International J ournal of Mechanical and Production Engineering (IJ MPE) ISSN No.

: 2315-4489, Vol-2, Iss-1, 2013

113
ISSUES AND CHALLENGES OF SUPPLY CHAIN MANAGEMENT
IN INDIA

M.VENKATA RAMANA REDDY
1
& N.V.S.RAJU
2


1
G.Narayanamma institute of Technology and science for women, Shaikpet, Hyderabad-08
2
Department, J N T U, Jagityal, Karimnagar dist, Andhra Pradesh

Abstract- Despite the extensive research carried out in the area of supply chain management (SCM) all over the world,
SCM practices have not yet been well adopted in developing countries like India. This paper highlights the present issues
and challenges of SCM in India. Supply chain management is the discipline of optimizing the delivery of goods, services
and information from supplier to customer. An effective supply chain makes companies competitive and profitable. The best
example from the global arena are the companies like Dell, Wal-Mart and Amazon etc. However some Indian companies are
moving towards making theirs supply chain efficient, but most of them have done very little. If companies choose to
compete in the global environment, they will have to look for ways to reduce expenditures of their suppliers and channel
partners. This reduction in cost will lead the revamping of supply chains and significant investment in information
technology, because Information Technology (IT) tools and techniques play very important role in the performance of the
SCM.

Key words- Supply Chain Management (SCM), Information Technology (IT) tools, cost reduction, issues and challenges in
Supply Chain Management in India.


I. INTRODUCTION

Supply chain Management (SCM) seems to be a
growing area of interest amongst researchers and
practitioners from varied disciplines. Supply chain
(SC) has evolved from the era when related to
materials flow (Forrester, 1961) were introduced,
which later on become part of SCM. SC has evolved
very rapidly since 1990s showing exponential
growth. Generally SC consists of different functions:
logistics, inventory, purchasing, and procurement,
production, planning, intra-and inter-organizational
relationships and performance measures. To improve
the overall performance of SC the members of SC
may behave as a part of a unified system and
coordinate with each other. Some Indian companies
are moving towards making their supply chain and
logistics efficient, most of them have done very little
or nothing. If companies choose to compete in the
global environment, they will have to look for ways
to reduce expenditures of their suppliers and channel
partners, logistics or distribution partners. This
reduction in cost will lead the revamping of supply
chains and significant investment in information
technology, because information technology tools and
techniques plays very important role in the
performance of the SCM. .

This paper is organized as follows: Section 2
describes Literature Review, section three gives
information about Information Technology (IT), IT
tools and ITs importance on SCM, section four
highlights the issues and challenges of SCM in India,
section five gives the overcoming challenges and
issues of SCM and section six presents conclusive
remarks of SCM in Indian context.


1.1 SCM defined
The Council of Logistic Management (CLM) (2000)
defines SCM as the systematic, strategic
coordination of the traditional business functions and
tactics across these business functions within a
particular organization and across business within a
supply chain for the purpose of improving the long
term performance of the individual organizations and
the supply chain as a whole.

II. LITERATURE SURVEY

The size of the Indian logistics market is estimated as
US$ 14.31 billion in 2004, US$19.54 billion in 2009
and is expected to grow up in 2013. The logistic cost
as percentage of the Gross Domestic Product (GDP)
stood at 13% in India in 2004 (Confederation of
Indian Industries(CII) results), in comparison to 11%
in Europe and 9% in the U.S. often total logistic cost,
transportation represents 39% while warehousing,
packing and inventory accounts for 24% of the total
costs. Higher logistic costs mainly due to poor
infrastructural facilities in the country. The higher
logistic costs represent high products /service costs in
the international market.

The logistic cost also influenced by constraints such
as shortage in electricity and skilled labor, road, port
congestion etc. Shipments by road that can be
completed in three days in the US. For example, it
could take as long as nine days in India. Ships in
India can wait for five days to dock at an Indian port,
compared to little or no wait time in Europe. Further,
there are few logistic firms in India with fleet size
Issues And Challenges Of Supply Chain Management In India
International J ournal of Mechanical and Production Engineering (IJ MPE) ISSN No.: 2315-4489, Vol-2, Iss-1, 2013
114
larger than 100 trucks. Moreover, very few trucks are
fitted with GPS tracking devices, thereby preventing
any real time tracking shipments. At the same time
Indian organizations lag in supply chain performance.
For example pantaloon retail, a major Indian retailer,
had inventory equivalent of about 100 days sales
from 2006 to 2009. Even after improvements made in
2010, their inventory levels fell only to about 77 days
of sales. Yet this is still well above the inventory
levels of leading retailers in developed economies.
Wal-Mart, for example, has an inventory equivalent
of only 29 days of sales in 2010(Supply Chain
Management Review, July 2012). Additionally many
supply chain activities such as transportation,
warehousing, and retail store replenishments remain
very fragmented in India.

Now Indian organizations are looking for
collaboration with supply chain partners to cope up
with the increasing uncertainty of supply networks,
globalization of business proliferation of product
variety and shortening of product life cycles.

The recent technological advances in IT have made it
possible to make supply chain lean and thin.
Holistically speaking, without IT systems in place, no
supply chain could be agile nor could adapt and align
fast to the changing business needs.

III. IT TOOLS AND TECHNOLOGIES

Information is essential to making supply chain and
logistic decisions, because IT provides the global
scope needed to make optimal decisions. Best in class
companies world wide have successfully used
sophisticated IT systems to streamline process and
enable effective decision making. The information
necessary to achieve global scope, corresponding to
the different stages of the supply chain as 1) supplier
information 2) manufacturing information 3)
distribution and retailing information and 4) demand
information.

IT is used to improve inter organizational
coordination (McAfee, 2002; sanders 2008) and in
turn, inter organizational coordination has been
shown to have a positive impact on select firm
performance measures such as customer service, lead
time and production costs.

IT helps to link the point of production seamlessly
with the point of delivery or purchase. IT allows
planning, tracking and estimating the lead time based
on the real data, advances in IT (eg. Internet,
electronic data interchange, ERP, E-business and
many more) enable firms to rapidly exchange
products, information, and funds and utilize
collaborative methods to optimize SC operations.
Internet and web can enhance effective
communication, which helps members of SC review
past performance, monitor current performance and
predict when and how much certain products need to
be produced and to manage workflow systems(Liu et
al 2005)

3.1 Supply Chain Coordination: The supply chain
members perform different functions or activities like
logistics, inventory management. Ordering
forecasting and product design involved in
management of flow of goods, information and
money. In traditional supply chain, individual
members of SC have been performing these activities
independently. The SC members may earn benefits
by coordinating various activities (Arshinder, Kanda,
A., Deshmukh, S.G., 2008). The lack of coordination
may result in poor performance of supply chain.
Fisher et al. 1994 has cited a study of the US food
industry, which estimated that poor coordination
among SC partners was wasting $30 billion annually.
The mismatch between supply and demand results in
rise in the cost of stock out, markdown, expediting,
transshipment, advertising and sale preparation,
excess inventory.

Coordination can be visualized in different functions
such as logistics, inventory management, forecasting,
transportation etc. Manufacturers and retailers etc can
effectively managed using coordination.

3.2 Collaborative Planning Forecasting and
Replenishment (CPFR)
CPFR model was developed by SCOR (Supply Chain
Organization) and at its essence, CPFR is a set of
business processes that helps eliminate demand and
supply uncertainty through improved communication
between supply chain trading partners (Larsen et al.
2003). Nine CPFR is a model to develop
collaboration and this to happen there should be a
complete integration between manufacturer, their
suppliers, shipper, and logistics partner. The primary
benefit of integration is that all business units and
supply chain partners share the same data,
synchronize action and minimize distortions and
bullwhip effect in demand management. This
integration would require technology platforms such
as ERP, SRM or CRM platforms or legacy systems
connected through web service.

3.3 Enterprise Resource Planning (ERP)
ERP provides the transactional tracking and global
visibility of information from any part of a company
and its supply chain that allows intelligent decisions
to be made. This real time information helps a supply
chain to improve the quality of its operational
decisions. This ERP software has been successful in
improving data integrity within the supply chain.

3.4 Customers Relations Management (CRM)
In the changing Global environment, increasing
customer satisfaction is one of key success factors in
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International J ournal of Mechanical and Production Engineering (IJ MPE) ISSN No.: 2315-4489, Vol-2, Iss-1, 2013
115
all industries so also in supply chain management. So
it is very much essential to make all policies keeping
in view customer and availability of technology. In
traditional method of CRM, phone, paper, personal
interaction etc are used for communication and
relationship. But with IT enabled SCM with CRM
software can store customer details, while making
transactions with the customer monitors buying and
behavior of decision of different customers minimize
internal fault, help in the automation process,
automatic tracking and response, bill finalization and
analysis of communication pattern.

3.5 Supplier Relation Management (SRM)
Supplier Relation Management is to streamline and
make more effective the process between an
enterprise and supplier. SRM includes both business
practices and software and is a part of the information
flow component of SCM. According to the
proponents, the use of SRM software leads to lower
production costs, higher quality but lower priced end
product.

3.6 Electronic Supply Chain (E-Supply Chain)
With the quick development of Electronic commerce,
SCM can be made more effective through electronic
means. For instance through web site each member in
the chain can access the shared database. E-Supply
chains can be designed and studied through a
systematic approach, which considers the various
levels at which information technology can be
applied in a traditional supply chains.

3.7 Integrated supply chain network
An integrated supply chain network is a group of
independent companies, often located in different
countries, forming a strategic alliance with the
common goal of designing, manufacturing, and
delivering right-quality products to customer groups
faster than other alliance groups and vertically
integrated firms. The structure of an integrated supply
chain network held together by a logistics and
information network is shown in Figure. Such an
integrated supply chain provides the basis for
application of various information technologies that
transformed it into e-supply chains.

3.8 Bar coding: Barcodes have influenced almost
every aspect of supply chain management. The use of
barcodes makes business integration process in SCM
simpler and more efficient. Barcodes are an effective
identification tool that helps track products and
greatly reduce errors. Barcode technology has a range
of advantages such as being a affordable, easy to
handle and accurate. These advantages make
barcodes widely used in SCM and accepted across
world. Employing barcode technology in inventory
practices enable timely and accurate information that
helps to operate with greater warehouse efficiency
and lower inventory on hand. Using barcodes along
with the Just In Time(JIT) inventory method allows
companies to estimate precisely whey run out of
stock dependency on huge buffer stocks.

3.9 Radio Frequency Identification (RFID)
Radio Frequency Identification is a type of automatic
identification system. The purpose of RFID system is
to enable data to be transmitted by a portable device
called tag, which is read by RFID reader and
processed according to the needs of a particular
application. The data transmitted by the tag provides
identification or location information or specifies
about the product tagged, such as price, color date of
purchase etc.

Wal-Mart has successfully tested the technology with
the top 100 suppliers, it is now taking steps to expand
roll out of the new technology across other suppliers
and stores.

In India very few companies are implementing this
technology. Because of the high cost of
implementation of the system, most of the Indian
companies are not in favour of RFID technology.
This high cost is associated with retooling, extensive
partner relationship across channel members
particularly, manufacturers and retailers. In future,
with a prospect of cost effectiveness, RFID may be
put to use extensively.

3.10 Web Services
Not all companies can afford to deploy the recent
ERP, SRM, CRM and other software modules as
these are expensive and because replacing the legacy
ones entail huge cost and effort. However, it is
necessary to integrate the old traditional system with
the company and supplier and other channel partners.
The web services do exactly that to integrate the old
legacy system with one another thus saves cost on the
deployment of the costly new IT systems.

IV. SUPPLY CHAIN MANAGEMENT ISSUES
AND CHALLENGES IN INDIA

4.1 High cost of logistics.
Logistic cost is 13% of Indias GDP in comparison to
11% in Europe and 9% in the U.S. of the total logistic
cost, transportation represents 39%, while
warehousing, packing and inventory accounts 24%
of the total costs(365businessdays.com). Higher
logistic costs are mainly due to poor infrastructure
facilities in the country.

4.2 Physical infrastructure a bottleneck
Insufficient distribution channels and infrastructure
bottlenecks restrict the scope to reach consumer of
products nationwide. Though the country has
developed the largest road networks in the world, yet
the regional concentration of manufacturing in Indian
but geographically diversified distribution activities
Issues And Challenges Of Supply Chain Management In India
International J ournal of Mechanical and Production Engineering (IJ MPE) ISSN No.: 2315-4489, Vol-2, Iss-1, 2013
116
as well as infrastructure bottlenecks, e
infrastructural facility is not comparable to developed
countries. Less than half of the roads were paved in
India and less than 2000Km were express highways
in 2007, which was significantly lower than chinas
30,000Km (365businessdays.com). The scarcity of
tracking technologies like global positioning systems
(GPS),(www.scmr.com) the inability of ports to
handle goods quickly, and the lack of modern
technology in warehouse. Though there are
considerable investment underway to address these
issue, such as projects take large amount of time in
India by comparison, emerging economic countries
like china and brazil have been able to complete
infrastructural projects on a considerably shorter
timeline.

4.3 The low acceptance of integrated Third party
logistics (3PL)
Apart from the infrastructural challenges, business in
India doesnt have the access to the best supply chain
services for a variety of reasons. The low acceptance
of integrated third party logistics (3PL) firms in India
is one part of the problem.

The cost differential between the integrated 3PL an
existing transport firms is wide. So shippers find it
difficult to justify the additional cost of a 3PL, even
though they would be receiving high technology
support and generally superior service from such
provider. Further, the infrastructural challenge
mentioned above constrains the internationally
known 3PLs from operating with the same speed and
efficiency as they do in developed economies.

4.4 Cost of quality service
According to industry analysts, logistic costs in India
are among the worlds highest. Outside of the metros
and few cities the delivery time is very uncertain.

4.5 Technology usage and inadequate investments in
IT
Technology usage is very low in India, which
restricts the scope of increasing productivity and
efficiency (365businessdays.com). Though India is a
leading exporter of IT products, Indian companies are
unfortunately least inclined to use them. Hence, the
IT penetration in India is low. This is not surprising
that Indian companies are 1.3% of the gross sales. For
companies that use IT systems, there seem to be a
clear bias towards using stand-alone IT systems.

Using these systems would mean that collaboration
would be low as these stand-alone systems are not
friendly when it comes to implementing recent supply
chain models like CPFR, VMI etc. in the present
scenario the supply chain around the world is On-
Demand, using technology such as internet, mobile,
wireless, RFID etc, whereas Indian supply chain is
still to come out of this slumber.
V. IMPROVING THE SUPPLY CHAIN
CAPABILITIES IN INDIA

5.1 Carefully analyze the infrastructure: it is
important to consider infrastructural issues such as
high ways, and access to ports and supporting the
information technology.

5.2 Investment in IT
If the Indian companies are to adopt global supply
chain standards and benchmarks against the global
companies there is a long way ahead. In addition, this
way starts with investment in information technology.
This investment will go towards making companies
connect with suppliers and partners. This connectivity
will improve the visibility in the chain and thus
collaboration can take place with partners. This
collaboration will make the supply chain agile and
align itself to the changing market demand.

5.3 Leverage IT Capabilities
The IT talent is not hard to find in India and Indian
companies can use it to their advantage. They can
employ trained IT engineers at lower cost as
compared to the counterparts in other countries and
thus become competitive.

5.4 Align Supply Chain Strategy with Business
Strategy
So far, Indian companies have marketing, personnel,
accounts and other departments but no supply chain
department to speak of little. Purchase or
procurement section has more or less carried out the
supply chain and logistic functions. These
departments however are not aligned to follow supply
chain as a strategic area and are often not in harmony
with other departments or with partners. Now the
time is ripe to align competitive advantage, increase
profitability, and market share in these challenging
times.


5.5 Potential savings for India
Is possible if logistic costs decreases by 1%,
approximately $4.8 billion per year as Indian GDP
is 480 billions( Indian logistic cost per GDP is
13%)(365businessdays.com).

VI. CONCLUSIONS

India is one of the worlds fastest growing economies
with diverse markets. Managing supply chain in such
a vast country is most challenging for any
organization because of business practices,
government regulations, technology capabilities,
transportation infrastructures etc. the current paper
has explored the state and issues of supply chain
management of India. To achieve an improved
performance, Indian organizations should focus on
applying techniques which offer a strategic
Issues And Challenges Of Supply Chain Management In India
International J ournal of Mechanical and Production Engineering (IJ MPE) ISSN No.: 2315-4489, Vol-2, Iss-1, 2013
117
opportunity for companies to gain an increase in
revenue. This is possible by improving the
infrastructural development and refocusing on
integrating IT with supply chain management and
Logistics. Organizations must realize that they must
harness the power of IT to collaborate with their
business alliances.

Research methodology: The research is based on
secondary data, which includes compilation of
research articles of the experts in the field and
reflection of the various books on supply chain
management. The approach is exploratory in nature.

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