Indian logistics sector: Time for a digital twist?

COVID-19 has exposed the vulnerabilities of complex global supply chains and reiterated how important it is to have a robust logistics network. Giving the sector a digital twist can make processes smoother, and make companies better prepared to deal with the unexpected.

  • COVID-19 has made the world realize how vulnerable they can be by the disruption of the status quo and how strengthening the logistics sector is critical to economic stability.
  • The Indian logistics sector is marred by the slow adoption of technology. This ushers in operational inefficiencies, cost overruns and poor asset utilization in the sector.
  • These issues need to be fixed if India wishes to improve its ease of doing business rankings and make supply chains more integrated.
  • Leveraging digital technologies like AI, IoT & blockchain is the way to overcome these supply chain problems and improve performance.

The turbulent times of COVID-19 have turned the world upside down, with everything from global supply chains to eclectic industries to economies going topsy-turvy. This unprecedented event has made the world realize how vulnerable they can be due to disruption of the status quo and how important it is to ensure fast and safe movement of goods till the last mile with robust, flexible and disaster-proof supply chain networks.

The pandemic revealed how the logistics sector became the linchpin of the economy as it came to the rescue of the nation. Elias George, Partner and Head – Infrastructure, Government and Healthcare (IGH), KPMG India, notes:

The disruptions caused by COVID-19 have highlighted the criticality of fundamentally rethinking many aspects of human endeavor. Investments in infrastructure have a multilayered spill-over impact on the economy, affecting overall growth as well as the prospects of businesses and individuals.

One thing that has become evident from this experience is that logistics is indeed the backbone of an economy and therefore, it is absolutely imperative to have a robust logistics network in place. Not only does the presence of a strong logistics ecosystem facilitate seamless movement of goods from the point of origin to that of consumption, it also aids an economy’s movement to prosperity.

Thus, logistics plays a catalytic role in terms of boosting exports, generating employment and giving the country a significant place in global supply chains. Thus, as per the Economic Survey 2017-18, the sector offers livelihood to 22 million-plus people and improving the sector would lead to a 10% decrease in indirect logistics costs, leading to a growth of 5-8% in exports.

Challenges faced by the Indian logistics industry

The Economic Survey 2019-20 notes that India (rank 68) lags significantly behind Italy (rank 1) in terms of Trading across Borders on World Bank’s Ease of Doing Business Report (2020). By fixing the issues in the logistics system, the country can significantly improve its ease of doing business and become an economy of scale, thereby attracting more foreign investors.

Parameter India (Delhi) Italy
Export (a) Border compliance 54 hrs; US$ 195 0 hr; US$ 0
Export (b) Documentary compliance 6 hrs; US$ 65 1 hr; US$ 0
Import (a) Border compliance 70 hrs; US$ 260 0 hr; US$ 0
Import (b) Documentary compliance 18 hrs; US$ 100 0 hr; US$ 0

SOURCE: Economic Survey 2019-20.

The Indian logistics is marred by the slow adoption of technology. One reason for this is that the consciousness about the economic benefits of using digital technology is fairly low and collaboration among stakeholders is far from satisfactory. This ushers in operational inefficiencies and poor asset utilization in the sector.

Challenges in this context include inadequate and low-quality multi-modal and terminal transport infrastructure, suboptimal modal mix and inefficient and ill-designed storage facilities for cargo and containers. This consequently results in high and inconsistent cargo transit time, inefficient use of resources and poor fleet management.

A digital reprise

Technology can play a key role in fixing the logistics network, building a smarter value chain and thereby enhancing its contribution to the economy. Reducing human intervention through logistics process automation can prove to be a game changer for various businesses as they look for new ways to streamline processes. Technologically driven logistics companies, which devise and offer freight solutions meant for enhancing logistics operations could help businesses fast-track their value chain operations with their next-gen tools.

At the same time, AI-based solutions can help supply chain leaders avoid disruptions and help significantly shrink average response time to supply chain disruptions through offering pivotal predictive analysis. For example, AI-based control towers can provide advanced warning to a plant when a shipment is delayed by analyzing things like weather conditions, out-of-stock inventory, social trends, news, related shipping delays and border crossing times.

Similarly, in an industry like the ocean freight, which accounts for 90% of goods in global trade, transport remains highly dependent on a flood of paperwork. Spreadsheets and paper-based record keeping leave room for errors and inefficiencies. Moreover, each player may use different database structures and terminology or may take records with different levels of detail.

Blockchain technology can be used to cut down on paperwork and errors, as it offers multi-party visibility and infuses trust, transparency, standardisation and traceability into the supply chain. It resolves the challenges of the error-prone spreadsheet-and-clipboard system & therefore further providing cost savings and greater accuracy.

Further, blockchain technology can also be leveraged to verify suppliers through data stored on a blockchain to provide immutable auditability of a supplier’s status and business. Consequently, it can reduce the time to onboard a new supplier registration from weeks to days.

Logistics industry can also harness Internet of Things (IoT) to ensure safety in supply chain management by reducing human interactions and risk of accidents. It enables effective and optimised warehousing and yard management by enabling more machine-to-machine interaction.  An IoT ecosystem addresses the issue of hidden costs associated with loading equipment and returnable packaging. In a food supply network, for example, device- generated data provides real-time audit trails for professionals & helps them analyze the root cause of issues in the cold chain.

To sum up, COVID-19 has exposed the vulnerabilities of complex global supply chains and reiterated how important it is to have a robust logistics network. These can be bolstered by giving a digital twist to the logistics network. Not only will it make processes smoother, it will also lead to significant gains for the economy. Whether it is a “black swan” event like COVID-19, trade war, act of war or terrorism, regulatory change, labor dispute, sudden spikes in demand, or supplier bankruptcy, organizations that deploy digitization and automation will be better prepared to deal with the unexpected.

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