Contents

Contents .....................................................................................................................................................................0
List of Figures:.............................................................................................................................................................1
Problem Statement and overall goal for India ...........................................................................................................3
Supply Chain in India ..............................................................................................................................................7
Challenges & Issues ................................................................................................................................................8
Highly concentrated logistics flows ....................................................................................................................8
Logistics Infrastructure .......................................................................................................................................9
Roadways............................................................................................................................................................. 10
Railways ....................................................................................................................................................... 12
Airport ......................................................................................................................................................... 13
Seaport ........................................................................................................................................................ 14
Inland Waterways ........................................................................................................................................ 15
Warehousing Industry ................................................................................................................................. 17
Third Party Logistics..................................................................................................................................... 19
Case Study: ...................................................................................................................................................... 21
Whole Sale and Mom and Pop Stores Model in India ............................................................................. 21
Cold Chain Industry ..................................................................................................................................... 24
Supply Chain in India ........................................................................................................................................... 27
Challenges & Issues ............................................................................................................................................. 28
Highly concentrated logistics flows ................................................................................................................. 28
Logistics Infrastructure .................................................................................................................................... 29
India: The Vision ...................................................................................................................................................... 30
Road Map Engineering ........................................................................................................................................ 34
Government Policies ....................................................................................................................................... 34
Goods and Service Tax................................................................................................................................. 34
Make in India ............................................................................................................................................... 35
Vision ....................................................................................................................................................... 35
National Investment & Manufacturing Zones (NIMZ): ............................................................................ 35
Simplification of Regulatory Environment .............................................................................................. 36
E Governance............................................................................................................................................... 36
Foreign Direct Investment ............................................................................................................................... 36
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Recent Policy Measures............................................................................................................................... 36

Incentives..................................................................................................................................................... 37
Manufacturing Revolution............................................................................................................................... 38
Leverage Intermodal Connectivity for an Interconnected Supply Chain 2050......................................... 38
Leveraging the Previous Plan to achieve International Intermodal Connectivity 2030 to 2050 .............. 42
Use the Dessert Land to place Dry Ports for Active Consolidation 2030 ................................................. 43
Taking Advantage of the Present Models and Infrastructure: ........................................................................ 46
Regional Warehouses: Platform to design interconnected supply chain ................................................... 46
Mom and Pop Model: A boon in interconnected Supply Chain Model ...................................................... 49
Mom and Pop Stores in coalition with E-Commerce .................................................................................. 51
Cold Chain in India: The Future ....................................................................................................................... 54
The Future: Third Party Supply Chain Solution Firms ...................................................................................... 54
Summary.................................................................................................................................................................. 56
References ............................................................................................................................................................... 57

List of Figures:
Figure 1: Population Growth Table ............................................................................................................................3
Figure 2: Population Growth Prediction .....................................................................................................................3
Figure 3: State wise Population Density .....................................................................................................................4
Figure 4: Life Expectancy, Indian States .....................................................................................................................4
Figure 5: Population Pyramid 2014 ............................................................................................................................5
Figure 6: Population Pyramid- 2020 ...........................................................................................................................5
Figure 7: Population Pyramid 2050 ............................................................................................................................5
Figure 8: India - Economic Projections .......................................................................................................................6
Figure 9: Supply Chain in India ..................................................................................................................................8
Figure 10: Logistics Network ......................................................................................................................................9
Figure 11: Freight Transport on Road ..................................................................................................................... 10
Figure 122: Picture of 1109 Truck in India............................................................................................................... 11
Figure 13: Tons transferred through railways Figure 14: Railways total route ................................................... 12
Figure 15: Railway Network Map ............................................................................................................................ 12
Figure 16: Major Airports in India ........................................................................................................................... 13
Figure 17: Major Seaports in India .......................................................................................................................... 14
Figure 18: Indian Ports vs International Ports ........................................................................................................ 14
Figure 19: Inland Waterways India ......................................................................................................................... 15
Figure 20: Trade Share on Inland Waterways ......................................................................................................... 16
Figure 21: Distribution of Logistics Spend ............................................................................................................... 17
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Figure 22: Warehouses in Chandni Chowk (10sq km) area in Delhi Source: (Google Maps, 2015) ........................ 18
Figure 23 Evolution of Logistics Source: [ (KPMG, Logistics Game Changers:, 2013), p.44] ................................... 20
Figure 24: Non-Standard Trucks .............................................................................................................................. 20
Figure 25: Business Model of Mom & Pop Stores ................................................................................................... 22
Figure 26: Typical Mom & Pop Store ....................................................................................................................... 22
Figure 27: Congested Traffic in India ....................................................................................................................... 23
Figure 28: Congested Traffic in India ....................................................................................................................... 23
Figure 29: Poor Material Handling in India.............................................................................................................. 24
Figure 30: Poor Material Handling in India.............................................................................................................. 24
Figure 9: Supply Chain in India (ATKearney, 2013, p. 6).......................................................................................... 27
Figure 10: Logistics Network (McKinsey, 2014, p. 11) ............................................................................................. 28
Figure 11: Freight Transport on Road (McKinsey, 2014, p. 12) ............................................................................... 29
Figure 31: Future Logistics Infrastructure (KPMG, Logistics Game Changers:, 2015, p. 6) ..................................... 31
Figure 32: Impact of GST (Indirect Tax Professionals, n.d.) ..................................................................................... 32
Figure 33: Progress Plan-Interconnected Supply Chain in India.............................................................................. 34
Figure 34: Geographical location of Steel, Auto Components and Automobile Industry (www.ibef.org, 2015) ... 38
Figure 35: Automobile Clusters in India, source: (www.ibef.org, 2015) ................................................................. 38
Figure 36: Growth Projection for India's Auto Industry (Kearney, 2015) ................................................................ 39
Figure 37: National Waterways ............................................................................................................................... 42
Figure 38: Current Logistics Network through road ................................................................................................ 43
Figure 39: Delhi Mumbai Corridor
Figure 40: Rajasthan, India .................... 44
Figure 41: Proposed Export Oriented Logistics ....................................................................................................... 45
Figure 42: Dry Port................................................................................................................................................... 45
Figure 43: National Highway Network of India ....................................................................................................... 47
Figure 44: Regional Distribution Web ..................................................................................................................... 48
Figure 45: Whole Sale Stores in Chandini Chowk (Google Maps, 2015) ................................................................. 50
Figure 46: Mom & Pop Stores in Chandini Chowki (Google Maps, 2015)................................................................ 50
Figure 47: Proportion of organized and unorganized retailing ............................................................................... 51
Figure 49: Retails-things to do (KPMG, 2015) ......................................................................................................... 52
Figure 50: Coalition of E commerce and Mom & Pop Stores .................................................................................. 53

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Problem Statement and overall goal for India

India is the second largest nation by population in the world and its yearly growth rate in the last 20 years was
between 1.22% and 1.93%. As seen from the table below, Indias population almost doubled since 1980 and
projections show, that in 2030 India will overtake China in terms of largest population, having 1.8 billion
inhabitants. (Worldmeter, 2005)

Figure 1: Population Growth Table

(Worldmeter, 2005)

Figure 2: Population Growth Prediction

(Imgarade, 2015)

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Figure 3: State wise Population Density

(Wikipedia, 2015)
The above map shows the population density distribution across the states of India. The map below shows the life
expectancy distribution across states. Both the maps together predicts the demand center in the future India.

Figure 4: Life Expectancy, Indian States

(Wikipedia, 2015)

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The Population pyramid shows the proportion of a population in different age group and therefore gives a good
directive towards the available of working class in the country. The following pictures shows the population
pyramid of India in 2014, 2020 and 2050.

Figure 5: Population Pyramid 2014

(Index Mundi, 2015)

Figure 6: Population Pyramid- 2020

(Yang Ziyang's Digest, 2015)

Figure 7: Population Pyramid 2050

(Imgarade, 2015)

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This immense growth rate represented a huge challenge for India in the past and will be even more challenging in
the future. The Government of India has to make sure that the economy and the infrastructure is capable of
providing sufficient employment and wealth so that the growing demand expectations of the population for food,
healthcare etc. can be fulfilled.
Achieving this basic goal for such a huge population is challenging as shown by a report of the United Nations
World Food Program. The proportion of undernourished people in India is still 17% and the poverty rate is 29.5%.
Although both figures went down from 21.5% (2004-06) to 17.0% (2011-13) and from 38.2% (2009-10) to 29.5
(2011-2012), the absolute numbers are still serious due to Indias huge population. (United Nations World Food
Program, 2015)
The Government is aware of these challenges and defines its goal to put India on a world map as a Manufacturing
hub. Therefore creating new, better, higher paid jobs for the growing population and give them the opportunity
to earn for their own living and provide everybody with sufficient nutrition and health care support. Additionally
the demand of the growing middle class for high quality food, which requires an efficient cold supply chain, must
be fulfilled. (Department of Industrial Policy & Promotion, Ministry Commerce and Industry India, 2015)
Following the Chinese example, this growth is mainly based on exporting products to the whole world. The basic
roadmap of the GOI contains improving the business environment, enabling manufacturing and opening up
foreign direct investment in key sectors. (Department of Industrial Policy & Promotion, Ministry Commerce and
Industry India, 2015)
Below are some of the key economic projections for India:

Figure 8: India - Economic Projections

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This report analyses how India can achieve its goal to become a global manufacturing hub and focuses on the
needs of global supply chains, which must be met in order to become more attractive to international companies.
We will go beyond the scope of current supply chains, which are normally owned by a single company and consist
out of a system of factories, warehouses and distribution centers - all used only by that particular company.
Instead, our analysis is based on the vision of interconnected supply chains, in which companies use open
warehouses, distribution centers etc. as services, which result overall in reduced cost, more flexible supply chains
and higher customers satisfaction.
This new supply chain requires infrastructure that is significantly different from what is required by the current
supply chain. Taking into consideration Indias huge investments into its currently underdeveloped infrastructure
in the next couple of decades, this situation is a huge opportunity to build up the infrastructure based on the
concept of shared distribution and transportation channels. As a result of doing so, India will be able to get ahead
of the game when it comes to harnessing the benefits of the Physical Internet.
The first part of the report will give a brief overview of the current situation in India from a supply chain
perspective and is the foundation for the following analysis. We will analyze the current infrastructure and its
conduciveness to incorporate the physical internet. We will highlight certain situations that are typical to India
like the dominant Mom & Pop store retail model and analyze their benefits and drawbacks.
The next part of our report will present our vision of India and how implementing the interconnected supply chain
can help us achieve it. This would include building a roadmap of the steps necessary for building an interconnected
infrastructure in India. We will look into some of the projects and government policies that are in the pipeline and
the potential impact they will have on the implementation of the physical internet. Additionally, we will look at
some of the ways that we could tackle the shortcomings highlighted in the preceding analysis.

India: The Present Picture

Supply Chain in India
The supply chain of India has developed over years and the current supply chain of India plays a very important
role in the growth of India. The massive size of the country and uneven distribution of resources and industries
across the nation demands for a very robust supply chain. The following picture summarizes the present state of
supply chain in India. Though, the domain has not experienced the required technological excellence yet, the
major industry players have realized the role of this domain in the success of the business and have started
investing and fostering supply chain in India.

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Figure 9: Supply Chain in India (ATKearney, 2013, p. 6)

Logistics Sector
Indias logistics sector is poised for an accelerated growth, led by GDP revival, ramp up in transport infrastructure,
e-commerce penetration, impending GST (Goods and Service Taxes) implementation, and other initiatives like
Make in India. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth.
Moreover, infrastructural bottlenecks that have stifled sectors growth and promoted inefficiency are being
addressed by the government. However, currently the logistics sector faces a number of challenges and issues
which are implemented in the next section. (Financial Express, n.d.)

Challenges & Issues

At present, there are numerous challenges and issues thats acting as the bottleneck in the development of India.
In this section we have made an attempt to document all those challenges. The interconnected supply chain can
be established on platform that could overcome all these challenges.

Highly concentrated logistics flows

Seven long-haul corridors of Indias logistics network account for over half of total freight traffic flow in the
country. National highways along these corridors handle 40 per cent of road freight traffic even though they are
less than 0.5 per cent of the Indian road network. Similarly, rail links on the corridors account for 27 per cent of
the Indian rail network but handle over 50 per cent of rail freight traffic in the country.

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Figure 10: Logistics Network (McKinsey, 2014, p. 11)

Logistics Infrastructure
Indias infrastructure is in general in a critical condition. It is ranked 87th in the world by the Global
Competitiveness Report 2014-15 of the World Economic Forum and is stated as the fourth most problematic factor
for doing business after access to financing, tax rates and foreign currency regulations. Taking a closer look at the
logistic infrastructure, especially the quality of roads (rank 76), of port infrastructure (rank 76) and air transport
infrastructure (rank 71) are ranked low. The quality of railroad is ranked 27th and the quality of electricity supply
is ranked only 103rd, which is especially problematic in terms of cold supply chain. (Global Competitiveness
Report, 2014-15, p. 211)
Around USD 45 billion is lost each year due to inefficient and overstretched logistics network. As per a McKinsey
report, poor logistics infrastructure in India costs the economy an extra USD 45 billion or 4.3 per cent of GDP each
year. Also, statistics show that Indias current infrastructure is already over-stretched. As per McKinseys
projection, Indias freight traffic is likely to more than double from current levels by 2020. Most of the national
highway network and rail links along the Golden Quadrilateral and North-South and East-West corridors are
congested. Many large ports are already operating at very high utilization rates. A 2.5 times increase in freight
traffic in the next decade will put further pressure on Indias logistics infrastructure. Inadequacies in Indias
logistics infrastructure could render less competitive on account of higher transit times and lower reliability.
However the quality of railroads is significantly ranked higher than of roads, Indias freight transport is dominated
by road (Figure 11). In comparison to other countries such as China or the USA, India does not exploit modespecific opportunities of cost savings or smaller CO2 emissions. The road has a share of approximately 57% of all
ton-km, whereas rail has only 36% followed by 6% water and less than 1% by air.

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Figure 11: Freight Transport on Road (McKinsey, 2014, p. 12)

While in absolute terms, as per Government of India analysis, India spends 13-14 per cent of GDP on logistics
which is more than what the US (9.5 per cent) and Germany (8 per cent) spend. As per Wikipedia stats, USA,
Germany, and India are ranked 1st, 4th and 10th respectively on the basis of GDP. This makes it clear that, Industry
spend on logistics in India is lowthe relative spend is high. Also, rail and coastal shipping costs in India are
approximately 70 per cent higher than those in the US. Likewise, road costs in India are higher by about 30 per
cent. This not only results in higher prices and lower competitiveness, but also hampers economic growth.
Having this overview, the following paragraphs will give more detailed information about the conditions of the
different types of infrastructure.

Roadways
As stated above, roads continue to constitute the most significant component of Indias logistics industry, although
the road infrastructure is underdeveloped. In 2012 the total length of the road network was 4.7 million km, of
which 4,455,511 km (96%) were district, rural or other roads, followed by 163,898 km (3%) of State highways and
only 70,934 km (1%) of National Highways. Additionally approximately only half of the total length is paved and
40% of the total road traffic is running over the national highways, so that the road freight is highly
condensed. Therefore it is not surprising that the road network is behind the world average and that the average
truck speed is with 30-40 km/h only half of the global average of 60-80 km/h. (KPMG, Logistics Game Changers:,
2015) p. 32, 33; (National Highway Authority of India, 2015)
The GOI was aware of it and therefore launched the $13 billion National Highway Development Program (NHDP)
in 1998 in order to build 50,000 km of new highways. The NHDP contains 8 sub-programs of which the golden
quadrilateral - connecting Delhi, Mumbai, Kolkata and Chennai- and the North-South (Srinagar-Kanyakumari) and
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East-West-highways (Porbandar-Silchar) are probably the most important ones. The other highways connect
smaller cities and ports to these major highways. Currently 22,000 km of the almost 50,000 km are already
constructed. (National Highway Authority of India, 2015)
Other characteristics of the Indian road freight transport industry are the high fragmentation and that its capacity
is mainly based upon light commercial vehicles (LCV) (see Figure 12). 70-75% of the trucking companies own less
than 5 trucks, 15-20% of the companies own between 5 and 20 trucks whereas only 9-11% own more than 20
trucks. Of the total trucking capacity, it is estimated that 47 percent is constituted by a fleet of 2.6 million LCV
(up to 3.5 tons), the rest largely belonging to medium and heavy CV (more than 3.5 tons) category constituting
2.8 million vehicles. (KPMG, Logistics Game Changers:, 2015) p. 35

Figure 122: Picture of 1109 Truck in India

Figure 13: Highways Network (National Highway Authority of India, 2015)

Both, the disaggregated ownership as well as the low cost of entry results in intense competition and low freight
rates. The lack of differentiation makes it easy for consumers to switch, resulting in even higher consumer
bargaining power. Thereby reducing the profit margin and the investment capacity of truck operators resulting in
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high average age of trucks and limited adoption of technology as tracking and fleet management. (KPMG, Logistics
Game Changers:, 2015) p.35 ff., (KPMG, 2010) p.7 ff.
The effect of the slow moving trucks, the small regional trucking companies and the small trucks is that larger
companies face a lack of strong logistic provider. Additionally they have to operate under high uncertainty due to
the longer lead times (low speed, interstate tax controls) and the low reliability of the old trucks. Moreover freight
in India normally is not palletized, in order to minimize waste of vulnerable space. These circumstances are
especially a problem for international companies, which want to enter the Indian market.
Railways
Indias railway network is the second largest in the world under one management and the largest network in Asia.
Its total length is 109,000 km. In 2014 Indian Railways moved freight of 1,058.81 million originating tons and
666,000 million net tons km. As seen from the following figures, the tons originating increased by a factor of 5
since 1980 whereas the total length of the network increased only by 4000 km during the same time period,
resulting in major congestion and a low average speed of 25 km/hr. for freight trains, which is also represented in
the small percentage of only 36% of the total tons km moved in India. (IndianRailways, 2015)
The GOI therefore initiated the dedicated freight corridor (DFC) project, which contains out of 6 railroad corridors
traversing the whole country. Currently only 2 of the 6 freight corridors with 3300 km are under construction: the
Western DFC connecting the states of Haryana and Maharashtra, and Eastern DFC connecting the states Punjab
and West Bengal. (Dedicated Freight Corridor Cooperation of India, 2015)

Figure 13: Tons transferred through railways

(IndianRailways, 2015)

Figure 14: Railways total route

(IndianRailways, 2015)

Figure 15: Railway Network Map

(Wikipedia, 2015)
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Airport
In 2011 all Indian airports handled 2.3 million tons, which is relatively small compared to other airports such as
the airport of Shanghai, which handled alone 2.6 million tons during the same period. However the air freight is
growing fast by 10.3% to 5.9 million tons until 2020. of the total cargo is international and is concentrated in
Mumbai, Delhi, Chennai, Bengaluru and Hyderabad.
Next to these major airports, II-tier-airports grew even faster with 14.5% annually compared to 10.5%
between2006-2011. (KPMG, Logistics Game Changers:, 2015) P. 10 ff.

Figure 16: Major Airports in India (KPMG, Logistics Game Changers:, 2015) p.14

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Seaport
90% of the volume and 70% by value of Indias international trade is covered by seaports. India has 13 major ports
and 60 non-major ports. The biggest port by cargo handled is Kandla with 87 million tons whereas the biggest
container port is Jawaharlal Nehru Port with 4.1 million TEU. (Indian Port Association, 2015)
At 51 percent, the containerization level in India continue to fall short of that in developed countries, which have
achieved significant levels of 7080 percent. Moreover the west coast of India is very shallow so that the ship size
is very limited by the depth of the sea. The east coast is more deep although here again only very few ports have
a maximum depth of 16 m, which is just enough for the largest containers ships today. Additionally Indian ports
underperformed in global comparison as it can be seen from the next figure. As a result major shipping routes
currently bypass India. (KPMG, 2013) p. 21 f.

Figure 17: Major Seaports in India

Figure 18: Indian Ports vs International Ports (KPMG, 2013) p. 23

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Inland Waterways
Current Situation (India, 2015)
India has about 14,500 km of navigable and potentially navigable waterways of which around 55% is used
regularly. Inland waterways in India consist of the Ganges (Ganga)BhagirathiHooghly Rivers, the Brahmaputra,
the Barak River, the rivers in Goa, the backwaters in Kerala, inland waters in Mumbai and the deltaic regions of
the Godavari -Krishna rivers. About 44 million tons of cargo is moved annually through these waterways using
mechanized vessels and country boats. Inland Waterways Authority of India (IWAI) is the statutory authority in
charge of the waterways in India. It does the function of building the necessary infrastructure in these
waterways, surveying the economic feasibility of new projects and also administration and regulation.
Currently 6 different National Waterways are recognized by the IWAI as follows:
National Waterway #
National Waterway-1
National Waterway-2
National Waterway-3
National Waterway-4

National Waterway-5

National Waterway-6

River System
AllahabadHaldia stretch of the GangesBhagirathi
Hooghly river system.
Sadiya Dhubri stretch of Brahmaputra river
Kottapuram-Kollam stretch of the West Coast Canal,
Champakara Canal and Udyogmandal Canal.
KakinadaPondicherry stretch of canals and the
Kaluvelly Tank, Bhadrachalam Rajahmundry stretch
of River Godavari and Wazirabad Vijayawada stretch
of River Krishna.
TalcherDhamra stretch of the Brahmani River, the
Geonkhali - Charbatia stretch of the East Coast Canal,
the CharbatiaDhamra stretch of Matai river and the
Mangalgadi - Paradip stretch of the Mahanadi River
Delta.
In Assam, Lakhipur to Bhanga of river Barak.

(Wikipedia, 2015)

Figure 19: Inland Waterways India (India, 2015)

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Length
(KMs)
1620

Estd
Oct-1986

891
205

Sept-1988
Feb-1993

1095

Nov-2008

623

Nov-2008

121

Dec-2013

Major trade through the Inland Waterways include bulk goods like iron ore, coal and chemicals:

Figure 20: Trade Share on Inland Waterways (India, 2015)

Challenges and Scope:

Currently Inland Waterways in India is heavily underutilized, from the reports we could access we found that just
about 0.15% (India, 2015) of the total trade moved domestically in India is through the Inland Waterways. There
is a great scope for the improvement. We identify that in order to be globally competitive with respect to the
cost of manufacturing, India needs to do a radical shift from its current share of roadways to a balanced modal
mix of railways and waterways. If Inland Waterways can be utilized to its fullest potential, the throughput in the
cargo movement can be increased drastically. This would help the country to achieve a higher economies of
scale which would in turn bring the logistics cost of the nation. Currently India spends about 13% of its GDP into
logistics which is relatively much larger than the USA, EU and China.
Further with a rapidly growing population in India, Inland Waterways would reduce the congestion on the roads.
Inland Waterways are cleaner, requires much less capital investment and has a significantly lower operational
cost as compared to all the other hinterland modes of transportation like roads and railways. Inland Waterways
would be a great resource for a long leg (>500KM) cargo transportation. We found that the ratio for the cost of
transportation per KM is 1 to 5 for Waterways and Railways respectively and 1 to 8 for Waterways and
Roadways respectively (Youtube, 2015). This explains that there is huge cost benefit if we adopt Waterways as a
major mode of transportation with a right mix of other modes.

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Warehousing Industry

The size of the Indian warehousing industry is about INR 560 billion (excluding inventory carrying costs, which
amount to another ~INR 4,340 billion).
The industry is growing at over 10% annually.
India spends around 14% of its GDP on logistics.
The distribution of spend on logistics along with its distribution across multiple business models exist within
the warehousing industry. The key segments can be represented as:

Industrial/Retail warehousing: accounts for ~55% of the total market

Container Freight Stations / Inland Container Depot: ~14% share
Agri warehousing: 15% share
Cold stores: ~16% share[Source: (EY Analysis, Crisil Report on Warehousing, 2013)]

Figure 21: Distribution of Logistics Spend

[Source: (EY Analysis, Crisil Report on Warehousing, 2013), p.8]

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Challenges to development of the Warehouse Industry

Strategic challenges:

Infrastructure: An efficient warehousing operation hinges critically on good connectivity. The total share of
organized warehousing space is less than eight per cent of the total warehousing space in India. The industry
is fragmented and largely unorganized and is dominated by small players with bad connectivity and small
capacities.
Land availability: As a result of lack of classification of land in Indian cities, as well as increase in land prices
even in the fringe of cities has made development of warehouses a difficult operation. In addition, different
states having different rules regarding agricultural land acquisition, create further entry barriers and have
serious cost and time implications.
Lack of standardization: Currently, there does not exist any standard for warehouse development in India.
This has been further complicated by different clients requiring specific needs due to lack of standardization
in packaging and storage. The current warehouses layouts have made upgrade in terms of technology
compliance or accommodating automated equipment difficult.
High cost of credit: Access to timely credit at a reasonable cost is one of the most critical problems faced by
this warehousing sector. The main reason for this has been the high-risk perception among banks about the
unorganized nature of this sector as well as the inability of small or medium entrepreneurs that are mainly
present in this sector to provide collateral to avail of loans from banks.
Fragmented market with unorganized players: Economies of scale cannot be exploited due to the fragmented
nature and large number of small players in the warehousing sector in India. All over the world, cold-chain
service providers have large fleet sizes and big warehouses with state-of-the-art technology. So far, the
current practices of fleet ownership and other policies in India have not encouraged large ownership of fleets
resulting in stunted development of the cold supply chain.

Figure 22: Warehouses in Chandni Chowk (10sq km) area in Delhi Source: (Google Maps, 2015)
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Power outages: Power outages are a major problem currently plaguing cold chains leading to a huge wastages
of agri-products every year in India. The increasing cost of power adds further to the warehousing cost for
agri-products.
High costs due to long transit time: Longer transit time and inadequate infrastructure also increase
transportation costs. This leads to collection of material directly at mini-warehouses distributed across
locations thereby defeating the purpose of augmentation and distribution.
Complex tax regime: The delay in the implementation of GST and the existing complex sales and transport
tax system tends to discourage the establishment of a national-level centralized distribution center or hubs,
the likes of which are often seen in developed countries. [Source: (PWC, Building Warehousing
Competitiveness in India:, 2011), p.15]

Operational challenges:

Lack of integration with complete supply chain: Presently, there is no clarity regarding demand forecast
shared between manufacturer and warehouse facility provider. As a result of this lack of visibility there is
disintegration in the upstream, downstream or both ends of warehousing leads to unpredictability of usage
of space and facilities. In addition, this impacts the value-added service performance level expected from
warehousing service providers.
Lack of trained manpower: The lack of training institutes paired with the poor working conditions, relatively
less incentives and benefits, and the emergence of attractive alternate career options are responsible for the
skill shortage in the Indian warehousing sector.
Lack of IT penetration: The warehousing sector in India, with some exceptions, is characterized by low
technology levels. Lack of IT enabling has led to limited visibility in inventory management and warehousing
management. The existence of these will be in jeopardy in the face of international competition from 3PL and
4PL service providers.
Lack of expertise in warehousing technologies: A majority of the Indian warehousing players today have
inefficient methods of storing, handling and monitoring of goods. They also suffer from stock visibility issues,
stock traceability, higher pilferages and damages.
Process inefficiencies: There is an absence of standardized operating processes and procedures at
warehouses. The material unloading, handling, storing and loading are more often carried out in an ad-hoc
manner. This not only builds in inefficiency but also leads to many mishandling problems including damages
and subsequent increases in cost. [Source: (PWC, Building Warehousing Competitiveness in India:, 2011),
p.16]

Third Party Logistics

The third party logistics market is still in its nascent stages in India, facing issues such as lack of infrastructure (viz,
warehouses and cold storage chains), lack of economies of scale due to unorganized private truck operators, and
lack of efficient processes and automated, technologically advanced monitoring systems. [Source: (KPMG,
Logistics Game Changers:, 2013)]
The general trend of evolution of the Logistics Industry is show below:

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Figure 23 Evolution of Logistics Source: [ (KPMG, Logistics Game Changers:, 2013), p.44]
Currently, India is in the first stage of the evolution of Logistics. As a result:

Long lead times for delivery observed

Lack of consolidation observed
Inefficient utilization of assets due to empty back hauls
No standardization of vehicles across as well as within the same providers

Figure 24: Non-Standard Trucks

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However, there are signs of evolution into the second stage with the emergence of 3PL providers like:

Aegis Logistics Ltd.

Allcargo Logistics Ltd.
Gati Ltd.
Transport Corporation of India Ltd.

Challenges for the Introduction of the Physical Internet

No communication/cooperation between large number of small regional 3PLs

No standardization of vehicles across providers
Lack of information of available loads leads to empty back hauls or long wait after delivery
Very few 4PL companies present
Lack of technology leads to inefficient management and poor service

Case Study:
We shall now look at a few cases of supply chain that are typical to India and are critical to be considered while
creating a strategy for designing the future of the supply chain landscape in India.
Whole Sale and Mom and Pop Stores Model in India
The diversity of Indias culture (which encompasses 18 major languages, 400 tribes and all major religions) and
complexities of its infrastructure presents significant challenges, but none may be as daunting as the complicated
distribution network for the foreign retail companies to penetrate the Indian Market. With more than 12 million
retail outlets, India has one of the highest retailing densities in the world. Mom and Pop stores account for more
than 95 percent of the market across most product categories. An organized retail sector has emerged but that
contributes to only 3 or 4 percent of the whole market. Many distribution models in India have many
intermediaries between the companies and the retailer customers and thus accounts of higher and varying cost.
The wholesale model, for instance in which the large wholesale companies buy products from the manufacturers
and sells to the small retail store whom they finance gives manufacturer little control of the distribution network
but provides considerable reach. Whereas, under the distribution model, the distributor acts as an extension of
the manufacturer and operates in a particular specified territory. Most of the mom and pop stores are part of
unorganized retail sector of India with minimal information flow among them. The following diagram shows a
representative model of mom and pop stores in India.

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Figure 25: Business Model of Mom & Pop Stores

Figure 26: Typical Mom & Pop Store

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The Major challenges of Mom and Pop stores in the present scenario are:

Inefficient distribution network: Since most of the stores are unorganized they dont have a robust
distribution network and uniform fulfillment cycle. Such an inefficiency normally translates into loss of
sales or increase in cost incurred.
Traffic Congestion: The mom and Pop stores are located in every nook and corners of the societies. The
fulfillment trucks arriving frequently to these stores create significant traffic congestion in the already
cluttered underdeveloped roadways in India. The following pictures explains the situation vividly:

Figure 27: Congested Traffic in India

Figure 28: Congested Traffic in India

Low Service Level Measures: in the current scenario the stores experience high risk of stock outs and the
fill rate for most of the stores are not high as well.

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Customers time investment: In the present model, a customer has to dedicate major proportion of the
daily/weekly schedule to travel through the congested traffic, prepare his pick list, wait in queue for his
order to be built and then travel back in the crowded road. This doesnt present a sustainable option of
shopping considering the exponential rise in population.
Material Handling: Since the mom and pop stores are low capital stores they cant afford to have
sophisticated or some cases the mediocre material handling equipment. They depend largely on the
manual labor and thus experience transit damages and longer time for restocking.

Figure 29: Poor Material Handling in India

Figure 30: Poor Material Handling in India

Cold Chain Industry

India is the second largest producer of fruits and vegetables in the world which contributes for about 10% of the
total fruit production in the world. India is the largest producer of fruits (32mT annually) in the world, which is
about 8 per cent of the global production; India is also the second largest producer of vegetables in the world (first
being China), producing around 71 MT annually, which is about 15% share in the world market. The key area in
India is Food processing and it processes about 1.3% of its total fruits and vegetable where as it is 80% in USA,
70% in France, 80% in Malaysia and 30% in Thailand. To become a top exporter and processor of fruits and
vegetables, India needs a high quality cold chain. Due to lack of cold storage facilities and energy infrastructure
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about 40 percent of the fruits and vegetables grown in India (40 MT worth $13 billion) gets wasted every year,
which is huge enough to feed countries like Brazil and Vietnam.
The reason for this huge wastage is the wide gaps that are existing in the cold chain and there is no well-equipped
cold chain for the preservation of fruits and vegetables. The Infrastructure for Cold chain is not existing for the
produced capacities and same is the case with storage, also these close storage facilities are not available close to
the farms, in addition to these the transportation (temperature controlled) is also inefficient. So it is important to
establish world class cold storage logistics, which play a crucial role in reducing the global foods shortage by
eliminating wastages, which would provide us enough scope to feed many parts of the world. With growth rate
of around 12% the Indian chemical industry is amongst the fastest growing. Exports contributed to $16.1bn
whereas imports were at $24 bn (excluding petrochemicals). Large coastline, land area and the largest rail network
provides an immense opportunity to Logistics & Warehousing companies. The industry needs shared warehouses
closer to the demand centers with high tech facilities to handle chemical products. It will ensure reduced lead
time, reduction in freight costs, reduced product outages, eliminate damage goods handling and ensures high
product availability
The number of cold storages in India is about 5316 and the total capacity is around 23,333,694 MT. The number
of Private sector cold storages in India account for 4820 with a capacity of 222343607mTs, cooperative sector 363
numbers with 989445 MTs, Public sector account for 133 numbers with a capacity of 100642 MT. The existent
cold storage facilities mainly serve the potato products. There is a lack of facilities such as cold storage vegetable,
cold storage fruits, cold storage tamarind, cold storage fish, cold storage meat, and cold storage milk and dairy
products. Cold storage services are available for only 10% of the produce. [ (UKessay_Student, 2015)]
Challenges
Cold storage industry is facing following challenges:
1. Lack of Uniform Technology standards: There is lack of uniform electronic and bar code standards. International
standards vary widely, and domestic standards are almost as disparate, creating unnecessary paperwork and
profit-eating delays.
2. Consolidation: The trend toward consolidation sprung from the growing tendency for warehouses to act as
shipping venues, as well as the entry into the market by warehouse holders. Though consolidation spurred overall
industry growth, smaller warehouses have struggled to compete with larger industry players.
3. Capital Investment and Technology: The cold chain Storage and logistics is a capital-intensive industry
(investment for refrigeration equipment and real estate) with a large capacity cold storage chain has a high
payback period of around five years.
4. Incumbency advantages independent of size: Existing players like Snowman have built expertise by operating
in this industry for longer periods in time & use imported hi-tech equipment, which new entrants find difficult.
5. Economies of scales: It is a largely untapped, fragmented & full of unorganized small size players. No player has
achieved economies of scale and thus a new a new entrant with deep pockets can enter this industry and still be
at a major cost advantage.
6. Human Capital and Domain Skills: It requires skilled human resources for operating and controlling the cold
storage facilities. Lack of technically qualified employees is also one of the hindering factors for Indian cold storage
industry.

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7. Lack of logistical Support: Small land holdings remain a challenge because it requires multiple farm gate
collection centers. Also Fragmented cold chain industry has not encouraged the growth of cold logistics for
horticulture produce. Standard refrigerated systems are inefficient and poorly designed. Also, domestic market
for fresh perishable produce is underdeveloped.
8. Uneven Distribution of cold stores: Available capacity is mostly focused on single commodities. Problem of
financial viability is also their due to seasonality.
Other pertinent issues are:
1. Erratic power supply
2. High operational costs and low yield models.
3. High insurance/ Risk coverage premiums.
4. Large gap in demand supply conducive to small unorganized service providers.
5. Government tax and commercial regulations. [ (UKessay_Student, 2015)]
Present Players
The Leading Cold chain companies in India with established cold chain infrastructure are Container Corporation
of India (Concor), Indraprastha Cold Chain, Glacio Cold Chain, Bulaki Deep Freeze, Nowman, Refcon Carriers,
Kausar, Gatia, Gateway Distiparks, R.K. Foodland, Adani Group, Future Group, Bharti, ITC, Reliance, Godrej, Tata
Group, Aditya Birla Group, and Apollo Everest Kool Solutions. [ (UKessay_Student, 2015)]
Role of Government and Initiatives
Government policy acts as a catalyst in this industry. Following are the salient features of Government policies for
cold storage sector:
1. Encourages Investments Agricultural food is identified as priority sector.
2. Encourages organized sector- ECB route opened, Import duty relaxed.
3. Liberalizes Marketing Norms- Focus on increased retail, improved supply chain.
4. Rationalizes Tax Laws- Moving towards uniform VAT/GST.
5. Provides Grants and subsidies- VG funding, Grants, Infrastructure status
6. Eases foreign investment- 100% FDI in food sector. ECB for cold chain.
Government of India Initiatives:
1. Excised waved on F&V, meat preparations, ice-cream, other RTE food mixes.
2. Automatic approval for 100% foreign equity in processed food items. External commercial borrowing opened
(except in beer, alcohol etc.)
3. Priority lending status; Duties reduced on imports; Zero service tax on installations.

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4. EOI floated for 30 mega food parks- allocated US $ 1.02 billion by 2012. Objective of the scheme is to provide
backward and forward linkages as well develop reliable and sustainable supply chain.
5. GOI initiating National Highway Development Program and partnering with Indian railways to establish cold
chain infrastructure. Indian railway is planning to invite private parties to run refrigerated container trains for
transporting agricultural products across the country.
6. Integrated food law (FSSA) notified and ready for implementation.
7. Task force on Development of cold chain established and national center for Cold Chain Development (NCCD).
[ (UKessay_Student, 2015)]

India: The Present Picture

Supply Chain in India
The supply chain of India has developed over years and the current supply chain of India plays a very important
role in the growth of India. The massive size of the country and uneven distribution of resources and industries
across the nation demands for a very robust supply chain. The following picture summarizes the present state of
supply chain in India. Though, the domain has not experienced the required technological excellence yet, the
major industry player have realized the role of this domain in the success of the business and have started
investing and fostering supply chain in India.

Figure 31: Supply Chain in India (ATKearney, 2013, p. 6)

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Logistics Sector
Indias logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, ecommerce penetration, impending GST (Goods and Service Taxes) implementation, and other initiatives like
Make in India. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth.
Moreover, infrastructural bottlenecks that have stifled sectors growth and promoted inefficiency are being
addressed by the government. However, currently the logistics sector faces a number of challenges and issues
which are implemented in the next section. (Financial Express, n.d.)

Challenges & Issues

At present, there are numerous challenges and issues thats acting as the bottleneck in the development of India.
In this section we have made an attempt to document all those challenges. The interconnected supply chain can
be established on platform that could overcome all these challenges.

Highly concentrated logistics flows

Seven long-haul corridors of Indias logistics network account for over half of total freight traffic flow in the
country. National highways along these corridors handle 40 per cent of road freight traffic even though they are
less than 0.5 per cent of the Indian road network. Similarly, rail links on the corridors account for 27 per cent of
the Indian rail network but handle over 50 per cent of rail freight traffic in the country.

Figure 32: Logistics Network (McKinsey, 2014, p. 11)

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Logistics Infrastructure
Indias infrastructure is in general in a critical condition. It is ranked 87th in the world by the Global
Competitiveness Report 2014-15 of the World Economic Forum and is stated as the fourth most problematic factor
for doing business after access to financing, tax rates and foreign currency regulations. Taking a closer look at the
logistic infrastructure, especially the quality of roads (rank 76), of port infrastructure (rank 76) and air transport
infrastructure (rank 71) are ranked low. The quality of railroad is ranked 27th and the quality of electricity supply
is ranked only 103rd, which is especially problematic in terms of cold supply chain. (Global Competitiveness
Report, 2014-15, p. 211)
Around USD 45 billion is lost each year due to inefficient and overstretched logistics network. As per a McKinsey
report, poor logistics infrastructure in India costs the economy an extra USD 45 billion or 4.3 per cent of GDP each
year. Also, statistics show that Indias current infrastructure is already over-stretched. As per McKinseys
projection, Indias freight traffic is likely to more than double from current levels by 2020. Most of the national
highway network and rail links along the Golden Quadrilateral and North-South and East-West corridors are
congested. Many large ports are already operating at very high utilization rates. A 2.5 times increase in freight
traffic in the next decade will put further pressure on Indias logistics infrastructure. Inadequacies in Indias
logistics infrastructure could render less competitive on account of higher transit times and lower reliability.
However the quality of railroads is significantly ranked higher than of roads, Indias freight transport is dominated
by road (Figure 11). In comparison to other countries such as China or the USA, India does not exploit modespecific opportunities of cost savings or smaller CO2 emissions. The road has a share of approximately 57% of all
ton-km, whereas rail has only 36% followed by 6% water and less than 1% by air.

Figure 33: Freight Transport on Road (McKinsey, 2014, p. 12)

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While in absolute terms, as per Government of India analysis, India spends 13-14 per cent of GDP on logistics
which is more than what the US (9.5 per cent) and Germany (8 per cent) spend. As per Wikipedia stats, USA,
Germany, and India are ranked 1st, 4th and 10th respectively on the basis of GDP. This makes it clear that, Industry
spend on logistics in India is lowthe relative spend is high. Also, rail and coastal shipping costs in India are
approximately 70 per cent higher than those in the US. Likewise, road costs in India are higher by about 30 per
cent. This not only results in higher prices and lower competitiveness, but also hampers economic growth.
Having this overview, the following paragraphs will give more detailed information about the conditions of the
different types of infrastructure.

India: The Vision

India needs to create enablers to maximize network efficiency, extracting more from existing assets. Governance
changes needed at the highest levels to develop appropriate policies that will simulate industries to make their
supply chain robust and competitive.
India will be able to achieve its goals by translate its current weaknesses of small, regional logistics players as
well as small regional suppliers into a major future strength to build up an efficient and powerful interconnected
supply chain system, which will be highly flexible and decentralized, extending the current decentralized
infrastructure, which is characteristic for todays India. Thereby enabling a various number of industries to do
business in India and provide sufficient income to the population.
One major approach of the Government of India (GoI) to achieve these goals is to increase the contribution of
manufacturing output to 25 per cent of gross domestic product (GDP) by 2025, from 16 per cent currently. With
the recently launched Make in India initiative by the GoI, the manufacturing activity in India is set to accelerate
at a rapid growth. The interconnected supply chain systems would enable to achieve the expected growth rate.
Indias manufacturing sector could touch US$ 1 trillion by 2025, according to a report by Mckinsey and
Company. There is potential for the sector to account for 25-30 per cent of the countrys GDP and create up to
90 million domestic jobs by 2025. (McKinsey, 2014, p. 8)
Infrastructure Upgrades
Currently, Indias freight transport is excessively relies on road. India needs overlay of transportation networks,
allowing for the efficient transportation of each commodity type as well as a natural handover point. It needs
networks that intersect and where large quantities are broken down into smaller volumes for last-mile
transportation into urban centers. Indian Government is planning for A National Integrated Logistics Policy
(NILP) that shapes a vision for Indias logistics infrastructure in coming future and beyond would be a critical
enabler for such efforts. The NILP could help the government reduce recurring losses to the economy and
improve capital efficiency in the following three ways. First, it could define the blueprint for the most effective
and efficient logistics infrastructure to support a balanced modal mix, based on the anticipated increase in
freight flows by 2020. Second, it can ensure better coordination between multiple national and state-level
bodies responsible for developing logistics infrastructure. Third, it can facilitate easier access to and optimal
allocation of scarce resources such as investments, equipment and people. Below image shows desired state of
logistics infrastructure in India.

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Figure 34: Future Logistics Infrastructure (KPMG, Logistics Game Changers:, 2015, p. 6)

Indian States Need a Free Trade Deal

Complex tax laws and unfriendly state borders have turned India into fragmented sub-markets. This, along with
Indias poor record on ease of doing business, discourages investments both domestically as well internationally.
As per Government of India statistics, India is a fully integrated market worth $2 trillion with 1.25 billion people.
This could be very attractive for investors to come and make in India. Removing the barriers to inter-state
trade should be the first step in that direction, as should the implementation of GST. Below figure shows
expected positive impacts of implementing GST on Indian industry.
Doing so would enable businesses to reap the benefits of economies of scale and increase the share of
manufacturing in the GDP, which has remained stagnant at 16 percent since the 1960s. It would also reduce
Indias dependency on the outside world and protect the economy from external shocks such as world recession
in 2009.
(Indian States Need a Free Trade Deal, n.d.)

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Figure 35: Impact of GST (Indirect Tax Professionals, n.d.)

Increased number of Shared/Multi-client Warehouses:

Indian industries needs shared / multi-client warehouses closer to the demand centers with high tech facilities
to handle chemical products. It will ensure reduced lead time, reduction in freight costs, reduced product
outages, eliminate damage goods handling and ensures high product availability. The government has set up
three agencies which are engaged in building large scale shared and dedicated storage/warehousing capacity:
Food Corporation of India (FCI), Central Warehousing Corporation (CWC), State Warehousing Corporations
(SWCs). However functions of these agencies are very much limited which we will discuss in later sections of this
report. Generally, shared/multi-client warehousing offers shorter, more flexible contracts than those of a singleuser (contract) arrangement. This makes it particularly useful for companies that are either just starting up, have
a small clientele base, deal with seasonal products, or have a product where demand fluctuates, with no
concrete idea of what their future warehousing requirements are. This is in line with Indias vision of make in
India policy which is expected to generate many new players in the manufacturing industry.
For these customers, it is crucial that space can be reduced (or increased) to correspond with their personal
business demands shared/multi-client warehousing provides a solution to rapidly changing distribution needs,
and without committing to a long term contract. This flexible approach naturally reduces the worry of having to
pay for an area the client cant fill, or conversely, not having enough space.
Multi-client warehousing is also the perfect solution for businesses that require several smaller locations,
offering multiple distribution points, rather than one large space.
(FMI Logistics, n.d.)

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Increased number of 3PL/4PL logistics solution providers:

Third Party Logistics is an effective way to reduce operational costs, and allow a company to focus on their core
competencies. Outsourcing logistics operations to a 3PL provider adds to the bottom line for both the customer
and supplier through accurate, well-managed inventory and supply chain solutions. Major advantages of using a
3PL Provider are as below: (Cerasis, 2015)
Shared Resource Network
3PL providers have a vast resource network available that provides advantages over in-house supply chains.
Using a 3PLs resource network, each step in the supply chain can be executed in the most efficient, cost
effective way. 3PLs can leverage relationships and volume discounts, which results in lower overhead and the
fastest possible service. Additionally, choosing a 3PL provider allows a company to benefit from resources
which are unavailable in-house.
Save Time and Money
Outsourcing logistics will save a wealth of time and money for companies. Using a 3PL provider eliminates the
need to invest in warehouse space, technology, transportation, and staff to execute the logistics process. 3PL
providers can save from costly mistakes, and allow business owners to build a global logistical network with
lower risk and higher return.
Ongoing Industry Expertise
A 3PL provider is knowledgeable of industry best practices, and stay up to date with the latest developments
in technology, manufacturing, and logistics. 3PL software is capable of advanced reporting, inventory
management, and provides visibility to monitor the entire process.
Scalability and Flexibility
A benefit of using a 3PL provider is the ability to scale space, labor, and transportation according to inventory
needs. Businesses with seasonal periods can enjoy stress free transitions between industry ups and downs,
having the ability to utilize more space and resources when needed. Using a 3PL provider allows businesses
to grow into new regions without barriers. Furthermore, as the company grow, a 3PL provider can help
companies scale as they have the resources to seamlessly support growth into new markets.
Continuous Optimization
3PL providers have the resources at hand to make adjustments and improvements to each link in the supply
chain. 3PL professionals will ensure companys needs are met, by using the fastest, most efficient, and cost
effective methods. A 3PL provider has the tools to restructure the supply chain, and use technology that
ensures the proper amount of goods arrive when and where companies need them. Sophisticated
management software can analyze and monitor practices to eliminate inefficiencies and streamline the
supply chain. Outsourcing 3PL services will ensure continuous improvements are made to the logistics
process. Third Party Logistics providers can help maximize profits, reduce wait times, and improve customer
service.

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Road Map Engineering

Keeping the present challenges and issues in hindsight, we have designed the following roadmap which is also
coherent with the policies and growth plan of the Government of India. The following picture provides a
snapshot of the timeline. In subsequent sections we have explained the different strategies in detail.

Figure 36: Progress Plan-Interconnected Supply Chain in India

Government Policies
The government of India has realized that one of the bottlenecks in the growth of the nations economy is the
stringent rules and regulation. Numerous bills are being passed by the government to deregulate and delicense
the redundant processes and favor foreign direct investment in different sectors. This section will highlight the
different policies and initiatives taken by government towards this vision.

Goods and Service Tax

The system allows the set-off of GST paid on the procurement of goods and services against the GST which is
payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in
the supply chain. GST is likely to improve tax collections and boost India's economic development by breaking tax
barriers between States and integrating India through a uniform tax rate.
Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower
tax rate by increasing the tax base and minimizing exemptions.
It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would
promote exports, raise employment and boost growth. It will divide the tax burden equitably between
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manufacturing and services. This will benefit individuals as prices are likely to come down. Lower prices will lead
to more consumption, thereby helping companies.
India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST) and a
State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction. All goods and services,
barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and
services. [ (Government of India, 2015)]
Based on our research on the different analysis of GST implementation, we believe that this unified taxation
system will be in full practice by 2020 and thus will help in fostering the manufacturing sector and contribute
positively in the growth of Indian Economy.
Make in India
Make in India is a recent initiative campaign by GOI to attract foreign investors to establish the manufacturing
facility in India. Considering the huge availability of resources and labor force, such an initiative will catalyze the
manufacturing evolution in the country and thus will improve the employment and growth rate of the country.
Vision
The GOI has designed a vision to achieve the above discussed goal. The following section is an extract from the
GOI website for Make in India initiative.

An increase in manufacturing sector growth to 12-14% per annum over the medium term.
An increase in the share of manufacturing in the countrys Gross Domestic Product from 16% to 25% by 2022.
To create 100 million additional jobs by 2022 in manufacturing sector.
Creation of appropriate skill sets among rural migrants and the urban poor for inclusive growth.
An increase in domestic value addition and technological depth in manufacturing.
Enhancing the global competitiveness of the Indian manufacturing sector.

Ensuring sustainability of growth, particularly with regard to environment. [ (Governement of India, 2015)]
National Investment & Manufacturing Zones (NIMZ):
The GOI has identified different economic and industrial corridors or zones and is designing the policies keeping
in focus the development of these corridors and the smart cities around them. The following write up is an
extract from the GOI website for Make in India.

The National Investment and Manufacturing Zones are being conceived as giant industrial Greenfield
townships to promote world-class manufacturing activities.
The minimum size is 5000 hectares (50 square kilometers) wherein the processing area has to be at least 30%.
The central government will be responsible for bearing the cost of master planning, improving/providing
external physical infrastructure linkages including rail, road, ports, airports and telecom, providing
institutional infrastructure for productivity, skill development and the promotion of domestic and global
investments.
The identification of land will be undertaken by state governments. State governments will be responsible for
water requirement, power connectivity, physical infrastructure, utility linkages, environmental impact studies
and bearing the cost of resettlement and rehabilitation packages for the owners of acquired land.
The state government will also play a role in its acquisition if necessary.

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In government, purchase preferences will be given to units in the national investment and manufacturing
zones. [ (Governement of India, 2015)]

Simplification of Regulatory Environment

Central & State governments to provide exemptions from rules and regulations related to labor, environment
etc. subject to the fulfilment of certain conditions.
Mechanisms for the cooperation of public or private institutions with government inspection services under
the overall control of statutory authorities to be developed.
Process of clearances by center and state authorities to be progressively web-enabled.
The submission of multiple returns for different departments will be replaced by one simplified
monthly/quarterly return.
A single window clearance for units in NIMZ.

E Governance
E-government (short for electronic government, also known as e-gov, Internet government, digital government,
online government, or connected government) consists of the digital interactions between a citizen and their
government (C2G), between governments and government agencies (G2G), between government and citizens
(G2C), between government and employees (G2E), and between government and businesses/commerce (G2B). [
(Wikipedia, 2015)]
National e-Governance Plan (NeGP) is a plan of the Government of India to make all government services
available to the citizens of India via electronic media. NeGP has been formulated by the Department of Electronics
and Information Technology (DeitY) and Department of Administrative Reforms and Public Grievances (DARPG).
The Government approved the National e-Governance Plan, comprising 31 Mission Mode Projects (MMPs) and
eight components, on May 18, 2006. [ (Governement of India, 2015)]
National e-Governance Division (NeGD)The Department of Electronics and Information Technology, Government
of India has formed the National e-Governance Division (NeGD) as an autonomous business division within Media
Lab Asia, under the Ministry of Communication and Information Technology, Government of India, for supporting
and assisting Department of Electronics and Information Technology in the Program Management of NeGP. [
(Wikipedia, 2015)]

Foreign Direct Investment

With Indias vision to traverse the path of economic growth, the government has revisited the policies and
identified the relaxation on FDI as one of the key measures for the evolution of industrial sector and global
trade.

Recent Policy Measures

The following is an extract from the GOI website on Make in India initiative.

100% FDI allowed in the telecom sector.

100% FDI in single-brand retail.

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FDI in commodity exchanges, stock exchanges & depositories, power exchanges, petroleum refining by PSUs,
courier services under the government route has now been brought under the automatic route.
Removal of restriction in tea plantation sector.
FDI limit raised to 74% in credit information & 100% in asset reconstruction companies.
FDI limit of 26% in Defense sector raised to 49% under Government approval route. Foreign Portfolio
Investment up to 24% permitted under automatic route. FDI beyond 49% is also allowed on a case to case
basis with the approval of Cabinet Committee on Security.
Construction, operation and maintenance of specified activities of Railway sector opened to 100% foreign
direct investment under automatic route. [ (Governement of India, 2015)]

Incentives
To encourage the multinational companies to invest in India, the GOI has outlined different incentives at the
central and state government.
CENTRAL GOVERNMENT INCENTIVES:
The following section is a direct extraction from the GOI website on Make in India initiative.

Investment allowance (additional depreciation) at the rate of 15 percent to manufacturing companies that
invest more than INR 1 billion in plant and machinery available till to 31st July 2015.
Incentives available to units set-up in SEZ, NIMZ etc. and EOUs.
Exports incentives like duty drawback, duty exemption/remission schemes, focus products & market schemes
etc.
Areas based incentives like unit set-up in north east region, Jammu & Kashmir, Himachal Pradesh, and
Uttarakhand.
Sector specific incentives like M-SIPS in electronics.

STATE GOVERNMENT INCENTIVES:

The following section is a direct extraction from the GOI website on Make in India initiative.

Each state government has its own incentive policy, which offers various types of incentives based on the
amount of investments, project location, employment generation, etc. The incentives differ from state to state
and are generally laid down in each states industrial policy.
The broad categories of state incentives include: stamp duty exemption for land acquisition, refund or
exemption of value added tax, exemption from payment of electricity duty etc.

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Manufacturing Revolution
Exploiting Intermodal Connectivity to achieve Economies of Scale:
Leverage Intermodal Connectivity for an Interconnected Supply Chain 2050:

Steel Industry

Auto components Industry

Automobile Industry

Figure 37: Geographical location of Steel, Auto Components and Automobile Industry (www.ibef.org, 2015)

Figure 38: Automobile Clusters in India, source: (www.ibef.org, 2015)

Motivation (GDP Vs Manufacturing Vs Automobile):

Based on our study from the (www.ibef.org, 2015), India currently ranks 11th in car production and 13th in
commercial vehicle production globally. With an increasing industrial production and growing spending power of
the Indian middle class households, the country is expected to make it to the top five markets in the cars and
commercial vehicles segment by 2020. India has set for itself an ambitious target of increasing the contribution of
manufacturing output to 25 per cent of gross domestic product (GDP) by 2025, from 16 per cent currently.
Specifically, the automobile industry accounts for 22 per cent of the country's manufacturing gross domestic
product (GDP) currently. The auto sector is one of the biggest job creators, both directly and indirectly. It is
estimated that every job created in an auto company leads to three to five indirect ancillary jobs. In order to meet
the ambitious growth plans of India, auto industry thus has to play a very large role in Indias economy. Further,
India also aspires to be a globally competitive player in the Auto exports globally.

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Figure 39: Growth Projection for India's Auto Industry (Kearney, 2015)
In order to be globally competitive by keeping the cost of manufacturing low the auto industry will have to increase
its sourcing from the Indian Steel Industry. In the current scenario, we identified that the Indian Steel Industry
which is a major raw material supplier to the Auto Component and Automobile Industry, is not completely
geographically aligned with the current location of all its customers. Steel industries in order to keep their cost of
manufacturing low are bound to be closed to their raw materials supplies which are primarily coal and iron ore.
Both coal and iron ore resources in India are concentrated in the Eastern, South Eastern and some South Western
Part of India currently. With an assumption that this is not going to change drastically until 2050, we assume that
the steel industry would continue to flourish in the same region where they are currently present. From an overall
supply chain perspective when we notice that there is an ongoing and developing auto manufacturing activity in
the north of India, we are poised with the question on how this would sustain considering the geographical
distance from the steel industry. The current logistics network and mode which is largely truck, pushes up the
logistics cost and hence the manufacturing cost which could hinder Indias strategic vision of being globally
competitive in manufacturing.
From an interconnected supply chain perspective, we paid attention on how a collaborative supply chain between
the auto and steel industry with a strong intermodal connectivity in the background can help achieve a lower
logistic cost and hence achieve Indias goal of being a global powerhouse in manufacturing.
Key Elements in this Proposal - Economies of Scale by higher Throughput:
The logistics industry in India is highly fragmented today. With our earlier reference of making the 3PL industry
the sole supply chain player providing an end to end solution for the manufacturers, we believe it would make the
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3PL players financially stronger and hence they would be able to play a much larger role in achieving the overall
lower logistics cost. But the overall auto and steel industry would also have to collaborate in order to further
suppress the logistics cost. Also keeping in mind that the lower logistics cost for both the Auto and Steel Industry
has to be achieved two way on any given freight lane, right intermodal mix should be adopted. For example, trucks
are efficient for small legs but for longer legs (>500KM), rails or waterway would make a much greater sense.
Indias Inland Waterway (IWT) hasnt been exploited to its largest potential. Currently it handles only 0.1% of the
total trade flow in the country. This presents a huge opportunity for the industry since the capital cost for the
infrastructure investment and the cost of operations on a waterway is much lesser than most of the other modes
of transportation. In addition to it, IWT also gives a unique advantage of getting naturally close to the coast.
Specific to our case, river Ganga which is identified as National Waterway-01 could serve this purpose. We propose
the following intermodal mix for our case:
Proposed Plan of Action:

IWT Consolidation Hub - North

River Yamuna

NW-01 (River Ganga)

IWT Consolidation Hub

- East

Short Leg (<500KM) by Trucks

3PL in South East and East Regions of the country can do something similar to a localized milk run but slightly on
a larger scale between the steel industries on a continuous basis which will help them achieve a full truck load.
For this purpose open trucks should be used to speed up the handling at the consolidation hubs which we propose
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to be close to the National Waterway-01 Terminal in the East. Faster and efficient material handling equipment
can be deployed to transfer the steel directly on to a High Capacity Barge. The goods can then be transported
using IWT to an another consolidation/distribution hub in the North from where it can then be again transported
using trucks performing continuous milk run around the auto industry. The overall supply chain design can reap
the benefits of deploying IWT over a long leg (>500KM) and the consolidation activity.
We understand that over a long leg especially through IWT, the transportation time would be higher as compared
to train but the savings achieved in transportation would be much higher. Yes, it would inflate the pipeline
inventory value but would help us achieve a higher economies of scale for the transportation. We also assume
that the 3PL with its eminent participation in the logistics activity will have a higher negotiation power and hence
would significantly drive the terms and conditions on the mode of transportation they would like to adopt. It is
quite obvious that for them low transportation cost is of the utmost importance. Use of IWT would also eliminate
the challenges which are associated with the management of the mobile resources like wagons for railways.
In reverse the assembled automobiles can be transported directly to the consolidation hub in the north by Truck
(in case of 2 Wheeler, 3 Wheeler, LCV or MCV) or by driving them directly and then from there they can be
transported using IWT on the barges towards the ports located in the East. We emphasize this because of the fact
that the Ocean Depth near the coast is higher as compared to the West. This would allow the Mega Sized Ships to
dock at the ports. The ongoing trend in the shipping industry is about growing size of the ships at a rapid pace to
cut down the cost of transportation per unit of item moved. This possess a demand on the Hinterland Logistics to
adapt. IWT has been proved efficient in such situation especially in the EU. The overall increase in the throughput
would help in achieve a higher economy of scale. We should also emphasize on the fact that the industries in the
future are going to be modular and smaller in size. The industries would be quick to change its current location of
manufacturing. Therefore a larger capital investment solely in one mode of transportation should be avoided. IWT
presents this advantage over the other competing mode of transportation like railways which needs relatively a
very high capital investment.
Furthermore, based on the experience of our team members who have worked with the auto giants like TATA and
Mahindra, the resource sharing with respect to the raw materials is already in existence for quite some time.
Specifically, common grades of steel which are a standard in the industry are shared between the Auto
Manufacturers.
Another idea which we would like to present is to use IWT for floating warehouses and manufacturing activity.
This is in line with the idea of modularization. We are not certain how the industries would react to changing
demand and demographics with respect to its base of manufacturing operation. We have been introduced an idea
in the ISyE 6338 Class about modular manufacturing in the future. This would result in a growth of small and
medium scale enterprises which could also benefit from the economies of scale which could be achieved for the
transportation.

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As a concept we propose 2 IWT Hubs on this corridor:

Intra-modal Hub IWT - North

Intra-modal Hub IWT - East

Figure 40: National Waterways

We can further benefit from this kind of supply chain design. Activities like Incoming Material Quality Check for
the automobile manufacturers in the north can be outsourced to 3 PL Service Providers managing the two IWT
Consolidation Hubs in the East and the North. This would save the time and any possible waste travel that the
goods might have to take due to a rejection. In a way, we can eliminate the problem associated with the reverse
logistics on a significant leg of the route, saving us a significant amount of money.
We would also like to recommend making the IWT Consolidation Hub open which can serve as a public warehouse
too. Buffer capacity should be planned to accommodate small and medium enterprise. This would bring in
additional revenue to the Hub Operators and at the same time would provide a competitive price range to the
customers.
Leveraging the Previous Plan to achieve International Intermodal Connectivity 2030 to 2050:
We observed that the current Auto Component Industry is developing towards the North Eastern Part of India.
Today, if those components have to be shipped towards any of the existing automobile plant, the goods have to
travel all around the Bangladesh. Roughly there is a potential to cut short 700 KMs if the goods can flow through
Bangladesh and renter the Indian Territory. The only specific requirement would be to set up a dedicated corridor
running from East to West Border of Bangladesh. This can be categorized as a Free Trade Zone, by the Bangladesh
Government. Both the Rail and Inland Waterway can be chosen to connect this leg. There are already political
developments to connect this leg with railways. At the same time, we also believe in a massive exploitation of the
inland waterways. River like Brahmaputra gives that advantage in this region.

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Figure 41: Current Logistics Network through road

Use the Dessert Land to place Dry Ports for Active Consolidation 2030:
As a part of its strategic vision, the Government of India plans to place Dedicated Freight Corridors in multiple
parts of the country. Delhi Mumbai Freight Corridor is being looked forward the most. This Dedicated Freight
Corridor would offer high-speed connectivity for High Axle Load Wagons (25 Tone) of Double Stacked Container
supported by high power locomotives.
We looked at various opportunities which can be seized as this project turns into a realty. The foremost essence
is to achieve economies of scale in logistics to cut down the transportation cost massively along with a higher
throughput of the cargo movement to achieve a competitive export cost from the western ports of India.

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Figure 42: Delhi Mumbai Corridor

Figure 43: Rajasthan, India

Rajasthan is the largest state in India. A large portion of the state is barren and the land is not utilized to its
maximum potential. It is also interesting to note that Rajasthan is expected to share a large portion of the DMIC.
(Delhi Mumbai Industrial Corridor - Wikipedia, 2015) About 553 km (39%) of Western Dedicated Freight Corridor
would pass through Rajasthan and 58% of the state is in influence area of DMIC zone, will have 2 Investment
Regions and 3 Industrial Areas. Based on our reading of multiple consulting reports available on the web, the DMIC
would provide an efficient infrastructure for the cluster of industries in this belt.
We propose to capitalize on a large portion of land in the state of Rajasthan to exploit the possibility of deploying
dry docks. The north eastern part of Rajasthan called Bhiwadi is an emerging manufacturing location in the country
and is geographically very close to New Delhi which already has a strong presence of Auto manufacturers around
it in the area called National Capital Region. Keeping the overall essence of economies of scale, the proposed Dry
Dock (which is already a strong interest for the current government) can be utilized for the container level
consolidation.
Based on our previous reference to the larger involvement of 3PL players in the future, we believe the overall
logistics cost can be brought down in an export oriented manufacturing set up.
When the manufacturing base around the Northern and Western Part of India becomes denser and clustered with
the growing economy, 3 PL Service Providers can exploit this as a cost advantage by providing milk route service
to the manufacturers in a specific geographical cluster. This would allow an individual manufacturer to opt for
Break/Bulk Cargo Shipments at a relatively much lesser price as compared to today. The 3PL Service Provider then
can have all its vehicles / trucks coming at the consolidation hub located in Rajasthan, where advance material
handling equipment can unload those trucks in a very short time. At the consolidation hubs which are going to be
operated by the 3 PL Service Providers, state of the art enterprise systems can manage the complex planning for
the final freight containerization plan targeted towards the exports leaving the country from the West Coast.

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Figure 44: Proposed Export Oriented Logistics

High Speed High Frequency

Rail Network

Figure 45: Dry Port

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In order to improve the trade throughput of the nation, we propose to implement a dedicated rail corridor which
handles high speed high frequency rail network from Rajasthan to all the major sea ports in the west coast of
India. This rail network is expected to be capable enough to provide double stacking of containers. This way, we
can completely eliminate the congestion which currently occurs at the major sea ports in India due to a long
backlog and highly fragmented movement of goods which occurs by truck. When we make railway as a sole carrier
of containers to the sea ports, we foresee a faster turnaround of the goods and hence a higher rate of trade flow.
Through such a 3PL managed intermodal connectivity, we also see the problems associated with backhauls
reducing greatly.
In our conclusion, such a set up would provide an opportunity to the smallest manufacturer to send its goods out
at the cheapest cost possible.

Taking Advantage of the Present Models and Infrastructure:

Regional Warehouses: Platform to design interconnected supply chain
Decentralized Warehousing: From weakness to future strength
As described before, the current warehousing situation in India is characterized by many small, local and regional
warehouses. The reason for that is the current tax system in India, which makes it very expensive to transport
goods between states as well as the lack of big logistics and 3 PL players. Therefore companies normally set up
small warehouses in each state, which are poorly equipped and most time smaller than 10,000 sq. ft. Comparing
the situation in India with the situation in more developed countries such as the USA, reveals the disadvantage of
such small warehouses in the current system of global supply chains. In the USA warehouses and distribution
centers most times do not serve only a single state but a huge area because transportation is relatively cheap.
Therefore companies are able to consolidate a lot of demand resulting in lower overall inventory cost, full
truckloads and huge warehouses with up to a couple of 100,000 sq. ft. The big scale of these warehouses is often
needed as well to justify the high investment cost for the building and for the automation technology. In short,
todays supply chains are based on economies of scale generated by a single company.
In India majority of the warehouses are owned and operated by single company and the company uses the
warehouses solely for its business. In todays situation Indian warehouses have a disadvantage because the small
scale warehouses are not able to generate enough economies of scale hence increasing the unit and holding cost.
Additionally the speed within these warehouses is relatively slow due to a lack of material handling equipment as
well as due to the lack of palletization in India in general. But efficient warehousing and distribution is absolutely
necessary for India in order to attract more global manufacturing companies and thus achieving its goal to become
a global manufacturing hub. Therefore there is a huge need for investments in the future. But is there a way to
transform the current weakness into a future strength, taking advantage of the current decentralized system?
Having the vision of interconnected supply chains in mind, single manufacturing companies will not own their own
distribution and warehousing networks. Instead specialized companies will offer open warehouses and
distribution as services in every city, so that manufacturing companies are not obliged to invest money into such
infrastructure. Once these huge prior investments become needless, it becomes more attractive to store smaller
amounts of goods closer to the customer in order to decrease the lead time and the holding cost. This kind of local
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storage becomes even absolutely necessary for next or even same day delivery which is already becoming
standard today in E-commerce. Hence local warehouses and distribution centers will play an important role in
future and India already has the basic infrastructure for such an open, physical internet distribution web, whereas
many developed countries have to build up this kind of infrastructure from scratch. If India is able to stimulate
investments into this area, it will not only improve its current infrastructure but may be able to achieve strategic
advantage and save cost by avoiding the detour via huge scale warehouses for single companies. Therefore the
Indian warehouses obviously must be modernized and an equivalent transportation web must be set in place. The
general web structure would contain larger regional warehouses and DC which deliver to small local warehouses.
The following roadmap for 2020, 2030 and 2050 gives detailed ideas how India could make this transformation.
2020: The government has to give incentives such as tax reduction, cheap land etc. to build larger warehouses
and DC for manufacturing industries in strategic locations close to larger cities and especially at national highway
interconnections. These locations are strategically important, because due to the very concentrated road
transportation in India most of the trucks are running on the golden quadrilateral and North-South East-West
highways, creating enough flow to utilize huge scale warehouses and DC and making sure that freight moves as
fast as possible through the network without detours (for potential areas for governmental incentives

Figure 46: National Highway Network of India

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From these motherships the smaller local warehouses and DC in the cities get served (Figure 44). The investments
for these DC and warehouses are considerable huge, wherefore governmental support is necessary, but at the
same time it will encourage larger regional/local warehouses to invest money in modernization in order to be able
to do business with larger manufacturing companies. The successful usage of PPP (Private Public Partnership) in
the NHDP and in other development projects might be taken as an investment model. The biggest challenge for
the smaller warehouses will be the step forward to an efficient usage of IT and standardized material handling
equipment. Obviously not all existing warehouses will be able to perform this evolution due to a lack of capital. As
a result there will be a consolidation movement to have larger economies of scale, but nevertheless in total there
will be more smaller/local warehouses compared to the current situation in developed countries.

Figure 47: Regional Distribution Web

In order to fully utilize the advantages of such a decentralized warehousing and distribution web, it is necessary
to enable companies to send less than truckloads quantities in order to avoid truckloads of inventory at the end
of the supply chain. Due to the fragmented trucking industry, this is currently not possible on large scale.
Instead of investing into a LTL-industry with large players, the described open warehousing and distribution center
web enables India to use its current resources. The basic idea is that manufacturers sent TL from their plants either
to local DC or directly to the bigger DC close to the national highways. The DC then splits the TL and consolidates
it with other shipments of other manufacturers to another TL so that transportation capacity is as much utilized
as possible. In contrast to a normal LTL-company the DC doesnt uses its own trucks to send it to the corresponding
DC, but only organizes the transportation as a 4PL, using the small already available trucking companies. Online
auctions or platforms to bring freight and trucks together already exist, so that the technology is already available.
This ensures an open market, which is able to provide cheap and flexible transportation. From the final DC, freight
for each company is consolidated again so that again a local trucking company can be used to deliver it to its final
destination. The main advantage of this approach is that it uses available resources as much as possible and
enables small companies (which are so typical for India) to provide services, for which in other countries big
companies are needed for. Therefore this approach saves time and money.
The mayor challenge for such an open transportation system is the current lack of palletization, which slows down
material handling at the DC. Additionally most Indian trucks do not have trailers, which could be switched between
different trucking companies. Therefore in an early implementation stage as 2020, trucks will most likely run
directly from the origin DC to the destination DC without consolidating freight at other locations. In future
scenarios this will change and shipments will cross many DC until their final destination.
The availability of an existent open logistic and warehousing web in combination with a standardized taxation
system would attract many global manufacturing companies and create a new warehousing industry. To create
such a system as described above obviously takes time. The foundation must be laid as soon as possible, but most
likely a basic system will not be in place before 2030.
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2030: The projection by 2030 is that a web of mayor open warehouses and DC exists. It is still not completely
sophisticated but especially in economically strong regions, a reliable and efficient transportation web is available.
Next to the open web, traditional private distribution networks still coexist. Those are mainly owned by large
Indian manufacturing companies such as TATA Motors, which already had a sophisticated system at place.
International manufacturing companies were attracted by the low entrance barriers for transportation and the
cheap labor costs. Therefore they mainly rely on the open network and push improvements such as palletization
and standardized packages forward. Globally a trend to standardized, intelligent containers takes slowly place.
Trucking companies remain relatively small compared to global players, but due to the growing economy the
standard size of a trucking company grows and enables investment into larger and better equipped trucks. First
companies already started in the mid 20 to use and share trailers in strategic coalitions, which enables them to
operate locally but to provide over regional services to the DC, resulting in higher utilization of the trucks because
they return after one shift to their base town, so that another driver can use it. This trend continued until 2030
and the truck fleet got modernized. Other industries started to implement a similar distribution web already in
the mid-20. Especially the fragmented consumer goods industry saw huge opportunities (see next part of the
report).
2050: The global supply chains rely on open warehouses and distribution centers and so does India. After India
implemented a warehousing and distribution network mainly for the manufacturing industry, other industries
followed. Especially the consumer goods industry with the booming e-commerce sector profited from the strongly
growing middle class due to the manufacturing success. The e-commerce sector with the prior Mom and Pop
stores saw advantage of this system for same day and even next hour deliveries, relying heavily on the small
warehouses within Indian cities. This next generation of big warehouses didnt need any financial support from
the government, due to huge investments from the individual industries.
Mom and Pop Model: A boon in interconnected Supply Chain Model
As described before, the Mom and Pop stores are currently the backbone of the Indian grocery distribution. But
the current distribution is based on the following system, which is inefficient and supports congestions within the
city:
Currently every Mom and Pop store has different distributers, one for each manufacturer such as Nestl for
example. Therefore each Mom and Pop store receives many small deliveries by many small trucks instead of a
consolidated shipment every day. The following map will present a directive picture of the Mom and Pop network
and wholesale network in a particular street (Chandni Chowk) of New Delhi.

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Figure 48: Whole Sale Stores in Chandini Chowk Figure 49: Mom & Pop Stores in Chandini Chowki
(Google Maps, 2015)
(Google Maps, 2015)

The challenge is to connect the Mom and Pop stores in an efficient way to the distribution web. Instead of the
current system, the distribution systems for Mom and Pop stores should be more consolidated in the sense that
a Mom and Pop store only needs to receive one shipment per day, which includes the products of different
manufacturers. The idea of the open distribution and warehousing web described above can be used here again:
The current distributors expend their product variety to all products of a standard Mom and Pop store and would
be replenished on a daily basis from the local open DC and warehouses, which were described in the previous part
of this report. The job of the local DC is to split their bigger shipment sizes into smaller ones, which are needed by
the distributor. This distribution web is basically structured the same as currently in the USA or in Europe, the
difference is that small local players take care of the distribution instead of large grocery companies such as
Walmart or Kroger. Because of the larger product variety it is important for the distributors, that the
replenishment cycle is considerable short, because the available storage space is limited and therefore these
distributors cannot maintain the same safety stock for all products. The distributor then delivers on a specified
order to a smaller number of stores than before. But since their revenue per shipment is larger and they dont
have to visit such a large number of stores as before, the total profit is most likely to remain the same or even
increase due to smaller transportation cost. Another effect is that in total there will be less travel within the
congested areas of the Mom and Pop stores, which relaxes the traffic situation a little bit.
The described changes above are not very difficult to implement as soon as the distribution web is in place which
will be approximately between 2020 and 2030 according to our scenario. Meanwhile smaller improvements might
be able to be achieved.

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2020: Consolidation on a smaller level for example for the products of a couple of manufacturing companies can
be done by each distributor. The number of offered products will be mainly limited to the available space of the
distributor in order to assure certain service levels. Since space is very limited within the town, increasing the
warehouse size is most time not an option and therefore only the more flexible and sophisticated distribution web
with shorter lead times will enable distributors to offer a broader product variety. This will be the case around
2025 for the first major cities. IT-startups will probably work on easy to implement but more advanced order
technologies in order to reduce the lead time as well as the related work to place and process an order. A basic
idea might be an App-based ordering system, which could replace the current model of phone calls or written
order lists. This requires only small investments especially for the Mom and Pop stores and for the distributors
because only a smartphone or tablet is needed, which most likely will be no constraint anymore at this point of
time.
2030: By 2030 the distribution web is in place for all major cities, so that a quick and efficient replenishment takes
place for the distributors and Mom and Pop stores. Moreover, Mom and Pop stores are able to offer additional
services such as ready-to-pick-up-orders to their customers. The customers are able to place the order on an app
and then only have to pick up the bag on their way back from work to home. This app might be even connected
to the App for the replenishment of the Mom and Pop stores from the distributors, providing more visibility over
the supply chain and improving the availability of products, which the store normally wouldnt have in stock. The
total effect would be shorter lead times, fresher products and therefore higher customers satisfaction.
Mom and Pop Stores in coalition with E-Commerce
A Crisil Research report estimates that online retailing will become an INR.500,000 million industry by 2016 with
revenues surging from around INR 15,000 million in 2007-08 to an estimated INR 139,000 million in 2012-13 or
a compounded annual growth rate of 56 per cent. From around 8 per cent share of the organized retail market in
India now, online retailing will zoom to around 18 per cent by 2016. The key drivers of growth of E-commerce in
emerging markets can be attributed to the following 4 factors increased penetration of internet, busy lifestyles
& lack of time for offline shopping, lower online prices compared to brick and mortar retail stores, and availability
of much wider product range compared to what is available at brick and mortar retailers.

Figure 50: Proportion of organized and unorganized retailing

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Figure 51: Retails-things to do (KPMG, 2015)

With the increasing dependency on E commerce and keeping in perception the idea of interconnected supply
chain, the existing infrastructure and especially the future structure as described before of Mom and Pop stores
can be materialized into our benefit. The proximity of these stores to the demand centers will be a huge
advantage. This would help the E-commerce companies cover the last mile and reduce the delivery time to a few
hours. With such an extensive infrastructure, one can easily build a well reached physical internet of retail chain.
With the coalition of E-commerce with the Mom and Pop stores, we do not want to restrict the business model
to only such an arrangement. Basically two different concepts between E-Commerce and Mom and Pop stores
might be possible at the same time:
o

Customers order products online and would pick up their shipment from a prior defined Mom and
Pop store. This concept is basically based on the same concept as for the grocery distribution by Mom
and Pop stores. The only difference is that the product variety is not limited to grocery but contains
all products offered online. Since the concept is very similar, it is not described in more detail.
Distribution by Auto-Rickshaw and small taxis in cities and Cycle-Rickshaw in small towns.

2020: India is known for its public transportation through small vehicles called Auto-Rickshaw and small taxis in
cities and Cycle-Rickshaw in small towns and villages. We can take an advantage of such a widespread segment in
light of the operations of Mom and Pop stores. The Mom and Pop stores can collaborate with this industry and
use them for home deliveries. The fulfillment can be channelized through smaller mini pick up vans. This would
mitigate the problems of traffic congestion.
2030: The E commerce players will realize the importance of the Mom and Pop stores and would collaborate with
them for making the last mile home delivery. The ordering mechanism might be carried out through apps on
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smartphones. The E commerce will use the Auto-Rickshaw Network to make the last mile deliveries. The
management of this leg of logistics could be designed on the model of crowd sourcing. The following schematic
explains the concept further:

Figure 52: Coalition of E commerce and Mom & Pop Stores

Salient features of the interconnected network:

The auto-rickshaws will operate on crowd sourcing concept. They will act as a blend of public
transportation and home delivery vehicles.
Orders can be placed through apps and websites.
Shared warehouses for different companies.
City warehouse to serve the demand of the cities. The present whole sellers warehouse can be renovated
for this purpose. They will be replenished from the warehouse.
All flow of information will happen on the cyber platform.
Mom and Pop are the last pocket stores for the fulfillment of demands.
Toats can be used to deliver products at home and can be rotated.

2050: The idea of interconnected retail supply chain presented can be further developed by use of drones for
replenishment at the different restock centers. In 2050, the team envisions to establish a well interconnected
supply chain, taking advantage of the new technologies and the existing extensive infrastructure.

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Cold Chain in India: The Future

The current lack of cold supply chain infrastructure in India will allow the cold supply chain in line with the concept
of the interconnected supply chain. In order to do so, we can exploit the fragmented warehouse system present
due to the largely Mom & Pop retail system. Some of the ways in which we can overcome the current challenges
are:
Standardization: Introduce uniform standards for packaging and temperature requirements for various
commodities. These can be introduced by the National Centre for Cold-chain Development (NCCD) in
concurrence with:
1. Central Drugs Standard Control Organization (CDSCO) - Pharma
2. Food Safety and Standards Authority of India (FSSAI) - Food
Uniform packaging and temperature requirement standards will facilitate a larger degree of consolidation.
Consolidation: In order for the capital intensive cold supply chain to be cost-effective there is a need for
consolidation. In order to facilitate this, we envision the presence of large regional warehouses which are fed
by multiple manufacturers which then consolidate these products to deliver them to satellite warehouses that
support the local Mom & Pop stores/e-commerce. In order to have these small local warehouses, we believe
that some of the warehouses that are already present will be upgraded to support the cold supply chain
requirements.
Technology: Development of cheaper material handling and cold storage equipment will make the system
previously described financially feasible.
Logistics Support: The development of 3PLs which can provide reefers for will allow coordinated milk runs to
pick up goods from multiple farm gate collection centers.
Uniform Annual Requirement: With standardization and consolidation, there would be uniform demand for
cold storage leading to efficient utilization of installed capacity.
The Future: Third Party Supply Chain Solution Firms
In the future, we believe that manufacturing firms will be able to outsource all their procurement functions which
do not form part of their core competency to specialist firms. These would include activities like scheduling orders,
deciding order quantities, managing inventory and transportation.
The Supply Chain Solution Firms will specialize in select niches of procurement and would have a set of suppliers
and logistics providers that they would manage to meet their clients requirements.
Example:
Mahindra Tractors, Mumbai.

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Mahindra currently outsources nearly 80% of its manufacturing. Child parts, sub-assemblies are procured in the
following categories:
1.
2.
3.
4.
5.
6.

Castings
Forgings
Sheet Metal
Hydraulics
Electrical Equipment
Plastics

In the current scenario, Mahindra handles all procurement and logistics. This leads to the following issues:

Export Tractor volumes are not sufficiently large enough to justify machine changeovers, leading to
premium payment for small lot sizes.
Small lot sizes with priority delivery leads to premium freight rate to be paid to ship goods in semi loaded
trucks.
Large Safety Stock needs to be maintained to account for chance of supply variability due to dependence
on one (in most cases) or few suppliers.

However, with the growth of Supply Chain Solution Firms, Mahindra will be able to outsource all procurement
activities to these firms. They will be able to have one or more firms that specialize in castings, forgings, sheet
metal etc. procurement contracted to service the manufacturing plants.
This will have the following advantages:

Since the Supply Chain Solution Firm will have multiple clients, it will be able to exploit economies of scale
to give their clients better prices.
Suppliers will have stable demand due to the ability to service multiple clients.
Logistics costs will be reduced due to greater opportunity for consolidation.
Supply uncertainty for the manufacturer will be reduced due the ability of Supply Chain Solution Firms to
shift demand easily in case of capacity constraints from a certain supplier.

Note:

Advantages of third party procurement will especially stand out when, procurement is carried out for
parts manufactured from standardized equipment (like 3D printing, modular factories etc.).

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Summary
The first part of the report introduced the major challenges India faces due to its fast growing population which
will be more than 1.8 billion by 2050. Therefore the Government of India focuses on strengthening the
manufacturing industry by making India more attractive to foreign investors and companies. The goal is to make
India a global manufacturing hub that will be able to increase the wealth and the living standard for its population.
Global supply chain will play a major role in this plan of the Indian government.
After the general motivation, the report analyzes the current situation in India with a focus on supply chain related
issues such as logistic infrastructure, cold supply chain, grocery industry by Mom and Pop Stores and warehousing
in India. According to us India in many areas is still underdeveloped although the government started many
infrastructure development programs in the last decades. Huge deficits are especially identified in efficient
transportation throughout India due to different taxation laws, a non-existence of large logistic providers as well
as an improper use of intermodal transportation. Additionally cold supply chain infrastructure is available only in
very limited scope, resulting in wastage of food.
After the analysis of the major problems, the report presents the vision of interconnected supply chains, which
make usage of the current infrastructure as much as possible in order to tackle the previous identified problems.
The concluding part presents a roadmap for the development of India based on interconnected supply chains on
different levels of detail. The major concept is to use the currently available unconnected small local warehouses
and connect them with large modern regional warehouses, which are strategically located at the national
highways intersections. In contrast to current distribution systems, this web is not limited to a single company but
is open to every company. The idea behind this distribution web is, that fewer investments are needed and that
it will attract many international manufacturing companies since the financial barriers for entering India are
decreased. On a more detailed level, the report suggests a similar distribution web for the Mom and Pop stores,
which are the backbone of Indias grocery distribution. This concept is further developed by using the very spread
system of small stores for the last mile delivery in the E-Commerce industry. On a larger level again, the report
develops an intermodal transportation system for the clustered steel and automotive industry in India. It presents
an idea to shift the imbalance of the Indian logistic industry from the road to railroads and waterways. Last but
not least, a concept for the development of the cold supply chain in India based upon the idea of physical internet
is presented.
In conclusion it can be said that India faces today a lack of infrastructure, which slows down its economic growth.
Therefore India has to make huge investments in the future. Todays supply chain systems use huge consolidated
warehouses and DC, which belong only to a single company. This kind of system does not use the currently
available infrastructure in India at its maximum potential and therefore requires bigger investments and more
time than the suggested interconnected supply chain system. Therefore India might be able to turn its current
weakness into a strength, relying on more decentralized transportation and distribution webs.

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