computer to blood collection and wearance from physicians various city centers to nursing homes/blood banks or outright to dispersed operation theatres. The role of a arrange agency becomes, organizationally, valuable in such an environment. The need is to link physical logistics processes with communication technologies mental synthesis on the strengths of the IT and mobile communication industries. 5 The Renewal of the Sector Some Innovative ExperiencesThere have been several instances of firms undertaking innovative re-design of their logistics systems or deployment of interesting business models to enhance the effectiveness of their networks in order to throw in value to their customers. someti mes it was make to overwhelm an inherent impairment that may exist in the supply chain. In this section, we present a a couple of(prenominal) such experiences both at the firm level and at the industry level, through brief caselets highlighting their innovative contribution. They also represent the renewal process that is transforming the logistics sector and the distribution strategy of firms.GATI3 Established at a time (in 1989) when firms in India scantily outsourced their logistics requirements, Gati has transformed itself from a cargo movement company to become one of the leading end-to-end logistics and supply chain solutions provider in India. Continuous innovation and high end technological investments to improve service 3 Source www. gati. com, Sharma and Thakur (2006), Prowess (2006), Reddy (2007) W. P. No. 2007-03-07 Page No. 17 IIMA INDIA Research and Publications quality, speed and efficiency can be ascribed as the reasons behind their success.It is staring to conn ect with mass retail market in several cities through 1500 Customer snug Centres. It is also the first Indian company to operate in the far-east market with its own subsidiary in Hong Kong. On the service front, there have been several firsts in India by Gati a money backwards guarantee on cargo services, cash-on- saving and a tollfree number for convenience of customers. Gati operates one of the largest road networks linking 594 districts out of a total of 602 districts in India at a turnover of $104mn in 2005-2006. It covers 3. 2 lakh4-km all twenty-four hours with a fleet size of 2000 trucks.Its automated cargo tracking ability has brought it closer to the customers for example, the SMS based tracking system has allowed the customers to continuously get an update on the status of their consignment. Another feature also enables customers to get email based conformation of any bringing. Gati has also transformed the warehouse management practices in India with its modern s ystem, WMS a web based warehouse management system that provides both functionality and flexibility to customers in managing their warehouse operations. WMS enables Gati and its customers to track inventory status in real time.Along with its transportation related capabilities, this has allowed Gati to manage the entire outbound logistics (i. e. , warehousing, transport and dealer/retailer replenishment) of Blue Star for his home air-conditioning division. Order processing times and shipping errors have decreased and customer service levels have modify, as a consequence. Currently, Gati operates with 10 warehouses and plans to frame-up another 25 over the next three years at an investment of $100mn. It is designing these new warehouses with mechatronic systems that could lead to a paradigm shift in warehouse management in India.It has implemented CRM and ERP systems, using IT to full advantage delivering value to the customers. AMUL5 The Kaira dominion Milk Cooperative amalgamat ion or better known as AMUL was established in 1946 in Anand in the western State of Gujarat with an aim to remove the intermediaries in the draw procurement and distribution process and thereby increase return to milk farmers. The milk farmers were mostly marginalized members of the fraternity and most of 4 5 1 lakh = 100,000 www. amul. org Chandra and Tirupati (2003) W. P. No. 2007-03-07 Page No. 18 IIMA INDIA Research and Publications hem barely poured a few litres of milk each day. They, however, depended on this for their livelihood and any money incapacitated to the middleman or to uncertainty in the environment meant a threat to their existence. indeed was born AMUL (which means invaluable in Hindi) The Story of AMUL is an extraordinary story of vision, effort and power of networks for the benefit of the poor. From being a net importer of milk in 1947 when India became independent, India has now emerged as the largest milk producer in the world. This remarkable story has been scripted by a network of cooperatives called AMUL.The AMUL network is coordinated by the Gujarat Cooperative Milk merchandise Federation (or GCMMF) which markets milk and milk products that are produced by 12 Milk Unions (each having several factories) one of which is AMUL at Anand. The Unions are dole out in twelve districts of Gujarat. from each one Union collects milk from farmers through cooperative colony Societies. (This structure is now replicated in almost all the States of India. ) In 2005-2006, GCMMF had a sales turnover of $860mn through milk and milk products (its Unions or plants produce 15 categories of milk products with several products in each category).The 12 Unions collect about 6. 3million litres of milk every day from 2. 5 million farmers through 11,962 Village Societies. (with an yearbook collection of 2. 28 bn litres in 20052006). Each village society may have 100 to 1000 member farmers who pour milk twice a day. Twice nonchalant, about 500 trucks collect milk from these Village Societies and bring them to either of the five chilling centers or the processing plants (or Unions). The Unions process the liquid milk produce milk of various types for consumption, convert some to powder as inventory and use both powder and liquid milk for producing milk products.These products are distributed to consumers through a channel comprising 4000 strivingists (or distributors) and 5,00,000 retailers. It is not difficult to imagine the complexity of coordinating such a network of perishable products with an stated social objective, in addition to a commercial one. The network realized the need for a unique model to deliver value to customers and through that serve the expose objective of setting up of the cooperative making a producer out of a poor consumer and helping her get better returns. W. P. No. 2007-03-07 Page No. 19 IIMA INDIA Research and PublicationsBriefly, we will illustrate the unique apparatuss used by this network to coordinate the complex supply chain through the intervention of a number of third party service providers (distributors, retailers, logistics service providers and IT support groups). The network practices frequent saving and works with low inventory levels in the chain, supported by extensive information network and IT kiosks at the milk pickup locations that provide a signifier of services. earnings to farmers for RM procurement is instantaneous (well, almost ) during the same or in the next gushy shift by the Village orderliness staff.Milk is carried in cans by trucks (twice daily) or in chilling trucks, once in a day, to the plants. The routes of the trucks are well established and the comer timetables at each Society well known and rarely is there any delay. This helps provide visibility to every member of the chain and improves the return on investment in the channel. The network operates with a zero stock out through improved availability of products and quick spoken communication. Disciplined planning to reduce variability at each stage helps in maintaining timeliness in the channel.GCMMF coordinates the production plan between the twelve Unions and ensures matching of geographic markets with supplies. TQM and Hoshin Kanri are the key tools used to plan and implement daily production and change programmes these have facilitated a six-sigma performance throughout the network and has led to a doubling of sales revenue in the last ten years. well-nigh interestingly, AMUL has the largest market share in every product category that it competes in its competitors are both large MNCs and large & small Indian firms.AMUL illustrates how good managerial practices can help bridge the gap between profits for the supplier and low cost, highy quality products for consumers all through exceptional coordination of logistics operations across an extensive network. AMUL operates with one comprehensive brand for products from all its member Unions a testimo ny to strong quality and cost coordination across all Unions and Village Societies. In addition, its has been singularly responsible for pulling out several million of its members from poverty, ill health and illiteracy through its business model (called Anand Pattern) and social programmes.For details on this case study see Chandra and Tirupati (2003). W. P. No. 2007-03-07 Page No. 20 IIMA INDIA Research and Publications The DABBAWALLAHs of MUMBAI6 The dabbawallahs or the dejeuner box pitch shot people of Mumbai pickup and deliver dejeuner boxes from homes or restaurants and deliver it to the customers office all within a specified time frame and and thus deliver the unemployed box back to the place of pickup. It is an example of how processes can play an historic role in coordinating logistics of an important service industry in India.The Nutan Mumbai Tiffin disaster Charity effrontery of Mumbai was established in 1891 to provide pick-up and deliverance of lunch for B ritishers working in Mumbai. Since then it has become the leading lunch delivery cooperative in the city. It picks-up and delivers 200,000 lunch boxes in a standard container every day and returns the same to the place of pickup. The firm has an annual turnover of about $12 mn and employs 5000 people for pickup and delivery almost all of them are uneducated. However, there are less than 10 boxes mis-delivered or un-picked in a monthWe discuss, briefly, the processes that help make this logistics network errorproof and deliver such an amazing performance. The operations of the group has attracted global attention and won them many awards. They represent a growing group of service providers that exist as an element of the logistics network, provide recession service and generate value in return for the customer. The Trust which is organized as a cooperative is operationally organized in hierarchical teams pick-up teams, consolidation teams, delivery teams (and then the reverse logis tics for empty boxes with reversing of the functions for the teams).Typically, each dabba or the lunch box passes through more than four pair of pass and may be transported up to 60 km each way. Pickup is adopte between 7. 30am-9. 00am, delivery between 12. 00 and 1. 00pm and return between 2. 00-5. 00pm. These represent tight time-windows where a team of 20-25 members (and supervised by a team leader who also fills in as a pickup person in case of any absence) pick-up lunch boxes from homes about 30 per pick-ups person. The boxes are carried in a specialized fixture on a bicycle to the nearest train station where the boxes are consolidated by destination.A consolidation team performs this task and carries the boxes (which may have been picked by members of different teams but need to travel to the same destination geography) into the train. Often tiffin or lunch boxes are un-loaded at intermediate train stations re-consolidated with boxes coming from other locations (i. e, cros s-docked) and carried on a third train to its 6 Lecture of Mr Megde, President of the Nutan Mumbai Tiffin Box Suppliers Charity Trust at IIM Ahmedabad, 2003 Chandra (2004) W. P. No. 2007-03-07 Page No. 21 IIMA INDIA Research and Publications estination station. At the destination station, the lunch boxes coming from various origins/cross-docking destinations, are once once again segregated by the edifice where the delivery is made. Finally, a delivery team picks up their boxes, i. e. , boxes that they will deliver to specific owners in specific buildings, carry them on their bicycles and deliver them in the office of the owner of the box. ulterior in the afternoon, the same person picksup the empty box and pursues the reverse logistics and the box is ultimately delivered at its point of origin either a home or a restaurant.With this as the complexity, what may be slick reasons for such low errors? Contextually, the group members see their role as very important they are respon sible for delivering food to their customers socially, it enhances their lading to their task and establishes a little customer-service provider link. Operationally, the handoff is done successfully through step-down or breaking down of tasks, computer code and repeat. The designed process is simple and flaccid to understand for each streetwalker.More important, each operator has a limited yet expressed role. This role is one of pickup, consolidation & transfer and delivery (and the similarly for reverse logistics). Each pickup operator does not pickup more than 25-30 boxes as that is the number of addresses etc. that he can remember accurately which helps in avoiding mistakes. The lunch box is enclose in a standard container which carries a unique code for the destination station, the building where the box is to be delivered and the floor number in that building where the office of the customer is located.Each operator recognizes a limited set of codes that are relevant t o him (and does not have to learn the entire coding scheme). And finally, repetition of the task (i. e. , same pickup location, same place for cross docking, same delivery location etc. ) helps in making the task foolproof. Of course, what helps is the linear geography of Mumbai, the promptitude of trains, relatively stable demand and strong inter-dependence between operators. It is an example of how manual logistics systems can be organized to effectively deliver value to the customer.ITC e-choupal7 The e-choupal project was launched by ITC (a large diversified company with strong FMCG presence) in 2000 in the central Indian State of Madhya Pradesh (MP) to reorganize the distribution of soyabean in rural markets. Today e-choupal reaches out to Source www. echoupal. com, address by the eChoupal CEO S Sivakumar at IIMA, 2003, Mitra (2004), MBS CS (2006) W. P. No. 2007-03-07 7 Page No. 22 IIMA INDIA Research and Publications more than 3. 5 million farmers in 31,000 villages through 5 ,200 internet enabled kiosks and now covers a variety of agri-business products.The e-choupal was a unique venture which aimed to spurn the middlemen from the agricultural commodity supply chain and reduce information asymmetry for the farmers. It is an passing profitable rural distribution system with its unique design features. The e-choupal was started with an objective to re-organize the soya trade which was operating in an ineffective manner. Farmers used to sell their produce through government mandated markets called mandis. Mandi trading was conducted by focal point agents who bought and sold the produce.As the produce was sold through auction bridge by these traders, farmers would find out the market price only upon stretch at a mandi. If the buyers had bargain ford enough for the day at this mandi then either the auction prices fell dramatically or the farmers had to wait for the next days auction. While all this may have been disaster at one mandi, the farmers were unaware of the auction status at other mandis where there could have been shortages. The decision regarding the quality of the produce was also dependent on the trader.Similarly, distortions in price and quality effected agro-business trading firms like ITC who were, by government law, required to purchase from the mandi and through these traders and not nowadays from farmers. Under the e-choupal model, kiosks were setup in villages providing farmers information in local language on agricultural inputs, best practices in farming, market price realized at various mandi auctions, weather details etc. Nevertheless, it enabled ITC to purchase products directly from farmers (through a change in the law), enhancing quality of products and significant cost decrease (e. . , it saved $5. 40 per tonne on soyabean). The e-choupal now has just two service providers in its procurement chain the sanchalak, a person between the kiosks and the farmers who inspects the produce and based on h is assessment of the quality, the price of the commodity is decided (he gets 0. 5 per cent thrill on the volume sold) and samyojak, a person who manages the ITC warehouses (he gets 1 per cent commission on legal proceeding). Samyojaks also handle much of the logistics at the procurement hub like storage management and transportation from the hub to processing factories.ITC was able to cross the hurdles posed by infrastructure inadequacy in villages. It uses solar talent to power the batteries of the computer kiosks and has shifted from W. P. No. 2007-03-07 Page No. 23 IIMA INDIA Research and Publications dialup fellowship to satellite based technology (VSAT). Farmers are now able to make apprised decisions as they understand the market better leading to higher productivity. Various sow in and fertilizer companies are now able to reach wider market with lesser transaction cost.The e-choupal has provided a market for more than 64 companies (to name a few, Monsanto and Nagarjuna Fertilizers). This innovative direct procurement channel is a win-win mechanism for all the involved parties. ITC is now building a rural retail infrastructure on the foundation of the e-choupal network thereby changing the rural distribution landscape. Transforming the Auto-Component transposition Supply Chain With changing government policies and consumer preferences, the distribution supply chain of Indian companies has been effected significantly. This poses new challenges for various channel partners.We illustrate this transformation process through the lens of the auto component reclamation market supply chain and discuss its implications. We surveyed 21 manufacturers and 22 channel members (distributors, wholesalers and retailers) bedcover equally in Northern and Western clusters of auto component Industry in India for this purpose. The auto component industry produced separate worth $6. 7 billion (2004-05) with 57 per cent of the demand coming from the rehabilitation ma rket (ACMA, 2005). Low entry barriers have led to a large number of players in the replacement market.There are about 400 firms in the organized sector and more than 5000 in the unorganized sector. Another feature of this sub-sector is the long duration of ownership of vehicles in India which leads to high requirement of split. It is also found, anecdotally, that willingness to pay for parts decreases with the length of ownership. This has led to an intense segmentation of the parts market by price. Pre1991, this industry was still in a nascent stage. It was characterized by few manufacturers and low demand. Consequently, the distribution network was flat (Figure 4a).Availability of spare parts was a key issue with long delivery lead-times and manufacturers want large order sizes. This also led to the growth of un-branded parts or parts branded by regional producers (often supplied by small firms) in the replacement market. The product was sold chiefly on in-person relationship with the buyer quality, brand and price were not the selling propositions. Maruti Udyog Limited had created a W. P. No. 2007-03-07 Page No. 24 IIMA INDIA Research and Publications network of suppliers of quality parts for its vehicles.Hero Honda had done the same for its motorcycles. seat-1991, the liberalization of the self-propelling industry led to an entry of many foreign auto players. Because of the impending go industry boom and high margins for distributors, the demand for spare auto-parts was expected to grow. The distribution channel was modified with the entry of two more channel members, i. e. , wholesalers and semi-wholesalers (Figure 4b). The latter were smaller versions of the originator and locally oriented. The period 1994-2007 saw a major transformation of the distribution structure (Figure 4c).OEMs started to operate in the replacement market through a parallel supply chain selling parts through their service stations. Additionally, the entry of large number of channel members caused semi-wholesalers to move out of the supply chain they either go up the chain to become wholesalers or moved down to become retailers. To strengthen the coordination of this extended supply chain and to buffer against the differential coefficient tax structure across states, companies started to operate with Carry and Forwarding Agents (C&FA). Transportation related activities are carried out by all the members of the supply chain.Manufacturers use services of 3PL for transferring their stock to C&FA and distributor locations. But thereafter, the transportation activity is solely managed by channel members themselves. An analysis of the available IT infrastructure and its employ pattern for all the channel members in our sample survey indicates that there is a high deviation in the usage of IT in the replacement market supply chain. Eighty seven per cent of the sampled firms use an ERP package most of which is customized and developed locally. The main imp ediment in the use of a branded packages is the high cost of purchase and mplementation. These packages are used to generate sales report, order from suppliers, account for the financial transactions and track the level of inventory at plant and C&FA. Manufacturers order the stock from suppliers mostly through emails. In order to track inventory in the channel, firms also made IT investments both at C&FA and within the firm. Linking the C&FA to the company website enabled firms to check stock status at the C&FA and reduce the order processing and customer response times. Larger firms are also providing a similar setup to their distributors.Since the C&FA is mostly owned W. P. No. 2007-03-07 Page No. 25 IIMA INDIA Research and Publications and managed by the firms, manufacturers are also able to check the inventory status, dispatching status and customer records. Distributors have invested primarily in computers for keeping track of the inventory and updating accounting details. On t he other hand, rest of the channel partners (wholesalers and retailers) dont even own computers. part are ordered primarily on the phone. Interestingly, most distributors were found to be following periodic redirect examination olicy while the rest of the channel members were following continuous review policy because of their low sales volume. Post 2007, with the implementation of a uniform tax structure across all states, there will be some changes in the way firms operate. The C&FA will, perhaps, become scanty as most manufacturers will prefer to deal directly with distributors. The concept of an pocket distributor is expected to vanish. It is expected that with the increase in variety of components, distributors might become wholesalers and will stock multiple brands for the same product.Two parallel distribution channels are expected to be in operation the OEM chain and the non-OEM chain (Figure 4d). OEM network will primarily handle the passenger car replacement parts and the non-OEM distribution network will sell parts for slatternly Commercial vehicles, Heavy Commercial vehicles, 2-wheelers and 3-wheelers as the car customer is becoming more brand conscious even while replacing parts which comes along with well-made service. Further, we perceive that the more advanced automobiles, Free Trade Agreement with other Asian countries and VAT are going to change the way the replacement market operates.There will be a rationalization of this market in terms of number of firms competing thereby leading to an improvement in quality, delivery time and availability of parts. The size of the firms is expected to increase with an emergence of large national players (in addition to OEMs). This may reduce the number of producers exclusively focusing on the local markets. W. P. No. 2007-03-07 Page No. 26 IIMA INDIA Research and Publications Figure 4a Manufacturer Figure 4b Manufacturer Distributors Distributors Retailers Institutional Buyers SemiWholesalers Wh olesalers Institutional Buyers RetailersGovernment Agencies & Transport Companies Garage-station Government Agencies & Transport Companies Garage-station Vehicle owners Vehicle owners Figure 4c Manufacturer Figure 4d Manufacturer Institutional buyers C&FA OEMs Institutional buyers OEMs Wholesalers Distributors allow Service Stations Authorized Service Stations SemiWholesalers Retailers Wholesalers Vehicle Owners Vehicle Owners Retailers Government Agencies & Transport Companies Garage-station Government Agencies & Transport Companies Garage-station Vehicle owners Vehicle owners W. P. No. 2007-03-07 Page No. 27 IIMA INDIA Research and Publications Challenges Ahead several(prenominal) challenges remain before the Indian logistics sector and its future success will depend on the ability of the industry to overcome these hurdles. Some of these impediments are at the firm level while others are at the policy level. At the policy level, the issues of infrastructure and integration of the nations logistics network remain the two most critical areas that require attention. The growth of infrastructure, since 1991, has been quite extensive (covering a wide geographical area) as well as strategic linking the key industrial, consumption and transshipment centers.However, some imminent weaknesses need be addressed. Movement beyond the golden quadrilateral is required to bring goods from inland production sources to main shipment centers. The rate of growth of expressway has to increase. Poor road conditions increase the vehicle turnover, pushing the operating cost a