Consolidate your supply chain network, questioning the need for warehouses
Today, most companies across industries operate through a network of state C&FAs (Carrying & Forwarding Agents) because of CST implication on inter-state invoicing. GST will remove tax barriers between states, thereby creating a single market. The roll-out will replace a plethora of cascading central, state, interstate and local taxes with a single, nationwide, value-added tax on goods and services. This will eliminate the need for state level warehousing and will lead to the emergence of regional consolidation hubs. The number and location of consolidation hubs will be a strategic choice depending on the value density of goods, geographical demand patterns and desired customer service levels (use our GST network calculator to find out the optimal network design for your company). With such a consolidated hub network, the distances from hub to the customer (or in many cases distributor / dealer / stockist) will increase from current within state movement (200-300 km) to inter-state movement (500–600 km). This will pose a new challenge for secondary transportation. Maintaining high customer service levels will require a supply chain partner with fastest transit times, cross-docking capability and JIT delivery models. With our Pan-India cross-docking network across 200+ cities, 50-70% lower transit times with 95%+ reliability and innovative milk-run design capability, we are best positioned to support this secondary transportation requirement.
Reduce factory to shelf replenishment time by 25-30%
Consumer preference for latest manufacturing date products is a reality as it establishes trust on product performance and reliability. It becomes even more critical in certain categories like dairy products, confectionary, nutrition, beverages, fruits & vegetables, etc. since they have a short product shelf life and require refrigerated cold chain facilities. To cater to this consumer need for product freshness, finished goods need to reach the store shelves from their manufacturing locations in the shortest possible time. GST will enable companies to create efficient pull-based supply chain supported by consolidation hubs and faster transit times. Additionally, certain states with large geographical distances will provide an opportunity to reduce the overall plant to shelf distances because of improved hub and cross-docking network. For example, a Nagpur store shelf can get serviced from a factory in the north by the new consolidated hub at Indore vs the old state C&FA in Bhiwandi. At Rivigo, we provide the most optimized lead times for critical shelf life categories with our planned 25+ trans-shipment cold storage cross-dock network, to help these businesses unlock the full GST advantage.
Lower inventory warehousing costs by 40-50%
Primary objective of holding inventory is to meet the desired customer service level. Most companies cater to a consumer demand for a range of SKUs arising due to difference in consumption levels, disposable income, consumer preferences and product features. Safety stock estimation for each of these SKUs is dependent on the service level, demand variability, lead times and delivery variability. Post GST consolidated hubs will help in reducing demand variability due to “Bullwhip Effect”, according to which, demand variability reduces as we remove inventory holding points in the supply chain network and move closer to the factory. This combined with faster lead times and higher delivery reliability will result in a potential saving of 40-50% in inventory warehousing costs while maintaining same or better customer service levels. With our driver-relay network of 70+ pit-stops across India, we deliver 50-70% lower transit times and 95% + on time delivery reliability.
Improve your profit margins by 1-2% points through supply chain cost reduction
As companies prepare for GST and evaluate the timelines and effort required to implement the supply chain network change, they must assess the potential impact of GST on their profit margins. According to Rivigo GST experts, companies can realize 1-2% points impact on total profits due to the cost reduction on outbound logistics in:
- Primary transportation (Plant to hub movement): With consolidated hubs, order lot sizes would increase and hence large trucks (>=32 feet) can be used more frequently for delivery. As estimated, fewer consolidation hubs vs state C&FAs will also result in distance reduction from factories. Additionally, working with a reliable service provider would result in lower DEPS (damages, excess, pilferages and shrinkages) thereby reducing overall primary transportation costs.
- Inventory management: Safety stock can be optimized by implementing hub network to reduce the demand variability and working with an efficient logistics provider offering faster transit times and better delivery reliability. Companies can also opt for 3PL shared multi-client warehousing facilities which will operate at larger economies of scale and bring down manpower and other fixed costs.
- Secondary Transportation (Hub to customer movement): Since the distances from the hubs to the end-customer would increase, proportionally the costs are also expected to increase. Companies can reduce this by implementing JIT milk run delivery model, combining deliveries of multiple customer for better feeder truck utilizations and direct factory invoicing for big customers which would decrease the overall secondary transportation cost.
For further gains and better service, companies should think about end-to-end 3PL solutions– zero warehousing choice, JIT Milk-run operations, direct factory invoicing, etc. We are working with our customers across industries helping them implement innovative solutions to realize the full potential of GST.