Supply Chain in India: Then and Now

The supply chain industry has become the backbone of modern-day businesses. Traditional and linear value chain models and archaic practices in the industry are fast changing. They are making way for revolutionary and cutting-edge new solutions and models that are infusing great efficiency and cost-effectiveness and driving tremendous value for businesses. Several factors are contributing to these revolutionary changes in the supply chain industry.

We interviewed one of the SCL mentors, Mr. P. Sreevathsa – Founder and CEO of Servify with over 20 years of experience in CX, technology and management – to take a closer look at the impact of each of these factors on the supply chain scenario in India in the past 10 years. Here are the key takeaways from the interview.

Impact of regulatory changes in India on the supply chain scenario

One of the major regulatory changes affecting the supply chain space in India has been the introduction of GST which standardises the tax regime across the country. These variations in tax rate (especially VAT and octroi) across states which led to widespread corruption and inefficiencies in the system, were eliminated as a result of such standardisation.

“The tax reforms have given the supply chain industry a big boost and have significantly impacted the supply chain on an end-to-end basis. They have brought about greater transparency and therefore, simplicity in the supply chain process-to-end basis. They have brought about greater transparency and therefore, simplicity in the supply chain process.”

They have enabled businesses to come closer to customers and ensure seamless experiences. For instance, all warehousing distribution for Mumbai would happen in Bhiwandi, Maharashtra in the pre-GST era as it is outside the city limits and so, saved octroi. With the tax reforms, businesses can maintain warehouses even within their own offices and better track them.

Changes in the service provider’s offerings and their impact on the supply chain scenario

The level of corruption and under-the-table dealings in this space in the pre-GST era meant no transparency in the process and made the costs unpredictable. For instance, octroi collection in Maharashtra every quarter was about Rs. 24,000 crores. However, this was estimated to be only around 25% of the actual-ideal collection. The remaining Rs. 75,000 crores were grey transactions happening across the value chain. This sort of corruption led to many so-called service providers to come into the system as consultants who would bribe on behalf of the large corporates.

“Standardisation in the tax regime removed these multiple layers of corruption and eliminated these middlemen in the garb of tax consultants, octroi consultants, recovery consultants, etc.”

The result has been large scale optimisation and higher predictability for businesses. Core service providers such as warehousing parties, supply chain branding partners, distribution company, etc. have been able to flourish.

The changing corporate supply chain and its holistic impact on the current supply chain scenario

Corporate players understand that they need to focus on the core of their business. As a result, the need for supply chain services and solutions by large corporates have reduced significantly except in cases where physical products are involved. For example, a large software company like Infosys does not need supply chain services but a pharma company like Sun Pharma still has a greater need for supply chain services even though it is not their core business activity; their core business is R&D and development of drugs while supply chain is something they need to run their business.

The influx of large corporate players, 3PL & 4PL players and several startups in the supply chain space that operate across the spectrum right from planning and design to warehousing, distribution, etc. and the significant standardisations over the last 10 years have enabled such companies (like Sun Pharma) to focus on their core business rather than getting into the supply chain and leverage the efficiency of these services.

“The fast-evolving business models which have shifted from fixed pay for services to pay-as-you-go models which have enabled corporate players to leverage the economies of scale for cost-efficiency.”

Corporates do not have to maintain fixed warehousing spaces (irrespective of usage) or be forced to transport only full truckloads to move materials or pay unviable and unreasonable prices to transport smaller quantities.

Digital transformation and it effects on India’s supply chain scenario

The other major transformation that has impacted the supply chain space in the past 10 years has been technology and digital transformation. Earlier, there used to be super stockists who bought large volumes of inventory from the corporate players and stored it in bulk in their warehouses. They would do the supply chain planning and warehousing. They then sell to sub-distributors who sold to sub-distributors and who, in turn, would sell to the city-level distributors or retailers. The retailer, in turn, would typically have a warehouse and maintain inventory to sell immediately to their customers when there is a demand. So, there were 3-4 layers of supply chain and each level paying the costs of supply chain services which ultimately is drawn from their margins.

Today, with the digital transformation and technological advancements, the retailer can actually access the virtual inventory available with the stockist, place the order on demand and remove the middlemen (who may be large corporates themselves). The retailers also do not have to maintain their own warehouses (with exceptions such as FMCG) and cut down on large amounts of supply chain costs. For instance,

“Asian Paints which earlier had 6 stockists, 180-200 distributors and 3000 + sub-distributors in the country has now gone down to 10-12 distributors in the country by leveraging technology.”

The realisation that customers are willing to wait for a couple of days to get the paint order and that the order can be directly sourced from the distributor or super stockist led the company to take this step. This has ultimately led to infrastructural changes.

The emergence of tech-led startups like Uber and e-commerce giants like Amazon have made it indispensable for traditional companies to look inward and make changes so as to remain competitive. This is because Amazon relies on technology-led efficiencies and has reduced the multiple layers of distribution and therefore, able to give competitive prices and huge discounts.

The challenges that persist in India’s supply chain industry and the way forward

One of the major challenges in the supply chain space in India has been the narrow investor focus and siloed interests on logistics and trucking. There is not enough investment in cutting-edge and next-gen solutions in warehousing, supply chain planning, software solutions, etc. The way forward for the supply chain industry to flourish is for investors to explore the multiple opportunities available for investment and support grassroots innovations to thrive.

“It is important for businesses to remain focused on their core business. However, if there are weak links in the supply chain, they will affect the core. So, they must solve for the weakest links in the supply chain, either through in-house solutions or by outsourcing it for economies of scale.”

The bureaucratic bottlenecks in getting permits and documents still remain. Standardisation also needs to come about in the licensing and documentation requirements in the supply chain space, similar to the standardisation in taxation.

Having seen these changes take place in India, Lumis Partners feels that this is the right time to start evaluating the Supply Chain startup ecosystem.

Thus, we have launched our 2 month long Fellowship program catering to early and growth stage supply chain startups called supply chain labs ( https://supplychainlabs.in/ ). This is our small contribution to the ecosystem, surely a lot more will be required for major disruption.

5 Signs Your Startup Is Perfect for Our SCL Programme

Lumis Partners , a global leader in the logistics and supply chain investment domain, recently launched India’s first supply chain acceleration programme called Supply Chain Labs. The vision of Supply Chain Labs is to empower and accelerate India’s cutting-edge and high-potential early-stage supply chain startups and thereby, develop a strong and resilient supply chain ecosystem in the country and revolutionise the industry and drive it towards unparalleled efficiency and growth.

About the Supply Chain Labs (SCL) Programme

Supply Chain Labs is a unique and cohesive programme that has partnered with MIT as the academic partner, YES SCALE, Yes Bank’s corporate innovation program as the corporate innovation partner and AWS as the technology partner. The supply chains startups that are selected for the programme gain access to:

  • The best-in-class resources – industry leaders, domain experts, mentors, angels and investors

  • A 2-week knowledge and capacity building opportunity at MIT’s Zaragoza Logistics Centre (ZLC), Spain

  • A series of incisive business, domain and commercial workshops led by mentors, investors, and corporates

  • Tailored mentoring

  • Access to Lumis Partners’ global partner networks

  • Dedicated bandwidth of Lumis Partners’ senior leadership team guidance after graduating from the programme for guidance and support.

By providing tailored support and access to such resources, Supply Chain Labs aims to support early-stage startups and their visionary founders to further hone their solutions, develop a competitive edge in the market, create extraordinary impact at scale and add tremendous value to all the stakeholders.

5 signs your startup is perfect for the SCL programme

The SCL programme is looking to partner with those startups that have the potential to create tremendous value for all stakeholders, including investors and enable them to refine their solutions and harness its full growth potential, creating a competitive and strategic edge in the market. To apply for the programme, you must be an early-stage startup with an MVP that you have already integrated inside the clients’ business either as a POC or at full scale, have at least 2 paying clients or ecosystem partners in place and have direct revenue models in the supply chain domain.

Additionally, if you fulfil any of the following criteria you should be encouraged to apply for the program (Important: Not fulfilling them is by no means an indication that you should not apply)

#1 You solve a problem in the supply chain sector

This is an obvious one. Your startup’s solution/ product should be rooted in the supply chain sector.

SCL programme not only supports the sub-sectors such as logistics, 3PL, e-commerce, trucking, etc. that have traditionally received a major chunk of the investments and attention. From our extensive research, we gauge that there exist huge gaps in investments in several other sub-sectors despite the numerous grassroots innovations happening across the length and breadth of the country.

If your solution/ product belongs to any of the following sub-segments, you are perfect for the SCL programme.

  • Supply chain finance

  • Next-gen supply chain technology and software solutions for improved cost-effectiveness, efficiency and end-to-end visibility

  • B2B procurement and distribution

  • Warehousing solutions

  • 3PL, 4PL, Maritime logistics

  • Trucking

  • Cutting-edge e-commerce supply chain solutions

  • Electric Mobility

#2 You are an early-stage startup with a cutting-edge solution, vision and passion

We are not looking for startups with traditional and linear models. Our vision is to collaborate with and accelerate those startups who have cutting-edge, highly innovative and next-gen solutions and models to offer, enable them to harness their full growth potential and attract the attention of financial and strategic investors.

We are looking to work with visionary startup founders and passionate teams who have the drive to solve complex and large-scale problems of global relevance and create extraordinary impact at scale.

#3 You are a startup digitising the value chain

Digitising the value chain creates end-to-end visibility, improves transparency by breaking silos and prepares businesses for industry 4.0. It has a great impact on the efficiency, costs and overall profitability of the business and the industry. So, if you are a startup that is digitising the value chains, especially those supply chains that are still operating in a very archaic manner, then you are perfect for the SCL programme.

#4 Your target clients are not just large corporates but SMEs too

Addressing global markets and leveraging global opportunities makes the startup exciting. However, it is not a necessary criterion for applying to the programme as India represents a large market opportunity in itself across all segments – large corporates and SMEs. If SMEs too figure in your target client list, then you are solving a problem that most other startups have hitherto overlooked. Our vision is to revolutionise the supply chain space in India and that will happen only if the large numbers of SMEs are also catered to.

#5 Your startup’s work is generating social impact

Are you fixing the challenges in the Agri supply chain? Are you looking to increase fleet utilisation of trucks, thus improving monthly incomes of truck drivers? Are you creating packaging solutions that are sustainable? Are you contributing to the well-being of the community in any other shape or form? For Lumis Partners, generating social impact has always been core to our philosophy. If you believe that your startup is aligned to this vision, you should be encouraged to apply.

The Inception of Supply Chain Lab

India’s supply chain sector has seen revolutionary changes and tremendous growth in the past couple of years. The industry valued is valued at $220 billion and as per World Bank forecasts, expected to grow at 10-15% annually and remain one of the top contributors to the national economy. Four key factors, we strongly believe, have put the supply chain industry on this rapid growth path:

  • Macro-economic changes including the ease of doing business.

  • Policy and regulatory changes like the implementation of GST, e-way billing, etc.

  • The accelerated development of technology and the digital transformation of business processes.

  • The rapid growth of the e-commerce industry in India which are heavily dependent on the supply chain.

The first two are push factors that caused major churn in the supply chain market, especially among large corporate players. These factors also pushed the players whose business models were rooted in and dependent on the Supply Chain to quickly responding to these major macro-economic and policy shifts with internal mandates to improve their company’s supply chain efficiency and usher in cost-effectiveness with newer models.

The newly churned markets required cutting-edge business models and innovative solutions that infused a great level of efficiency, accuracy and cost-effectiveness in the supply chain. And technology has been a great enabler for doing so. Accordingly, several startups – new and existing – came up with cutting-edge innovations in the supply chain industry, especially for the B2B space. The last factor has been a major pull factor for logistics and supply chain startups to enter and thrive in the B2C space.

Despite these rapid changes and growth of the supply chain industry, two problems still persist:

  1. The larger corporate players are not aware of the several grassroots innovations happening in smaller startups and as a result, a large gap exists in the investments in the supply chain industry. Barring few sub-sectors like 3PL, E-commerce, trucking, etc. which receive maximum investments and attention, the rest of the sub-sectors like maritime logistics, electric mobility, etc. are severely underinvested in. Overall, the industry is underinvested in by financial and strategic investors and in many cases, the investments go to traditional and linear models.

  2. The contribution of the cost of logistics to GDP is at 13-14% in India in comparison to the 8% contribution in developed countries. This means that there is still scope for a great improvement in the supply chain industry.

Supply Chain Labs: Envisioning Unparalleled Efficiency and Growth in The Supply Chain Sector

In the above context, Lumis Partners, an operating investment firm and a leader in the logistics and global supply chain investment space, engaged in extensive research and experiments to get a deeper understanding of the situation and find effective solutions to bridge the gaps.

Accordingly, Lumis Partners launched India’s first supply chain Fellowship programme – Supply Chain Labs ( Supplychainlabs.in ) with the vision of powering India’s supply chain sector to unparalleled efficiency and growth through the acceleration of high-potential early-stage startups operating in this space.

Supply Chain Labs ( Supplychainlabs.in ) is a unique and cohesive programme to support high-potential, early-stage startups with unique solutions and cutting-edge models in the supply chain domain to fully harness their growth potential and add tremendous value to all their stakeholders. This first-of-its-kind programme in India has strategic partnerships with MIT as the academic partner, YES SCALE, Yes Bank’s corporate innovation program as the corporate innovation partner and AWS as the technology partner and is aiming to develop a strong and resilient supply chain ecosystem in the country.

Lumis Outlook

Lumis Partners is a global leader in the logistics and supply chain investment space that is committed to supporting and partnering with visionary founders who share its passion for solving complex problems with global relevance and creating extraordinary impact and tremendous value at scale. We are not a traditional VC firm and strongly believe that the relationship between startups and investors must be a two-way process, not a one-way street. We fully understand the need for tailored handholding support and a strong ecosystem for startups to thrive and flourish. Supply Chain Labs, therefore is a formalized way for us to support India’s cutting-edge supply chain startups.