Digitisation of logistics must be consistent with corporate strategy

IIM Bangalore’s Prof. Amar Sapra suggests that before implementing digitisation of the logistics network, companies should endeavour to maximise the benefits from traditional supply chain planning – planning production well, keeping the right level of safety stock, high fill rate, route optimization, etc. Also, the technology adoption should be consistent with overall business strategy with a clear cost-benefit analysis.

IBT: What can be done to facilitate the digitization of logistics networks? What technologies can be leveraged to attain the same?

Prof. Amar Sapra: The digitization of logistics networks means capturing of information through sensors and then uploading it to cloud networks. Usually, it results in gigantic datasets, so their analysis requires big data methods. The required technologies are sensors (to be used as part of IoT), networking equipment and solutions, cloud, and big data.

Like any other technology adoption, digitisation requires the scale of the business to be large. If the scale is small, it is economical to just run the processes manually. Since the logistics sector was largely fragmented in India until recently, the general technology adoption was small. This is changing with the sector becoming more organised with the implementation of GST.

From a policymaker’s perspective, the first thing to do to facilitate the adoption is encourage businesses to operate on a larger scale. This has already happened with the rollout of GST. The second thing is helping an ecosystem develop to ensure that necessary technologies are available at a reasonable cost. This can be facilitated by declaring the sector important for the economy and ensuring financial incentives in the form of lower taxes or tax breaks and easy availability of financing. A third step that can be taken is enhancing awareness. This can be done by facilitating and funding workshops and seminars.

IBT: What advantages will this have for manufacturers? How will it enhance the ease of doing business in the country & enhance the sector’s contribution to GDP?

Prof. Amar Sapra: Manufacturers can benefit in multiple ways. The most important is improved supply chain transparency. If manufacturers have better information on the location of their consignments (both inbound and outbound), they can plan their production and sourcing more efficiently. They can also take corrective actions more promptly, should a consignment get stranded on the way. Overall, this implies a more efficient and responsive supply chain, which should lead to lower costs.

A second emerging application is in ensuring the quality of the perishables such as drug ingredients and food products during transit. By continuously measuring and recording parameters such as temperature and humidity through sensors, both the vendor and customer can certify that the product did not spoil during the transit.

Another application is in real-time inventory information. Through the use of sensors or RFID technology, it is possible to count inventory on-hand in real-time. Currently, most manufacturers count stock once or twice a year since the process is manual and tedious. This means that errors in stock, which are caused by returns or misplacement of inventory, keep adding up. With real-time inventory count, manufacturers can save on inventory-related costs and improve service level.

The above applications, if implemented well, have the potential to reduce operational costs. Naturally, if the logistics costs of manufacturers go down, their products become more competitive.

IBT: Does India have the necessary ecosystem to digitize its logistics network? What is your take on the draft National Logistics Policy that the government is working on?

Prof. Amar Sapra: The main ingredient required for digitization is an appetite within enterprises for adopting technology, which usually requires scale. As I noted before, until recently, the logistics sector within India was fragmented. However, with the implementation of GST, the sector is organising. With increasing scale, it would make more and more companies economic sense to invest in digitization over next few years.

The other side is the availability of the technology and vendors within India. A large number of vendors are indeed operating in India and the technology ecosystem does not appear to be a problem.

The draft National Logistics Policy is very ambitious in its scope. Undoubtedly, it is a welcome step. It covers nearly every facet of logistics in the country. The policy recognises the importance of digitisation of the sector and wants to promote it. I particularly appreciate the proposal to set up a portal for regulatory compliance.

Compliance with requirements of various government agencies such as customs is a major activity, which increases shipment time. If the portal works, it can increase the productivity of the logistics operations.

IBT: What are the major impediments to the digitization of logistics? How can these be overcome?

Prof. Amar Sapra: From the business side, the only impediment I see is the lack of sufficient scale of the businesses in the sector. As I noted above, that is changing in both the warehousing and transportation sectors. Over time, leader companies will emerge that will embrace technology and then the rest of the sector will have to follow them. From the policy side, one impediment is lack of a uniformity of standards. When devices have different standards, it becomes difficult for them to communicate, which increases friction.

IBT: Which global best practices can be successfully embraced by digital supply networks? What can Indian manufacturers learn from them?

Prof. Amar Sapra: I am taking the perspective of a manufacturer running its own logistics network here. The first piece of advice I will give is that before attempting the implementation of digitization in logistics, any company should maximise the benefits from traditional supply chain planning. This means planning production well, keeping the right level of safety stock, high fill rate, route optimization, etc. Another practice that I would like to cite is that the technology adoption should be consistent with corporate strategy with a clear cost-benefit analysis.

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Amar Sapra is the professor of Production & Operations Management at IIM, Bangalore. He completed his PhD in Supply Chain Management at Cornell University and Bachelors in Mechanical Engineering at IIT Roorkee. Prior to joining IIMB, he taught at the University of Florida and Cornell University in the US.

His research interests include Supply Chain Management, Pricing and Inventory Management. His research has appeared in top-tier journals such as Operations Research and Manufacturing and Service Operations Management. He has also co-authored a book entitled, Principles of Inventory Management: When You Are Down to Four, Order More (published by Springer in 2010). He has been a “Young Faculty Research Chair” at IIMB.