On the first of July, after a lot of excitement, confusion and concerns, GST has finally been rolled out all across India. The path breaking and highly anticipated tax reform which was in the works for at least a couple of decades is expected to greatly simplify the ease of doing business in a similar manner across the length and breadth of India. While the myriad of benefits due to GST and the complications that it entails in changing of systems and processes have been debated at length, the supply chain structural changes that it may necessitate have not been discussed at length as most companies are still waiting for the GST to be rolled out and give themselves some time for it to stabilise. This supply chain redesign along with the technological disruptions enabled by Omnichannel commerce opens up a big opportunity for brands and manufacturers to reinvent their long standing structures.
Indian FMCG and manufacturing industry has traditionally had a multi-tier CFA, dealer/distributor, wholesaler, and retailer network with the number of nodes increasing or decreasing depending on the size of the company and market presence in a particular geography. The previously existing excise and sales tax components meant that, the supply chain network was mostly designed to optimise tax outflows and not really the core value drivers of any supply chain which in an even playing field would be Cost of manufacturing, cost of procurement, labour and logistics costs. However, post GST, most companies have a real opportunity to relook their supply chains with a critical eye and design networks and nodes (factories, stocking locations, regional distribution centers) based on fundamental supply chain principles and not just to avoid tax. Hence we see a lot of big auto companies and FMCG Companies investing in big automated warehouses that are much larger and technically superior to their existing infrastructure.
The last few years have seen the massive growth of e-commerce and omnichannel in India both in the cities and the rural markets. Apart from the big marketplaces such as Flipkart and Amazon, most retailers have their own e-commerce sites, private marketplaces like Tata CliQ are present and also grocery sites like Bigbasket.com are getting increasingly popular in urban clusters. The ease of an omnichannel experience that the user enjoys by ordering on his mobile while he is on the move translates into some redesign of the traditional distribution networks and fulfilment strategies as well. India’s largest FMCG multinational has been running a programme where an end customer can order from his home in an app and a neighbourhood retailer shall fulfill the order.
A combination of the above mentioned two factors i.e. real supply chain optimisation made possible due to GST reform and Omnichannel commerce and fulfilment strategies mean that companies are thinking about reinventing their traditional structures. Traditional distribution management systems where sales and inventory details need to be synched up at scheduled time intervals are slowly getting replaced by mobile apps, portals and microsites where retailers or distributors in the lower node of the supply chain can order from the manufacturer directly or the CFA’s. The manufacturers also get better visibility making them more agile and can pass on the promotions and other schemes in a much faster manner. This will also lead to a more even battlefield for the small local brands to reach an all India market as they do not need to have stocking locations in every state . In contrast, the multinational and Indian majors who controlled the channels on virtue of their size (apart from brand pull) need to effectively nurture engagement and loyalty amongst their channel partners.
Business to business commerce in India, thanks to the two factors described earlier is expected to expect to get a serious facelift and the customer friendly aspects of business to customer are expected to be incorporated in the systems and processes of B to B as well. Clunky software products and file transfer protocols at the end of the day’s business and month end piling up of invoices to be printed will slowly give way to online ordering and mobile based collaboration and replenishment mechanisms as millennials increasingly make up the work force in India’s young working population.
The writer is general manager, strategic initiatives, Capillary Technologies