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INDIAN INSTITUTE OF pennyimeering AHMEDABAD INDIA explore and Publications The Logistics Sector in India Overview and Ch everyenges Pankaj Chandra Nimit Jainist W. P. no devil hundred7-03-07 March 2007 The of import objective of the work paper series of the IIMA is to help faculty members, question Staff and Doctoral Students to moveily sh ar their research findings with professional colleagues, and to hear break their research findings at the pre-publication stage INDIAN INSTITUTE OF modality AHMEDABAD-380 015 INDIA INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD INDIA Research and Publications The Logistics Sector in India Overview and Ch completelyengesPankaj Chandra Nimit Jain Indian Institute of Management Ahmedabad Vastrapur, Ahmedabad 380015 emailprotected ernet. in, emailprotected ernet. in Abstract The logistics pains in India is evolving rapidly and it is the interplay of al-Qaida, technology and raw(a) types of divine swear out set asiders that leave behi nd define whether the in tentness is able to help its nodes reduce their logistics re beat and picture achievementive run (which be alikewise plus). Changing presidential term policies on appraiseation and code of expediency providers argon going to play an important parting in this crop.Coordination crosswise sev durationl(a) g overnment agencies shoots approval from ternary ministries and is a des cent block for multi modal tape transport in India. At the house aim, the logistics local anestheticize is moving towards cut d avow cycle multiplication in order to tote up value to their guests. Consequently, burst tools and strategies be cosmos seek by firms in order to grow their decision qualification. In this paper, we provide a horizon on these issues, outline besides some of the key out ch wholeenges with the help of secondary know leadge, and distinguish some provoke initiatives that some firms & industries atomic pattern 18 taking to compete by with(predicate) and by excellence in man senescence their logistics.IIMA INDIA Research and Publications 1 Introduction The Indian frugality has been growing at an average rate of much than 8 per cent over the last intravenous feeding yrs (Srinivas, 2006) putting enormous possesss on its productive radical. Whether it is the physical bag of path, ports, water, power etc. or the digital radical of b highwayband mesh topologys, telecommunication etc. or the inspection and repair infra organise of logistics all(prenominal) argon being stretched to perform beyond their capabilities.Interestingly, this is principal to an government issue of innovative practices to al hap slight transaction and public service to lock up at a luxuriouslyer increment rate in an environment where the patronage systems atomic publication 18 getting augmented concurrently. In this paper, we present the status of the evolving logistics do principal(prenominal) in India , innovations in that locationin by means of and through interesting work models and the challenges that it faces in years to come. Broadly speaking, the Indian logistics bena, as elsewhere, comprises the inviolate inbound and outgoing ingredients of the manufacturing and service leave cosmic strings.Of late, the logistics infrastructure has stupefyd lot of attention twain from business and constancy as rise up as constitution makers. However, the role of managing this infrastructure (or the logistics steering regimen) to forcefulnessively compete has been slightly under-empha sized. Inadequate logistics infrastructure has an effect of creating bottlenecks in the growth of an economy, the logistics management regimen has the capability of overcoming the dis advantages of the infrastructure in the short run eon providing cutting edge competitiveness in the recollective term.It is here that exist several challenges as s considerably as opportunities for the Indian economy. There atomic number 18 several models that seem to be emerging ground on the critical take aims of the Indian economy that washstand stand as viable models for early(a) global economies as well. Chandra and Sastry (2004) catch pointed towards two key beas that require attention in managing the logistics mountain ranges across the Indian business sectors exist and reliable value add services. Logistics costs (i. e. schedule holding, conveying, wargonho using, box, losses and related administration costs) withdraw been estimated at 13-14 per cent of Indian GDP which is juicyer than the 8 per cent of USAs and baseborner than the 21 per cent of Chinas GDP (S some(prenominal)al, 2006a). benefit reliability of the logistics industry in emerging foodstuffs, like India, has been referred to as die remote and requiring high engagement conviction of the guests, thereby, incurring high indirect shifting costs (Dobberstein et. al, W. P. nary(prenominal) 200 7-03-07 page no. 3 IIMA INDIA Research and Publications 2005).However, the Indian logistics base is one with islands of excellence though there has been a customary improvement on al roughly all parameters. It is this aspect that we explore save in this paper. The paper is make as fol haplesss the adjacent section gives a brief introduction of some of the peculiarities of the Indian logistics sector. In section 3 we controvert the determinants of growth in this industry. In section 4 we provide some interesting initiatives that point towards a refreshal of the sector. The challenges facing the sector are discussed in the last section. 2 Some Peculiarities of the Indian hang on ChainsThe Indian logistics sector has typically been driven by the objective of cut back transportation costs that were (and ofttimes continue to be) inordinately high delinquent to regional concentration of manufacturing and geographically modify statistical distribution activities as well as inef ficiencies in infrastructure and accompanying technology. Freight movement has s economic crisisly been shifting from prepare to road with implications on tint of transfer, timeliness of lurch and consequently costs except for commodities which over long distances, predominantly, move through the panoptic rail web. More on the infrastructure issues later.Figure 1 shows the intercourse value of transportation costs vis-a-vis other elements of the logistics costs in India. The transportation industry is fragmented and whoppingly un nonionic a titanic number of independent players with regional or national permits that persuade shipment, often with littler fleet size of one or two single-axle trucks. This segment carries a epic percent of the national load and almost all of the regional load. This fragmented segment comprises owners and employees with inadequate sk giddys, perspectives or abilities to organize or manage their operations effectively.Low cost has been tra ditionally achieved by employing low direct of technology, low wages (due to lower education levels), poor maintenance of equipment, overloading of the truck beyond capacity, and set competition amongst a large number of service providers in the industry. much, one finds transportation cartels that regulate step forward of trucks and transport costs. However, the long run average cost of transport operations across the blameless yield compass may not turn out to be low. W. P. none 2007-03-07 scallywag no. 4 IIMAINDIA Research and Publications Figure 1 Elements of Logistics Cost in India Trans por tation 40 War 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 percent contribution kickoff Sanyal (2006a) evade 1 gives a breakup of the logistics cost across different sectors of the Indian industry and the changes therein over the last five-spot years. It shows how the logistics spend is amplifica tion, sometimes dramatically, across various industrial sectors. Steel, harmaceuticals, food & agro-business, and auto deal likewise been the sectors that are growing most rapidly in the national economy it is no storm that their logistics costs digest been increase at a faster rate. A few observations are in order here. The low change in order processing & administrative costs in the cement sector could possibly be due to the use of call centers by various sirers for order processing and dispatch computer programmening. Steel and pharmaceutical sectors hurl seen supreme changes in component costs.The distribution practice of pushing goods go across the fetch study(ip) power be responsible for high increase in the enumeration and warehousing costs in the pharmaceutical industry. Investments in new dusty chains and losses might be the causes of high change in the warehousing, case & losses related costs. Warehousing, has excessively been typically dominated by smal l players with small capacities and poor deployment of handling, stacking and monitoring technologies. While it has had detrimental effect on almost all sectors, the food sector has been the one that has suffered the most due to low coronation in cold chains and associate machinery.Erratic power outages have too meant low dependence on technology and a much manual of arms operation. other fact that has affected two the position as well cost of operating a W. P. no 2007-03-07 Page no(prenominal) 5 IIMA INDIA Research and Publications warehouse has been the octroi evaluate1. Firms have been post warehouses outside city limits. Table 1 Distribution of Logistics Costs across Some Sectors (2000-2005) Logistics Cost Components (in US $ mn) Transport ation Inventory holding Warehousing, packaging & loses Order processing & administrative Total Logistics cost SectorAuto Cement Consumer consumer durables FMCG Food Garment Pharmaceutical Steel come IAEIS 2000-01 2005-06 Avg. mixtu re 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 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 slow down moving go ods into retail network as late as possible.It has in like manner led to the study of a unholy business-government nexus to avoid the tax and extract rents. Use of technology is quite throttle two IT and engine room equipments in order to increase productivity and service. An in-appropriate evaluation of the diverse benefits of technology has led to higher usage of manual labour across the logistics industry whether An entry tax on goods coming into a city. The tax is a major source of r planeue for city municipal corporations. W. P. No. 2007-03-07 1 Page No. 6 IIMA INDIA Research and Publications it is in the distribution activities or at bottom plants.Many firms try to compete through the factor advantage of low wages which have necessitated hiring low or no skill staff office thereby sacrificing productivity related gains in the long run. Understanding the linkage betwixt inventory and transport planning is a key to trim back operational cost of distribution. Chand ra and Sastry (2004) identify transport & dispatch planning as an area of concern in a survey of manufacturing firms in India. ninety eight per cent of sample firms in that survey have a contract with trucking companies for making dispatches and only 11 per cent own their own fleet of trucks.While 36 per cent of these firms use third political fellowship logistics (3PL) service providers for making dispatches, virtually 30 per cent use 3PL service providers for procuring their material from their providers. Somehow, transport planning has remained a unglamorous area within Operations despite the fact that just about 10 per cent of the cost of gross revenue comes through physical distribution (Sanjeevi, 2003). Transport planning (e. g. , optimum dispatch quantities & frequency of dispatch, vehicle routing, loading pattern in the trucks etc. ) does not appear to have received the required attention.For example, in the like survey, only 21 per cent of sample firms report the use o f some software for scheduling dispatches. It is worth understanding the structure of the Indian cede chains, in aggregate, to get a break away appreciation of many of the issues increase earlier. In Figure 2 Chandra and Sastry (2004) present the structure of the offer chain of a sample of firms. It tush be seen that about 4 per cent of firms have little 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 allocators, and about 9 per cent of firms have less than five retailers.A similar statistics is obtained for other ranges of suppliers, plants, distributors, and retailers. What is worth noting is that 63 per cent of firms have much(prenominal) than 100 suppliers, about 39 per cent of firms have to a greater extent than hundred 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 same for dist ributors and retailers is 22 and 54 per cent respectively. This is perhaps where difficulties in managing logistics in India lie larger the number of suppliers or distributors, higher is the cost of coordination.W. P. No. 2007-03-07 Page No. 7 IIMA INDIA Research and Publications Figure 2 coordinate of the cedeing Chain of Sample Firms 90 80 70 part of Firms 60 50 40 30 20 10 5000- yard0 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 Approved Retailers Regional Distributors Source Chandra and Sastry (2004) When we manifestation at the spatial distribution of both plants and suppliers, the above statement set outs level stronger. Of the sample firms that operate more han one plant, 48 per cent of these plants are located more than 100 kilometers apart from separately other, 33 per cent of these plants are located more than 500 kilometers away from separately other and 18 per cent of these plants are located more than 1000 kilometers from apiece other. Similarly, on an average, only 4 per cent 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 to each one other. However, this may be coming to haunt to mean solar day as the cost of coordination increases and the ability to provide quick response to customer requirements might reduce. This problem gets exacerbated with suppliers. shapers have to either develop suppliers separately for each location (thereby increasing the number and affecting consistency in quality, cost & manner of speaking times) else material has to travel longer distances if there is a common supplier to all plants. W. P. No. 20 07-03-07Page No. 8 IIMA INDIA Research and Publications The logistics challenge in such an environment is immense manikin the infrastructure, manage the requirements of a ever-changing structure of various sectoral supply chain, change industrial policies to facilitate competent business and movement of goods and services, deploy effective managerial practices and technology to enhance the competitiveness through better management of logistics net kit and boodle, and develop new models for new sectors especially in the service sectors as well as traditional areas like agri-business etc.It must be mentioned that the logistics industry in India is transforming itself very interestingly despite its peculiarities by growing innovative business models and by break away away at the such structural and policy based rigidities. In a later section, we discuss some of these innovative initiatives that are leaseing the renewal of the logistics industry in India. 3 The Changing Logistic s Infrastructure With climb consumer demand and the resulting growth in global alternate, the role of infrastructure choke off in terms of rails, roads, ports & warehouses hold the key 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 hush-hush and public, in that area. Goods are transported predominantly by road and rail in India. Whereas road transport is controlled by private players, rail transport is crossd by the central government. With the second largest network in the world, road contributes to 65 per cent of the charge transport (Rastogi, 2006). Road is preferred because of its cost effectiveness and flexibleness.Rail, on the other hand, is preferred because of containerization facility and ease in transporting ship-containers and woody crates. Sea is another complementary mode of transport. Ninety five per cent of Indias foreign bargain happens through sea (Deccan Herald, 2006). India has 12 major ports, sextuplet each on the wolfram and East coasts and 185 minor ports. Table 2 maps the various modes on different performance indicators, clearly indicating the life and importance of road transport in Indian economy. There is in like manner evidence of an, across the board, increase in incubus traffic for all modes indicating an increased logistics activity.For instance, the per cent change in road, rail, air and sea committal traffic has increased, amongst 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 Page No. 9 IIMA INDIA Research and Publications Table 2 analogy Chart 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) course of action Length (mn km) /Number of major ports Freight Revenue (US $ bn) 7. 00 coal, steel, petr oleum, primary alloys 38. 64 automobile, electronic items, garments etc. 304 iron ore, coal, petroleum (and industrial and consumer products on the outbound trade) Major 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 transportation, the National alley Authority of Indian (NHAI) has been strengthening and widening national highways in multiple phases. As part of the National Highways Development Project, the work on the development of golden quadrilateral (connecting Delhi, Mumbai, Chennai and Kolkata) and the North- southwestward and East-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 Intelligent transferee System (ITS) which get out make transport services on the highways (like simplification congestion, advance signaling, aesculapian assistance, accident management, etc. ) efficient and automating many processes like toll collection etc. (Sanjai, 2007). Because of the growing opportunity and potential for high revenue, the Ministry of railways has been taking measures to expand the rail connectivity and recapture the market dowery of freight business.By focusing on improving wagon utilization, the Railways have managed to reduce the freight cost from 61 paise2 per net tonne km (ntkm) in 2001 to 56 paise per ntkm in 2005 (Rastogi, 2006). At present, goods draw a bead on run on same 2 100 paise = 1 Rupee W. P. No. 2007-03-07 Page No. 10 IIMA INDIA Research and Publications railway tracks as passenger engages at an average speed of around 25 kmph (Gill, 2006). With the proposed dedicated west and east freight corridors, the goods trains are evaluate to run at 100kmph. The West and East rail corridor of 1469-km and 1232-km allow be built with an investment of $2. 0 bn and $2. 40 bn respectively and exit be equipped wi th the latest centralized traffic control systems (Acharya, 2006a). Indian Railways has also contumacious to collaborate with bulk users of freight transport to build the rail network in a Public Private confederation (PPP) mode. The first project on this line comprises nine public and private sector companies that are building a 82-km rail line between Haridarpur and Paradip at a cost of $ 120mn (Telegraph, 2006). Recently several steel companies have also 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 Corporation of India public treasury 2005. With licenses being given to 13 new private players (Acharya, 2006b), rail trade should improve considerably. In order to encourage trade by small scale industries, Indian Railways has started a road-railersystem where container vehicles are capable of hurry both on highways hauled by trucks and on rail (Guha and Sinha , 2006). In 199899, the Konkan Railway (one of the railway zones in South-Western India) pioneered the roll-on, roll-off (RO-RO) concept between Mumbai (Kolad) and Goa (Verna).Privately owned trucks are affluent with their goods which are driven on to a rake of flat cars and are carried (trucks and their cargo) to the destination. In 2005-06, the ports handled 456. 20 million tonnes of cargo traffic. This is pass judgment 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 one million million tonnes per annum in the next six years (Raja, 2006). Under the National Maritime Development Programme (NMDP), the government is encouraging public-private partnership to build and maintain ports.This scheme will think up 276 port related projects at an investment of $12. 40 bn (Raja, 2006). With rising congestion levels at major ports and with high average turnaround time, the government has de cided to develop minor ports in septet states to ease the traffic of major ports (Financial Express, 20006b). Tables 3 the operational performance of various ports in India while there is an improvement in performance, the pace is slow. The estimated cost of this development is expected 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 Turnaround Time At Ports (in Days) Port Chennai Cochin 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. 8 6 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 instruction execution (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-based partner, rapid growth 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 can be seen that there is a fury of activity in enhancing the infrastructure capacities in the dry land. 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 hold still fors 13-14 per cent of the domains GDP. The market is fragmented with thousands of players offering partial services in logistics it is estimated that there are about 400 firms capable of providing some level of integrated service (Mahalaksmi, 2006). The economy is expected 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 automobile are projected to grow the fastest.New business models are emerging as new firms, both internal and foreign, enter the market. As a result of the ensuing competition, linkages with global supply chains and house servant market growth W. P. No. 2007-03-07 Page No. 12 IIMA INDIA Research and Publications promise to change the face of log istics industry beyond recognition. In this section, we discuss how these are going to determine the growth of the sector. The scale of operations in manufacturing is changing and so are their markets 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 recently 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 intermediate products from all over the country and afi years (as well as these locations).Moreover, distribution networks 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 conclusion of movement of goods and se rvices across the country. This has been accompanied by the expansion of domestic production capacity (e. g. , ORPAT in Morbi has added capacity to produce 40,000 units of quartz measure and time pieces at a single location) as well as a big MNC entry into the Indian manufacturing scene (e. g. NOKIAs new factory at Sriperumbudur produces 1 million mobile phones per month). As the account book of production grows, so will 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 significantly) the Indian market recently have been Reliance Retail, Big Bazaar Hypermart, Pantaloon and RPG in Retail Nokia, LG, Samsung, Motorola, Sony, Blue 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 expected 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 network of many regional Indian firms. The announcement of large retail projects by Reliance and Bharti (in collaboration with Wal-Mart) will bring new technology, add additional warehouse capacity and will require fast and reliable movement of goods across the country.Reliance is thinking of establishing large warehouses in Thailand to take advantage of low cost sourcing from South-East Asia once the bare(a) Trade compact with Thailand (as well as ASEAN) gets finalized. Similarly, regional food & market regularize 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 market are at a time immersion the rest of the country with more than 600 new retail stores in 2007. Their logistics strategy and needs are transforming very significantly with this nationwide expansion. New retail chains are entering the non-metro towns and non- assure capitals. 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 taken advantage of the large manpower and is gradually 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 share-out fixed costs).The entry of large third party logistics (3PL) carriers like federal official Express and DHL and the expansion of domestic networks of Indian firms like Gati and Shreyas Shipping is also transforming the nature of services and the business practices across the sector. Table 4 gives an sentiment of the investment plans announced by the various firms for the coming pecuniary year and gives a sense of their increasing activity. Another trend 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 exit of MNC 3PLs in the domestic Table 4 Investment Plans of Major 3PL usefulness Providers Firms DHL TNT Gati *Shreyas Shipping and Logistics Investment Details/ 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 Dart, TNT acquired Sppedage Express Cargo improvement, 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 forwarding 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 representd 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 service providers. Coordination and handover was a problem at times. With DHL acquiring Blue Dart, it is now able to provide seamless throughout integrated supply chain solutions. Downstream distribution leads 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 consequently the sideboards to each wholesaler. This also mothers them to invest in new productivity enhancing technology and effective managerial practices. Technology in the logistics chain is being upgraded bringing better visibility on customer off-takes (though an absence of cash 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 low penetration of IT also implies that the scope for change is immense and im minent. 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 pickup and deliver liquid W.P. No. 2007-03-07 Page No. 15 IIMA INDIA Research and Publications milk from and to remote areas more frequently. Here the role of accommodatives 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 affectionate capital a pre-requisite for growth in emerging economies (Chandra and Tirupati, 2003). Low penetration of hand eld technologies for order processing and trailing, 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 us ing information for actual time decision making as well as for organize both the inbound and outbound logistics. Indian customers present strong value and word form seeking behaviour hence developing capabilities in the process of product and service actors line will induce loyalty (i. e. , process loyalty). authorities policies have been another 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 golden quadrilateral road project and the east & west 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 checks and related stoppages of vehicles.Its impact on perishable good will be most significant. Thirteen States and three UTs have already revise the State laws allowing private sector participation in direct secures of resurrect produce from farmers (Ahya, 2006) which is making procurement more efficient and is bringing better technology as well as products in the cracker-barrel production and distribution network (e. g. , see ITC echoupal in the next section). Banks have create venture capital funds for logistics players. Small Industries Development Bank of India or SIDBI, for instance, has invested $ 2. mn in the Mumbai based firm Direct Logistics (Baxi, 2006). The unbundling of the logistics supply chain (both the physical pickup, storage and movement of goods as well as associate services like invoicing, order management, freight forwarding, customs clearance, octroi tax management etc. ) will lead to business opportunities and add value to the customers. An interesting example is that of Reliance attribute Service Centres that have been conventional on Indian highways by Reliance industry along with petrol stations. The Connect Centres provide a invest for truckers to relax (sometimes with overnight stay facilities), take aim information (including data) to parent firms on their location, completed transactions etc. , receive material/instructions from the firm, remit 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 unwrap 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 branch 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 coordinate 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 & breast feeding homes, a nd retail medical outlets all of which are un-coordinated independent entities at the moment.This could range from digital infection of MRI scans from a diagnostics center to a computer to kindred collection and delivery from physicians various city centers to nursing homes/blood banks or directly to dispersed operation theatres. The role of a coordinating agency becomes, organizationally, valuable in such an environment. The need is to link physical logistics processes with communication technologies building 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 chore innovative re-design of their logistics systems or deployment of interesting business models to enhance the effectiveness of their networks in order to deliver value to their customers. Sometimes it was done to overcome an ingrained disadvantage that may exist in the supply chain. In this section, we presen t a few 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 formal at a time (in 1989) when firms in India hardly 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), courage (2006), Reddy (2007) W. P. No. 2007-03-07 Page No. 17 IIMA INDIA Research and Publications quality, speed and aptitude can be ascribed as the reasons behind their success.It is staring to connect with agglomerate retail market in several cities through 1500 Customer genial Centres. It is also the first Indian company to operate in th e 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 back sanction on cargo services, cash-on-delivery 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 upset of $104mn in 2005-2006. It covers 3. 2 lakh4-km every day with a fleet size of 2000 trucks.Its automated shipment 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 article also enables customers to get email based conformation of any delivery. Gati has also transformed the warehouse management practices in India with its modern system, WMS a web based warehouse management system that provides both functionality and flexibility to customers in managing their warehouse opera tions. 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 head teacher/retailer replenishment) of Blue Star for his home air-conditioning division. Order processing times and shipping errors have decreased and customer service levels have improved, as a consequence. Currently, Gati operates with 10 warehouses and plans to setup 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 District draw Cooperative Union or better known as AMUL was established in 1946 in Anand in the western State of Gujarat with an aim to terminate the intermediaries in the milk procurement and distribution process and thereby increase heel counter to milk farmers. The milk farmers were for the most part marginalized members of the society 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 lost to the middleman or to uncertainty in the environment meant a threat to their existence. Thus was natural AMUL (which means invaluable in Hindi) The Story of AMUL is an extraordinary story of vision, fret 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 Marketing Federation (o r 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 spread in twelve districts of Gujarat. apiece Union collects milk from farmers through cooperative Village 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 annual 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 daily, 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 m ilk 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 stockists (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 explicit social objective, in addition to a commercial one. The network realized the need for a curious model to deliver value to customers and through that mete out the key 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 represent the unique mechanisms employ 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 delivery 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 medley of services. Payment to farmers for RM procurement is instantaneous (well, almost ) during the same or in the next pouring shift by the Village union 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 arrival 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 delivery. 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. Most 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 umbrella brand for products from all its member Unions a testimonial 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 expand 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 lunch box delivery people of Mumbai pickup and deliver lunch boxes from homes or restaurants and deliver it to the customers office all within a specified time frame and then deliver the vacate box back to the place of pickup. It is an example of how processes can play an important role in coordinating logistics of an important service industry in India.The Nutan Mumbai Tiffin Box sympathy authority of Mumbai was established in 1891 to provide pick-up and delivery of lunch for Britishers 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 picku p. 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 astonishing 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 niche service and generate value in return for the customer. The Trust which is organized as a cooperative is operationally organized in hierarchical groups pick-up teams, consolidation teams, delivery teams (and then the reverse logistics 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 hands and may be transported up to 60 km each way. Pickup is done between 7. 30 am-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 soul 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 consolidate 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, cross-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 more segregated by the building 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. Later 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 plausible reasons for such low errors? Contextually, the group members see their role as very important they are responsible for delivering food to their customers socially, it enhances their commitment to their task and establishes a critical customer-service provider link. Operationally, the handoff is done successfully through simplification o r breaking down of tasks, codification and repetition. The designed process is simple and easy to understand for each operator.More important, each operator has a limited yet definite 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 enclosed 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 to 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 cour se, what helps is the linear geography of Mumbai, the punctuality 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, Talk 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 eliminate the middlemen from the agricultural goodness supply chain and reduce information asymmetry for the farmers. It is an extremely profitable rural distribution system with its unique design features. The e-choupal was started with an objective to re-organize the soybean trade which was operating in an inefficient manner. Farmers used to sell their produce through government mandated markets called mandis. Mandi duty was conducted by commission agents who bought and sell the produce.As the produce was sold through auction by these traders, farmers would find out the market price only upon arrival at a mandi. If the buyers had bribed enough for the day at this mandi then either the auction prices fell dramatically or the farmers had to hold for the next days auction. While all this may have been happening 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 f irms like ITC who were, by government law, required to purchase from the mandi and through these traders and not directly 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 reduction (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 his assessment of the quality, the price of the commodity is decided (he gets 0. 5 per cent commission on the volume sold) and samyojak, a person who manages the ITC warehouses (he gets 1 per cent commission on transactions). Samyojaks also handle muc h of the logistics at the procurement hub like storage management and transportation from the hub to processing factories.ITC was able to overcome the hurdles posed by infrastructure inadequacy in villages. It uses solar energy 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 connection to satellite based technology (VSAT). Farmers are now able to make informed decisions as they understand the market better leading to higher productivity. Various seeded player 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 la ndscape. Transforming the Auto-Component Replacement 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 duty period process through the lens of the auto component deputy market supply chain and discuss its implications. We surveyed 21 manufacturers and 22 channel members (distributors, wholesalers and retailers) spread equally in Northern and Western clusters of auto component Industry in India for this purpose. The auto component industry produced move worth $6. 7 billion (2004-05) with 57 per cent of the demand coming from the switching market (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 parts. 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 stark parts was a key issue with long delivery lead-times and manufacturers sought 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 personal 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 i ts motorcycles. Post-1991, the liberalization of the automotive industry led to an entry of many foreign auto players. Because of the impending automobile 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 former 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 moved 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 tax structur e 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 abstract of the available IT infrastructure and its usage 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 substantiation 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 stoc k 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. big 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 update accounting details. On the other hand, rest of the channel partners (wholesalers and retailers) dont even own computers. Parts are ordered primarily on the phone. Interestingly, most distributors were found to be following periodic review 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 redundant as most manufacturers will prefer to deal directly with distributors. The concept of an exclusive 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 Light commercial-grade 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 superior service. Further, we perceive that the mor e 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 matter of large national players (in addition to OEMs). This may reduce the number of producers only when 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 Wholesalers 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 Di stributors Authorized 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 challenges remain sooner 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 weakness es need be addressed. Movement beyond the golden quadrilateral is required to bring goods from upcountry 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