India’s high logistics costs an impediment to growth: CII-Arthur D Little report

A new report by Arthur D Little and the Confederation of India Industry (CII) highlights the need to bridge India’s high logistics cost, which comprise nearly 14 percent of GDP in India compared to 8-10 percent of GDP in the US and Europe. 

Titled ‘Reimagining India’s supply chain: A bold vision for 2030’, the report brings to light the roadmap for ensuring global competitiveness of India’s supply chain and the improvement required. It provides a glimpse of learnings from around the world and sets aspirations to achieve Vision 2030.

India’s supply chain and logistics sector is one of the largest globally, with a logistics industry of $215 billion, growing at a CAGR of 10.5 percent. However, despite the size and relative role in the country’s economic growth, the country’s supply chain faces several barriers to growth due to unbalanced logistics modal mix, high indirect costs, fragmented infrastructure and limited technology adoption.

Barnik Chitran Maitra, lead author of the report and Managing Partner of Arthur D Little India and South Asia said,“To bridge the current competitiveness gap of $180 billion, India needs to halve logistics cost from 14 percent of GDP to 7 percent. The supply chain industry in India needs to be reimagined and efforts need to be made to move towards creating an optimized and digitized logistics ecosystem, a delayered distribution system and a green, resilient and flexible supply chain. The reimagined supply chain will help realise the Honorable Prime Minister’s Atmanirbhar Bharat vision and supplement Make-in-India and Start-up India strongly, catering to the global supply chain.”

Top Findings of the Arthur D Little and the CII report 

• Supply chains are transforming globally by adopting Industry 4.0 trends including agile networks, disruptive technologies, end-to-end visibility, and risk mitigation vs risk management.
• India can benefit from the experience of mature economies, which have used emerging technologies such as artificial intelligence, blockchain, and the Internet of Things (IoT) to enhance supply chain operations and resilience.
• To make India’s supply chain competitive, efficient, and resilient, Vision 2030 aims to pare logistics cost to 7-8 percent of GDP, optimise the logistics modal mix, digitalise 90 percent of supply chain operations, develop omni-channels, move towards green supply chains and enhance skill development.

Thomas Kuruvilla, Global Board Member and Managing Partner of Arthur D. Little Middle East, added that, “To manage the supply and demand shocks in the supply chain, India needs to find new ways of doing businesses and bring innovation into their planning and operations. The report discusses at length international learnings that Indian supply chain leaders could take inspiration from.” 

Vision 2030
The report takes a long-term view of the Indian supply chain and sets five broad aspirations to achieve Vision 2030.

1. Optimise the logistics and warehousing network: Reduce logistics cost to 7-8 percent of GDP; optimize the logistics modal mix with roads constituting 25-30 percent, railways comprising 50-55 percent, and waterways accounting for 20-25 percent; reduce indirect costs to 20-25 percent; expand cold chain storage infrastructure
2. Hasten adoption of cutting-edge technology: Digitise more than 90 percent of the supply chain network; implement technologies such as artificial intelligence, blockchain, and the IoT
3. Restructure the supply chain: Build omni- channels and simplify supply chain network; ensure visibility; and collaborative planning
4. Enhance skill development and talent management: Senior management in organisations to become more comfortable with digital transformation, data analytics, and AI; develop cross-functional teams to facilitate supply chain decision-making.
5. Move towards a green supply chain: Move towards greener modes of transportation to reduce carbon footprint by 50 percent; use electric vehicles for deliveries, targeting a 50 percent electric fleet; optimise transportation routes; use biodegradable or recyclable materials for packaging and deliveries.

Harinarayanan S, a supply chain expert and facilitator of the CII-Supply Network & Procurement Forum, as well as one of the co-authors of the report, states, “A national supply chain taskforce with five working groups will focus on the crucial dimensions of supply chain operations across the sectors of relevance. These groups will meet monthly under the leadership of CII and Arthur D. Little to realise the aspirations set in the Vision 2030 report.”

The report also stressed upon the need to work towards creating an eco-friendly supply chain by using biodegradable or recyclable materials for deliveries and eliminating plastic to avoid environmental damage. In addition, it also highlighted the need to reduce supply chain wastage (agricultural produce, food products, damages) by 50 percent and build sustainable supply chains.