Today, supply chains are under constant pressure to deliver higher performance at low cost. Supply chains need to improve their functionalities with the integration of digital tools like artificial intelligence (AI) and internet of things (IoT). The implementation of AI can facilitate the setting up of a robust route optimisation system for channellising cargo movements through the most speed-efficient routes. IoT can provide customers with a credible tracking interface, enabling them to monitor the movement of their goods from the purchase to the delivery stage. The Covid-19 pandemic has severely impacted supply chains across the country, leading to delays in goods clearance and a significant increase in average turnaround time. Social distancing norms have made digital tools and technology an essential requirement for businesses to bounce back.
Labelling and packaging are an integral part of value-added services in supply chain management. The labelling of products is offered by service providers as per consumer requirements. Customised labelling helps in the fast handling of products, thereby reducing delays in the supply chain. This segment consists of retroflective labels, barcoded labels, labels on products bound for export with a country of destination requirement, swing tags, security tags, radio frequency identification tags, price and weight stickers, and batch number, specific content, and promotional labelling.
At present, the packaging industry in India is dominated by flexible plastic packaging, which is lightweight, and small in size and has the lowest environmental impact. It is more visually appealing, cheaper and durable. Shrink wrapping, sustainable packaging, seaweed packaging, corn starch packaging and recyclable air pillows are some of the emerging alternative methods of packaging. The industry is witnessing advancement in technology with a focus on innovation. Companies are creating unique solutions with a minimum environmental impact. The Indian flexible packaging industry is expected to reach a value of Rs 640.38 billion by 2022-23.
Inventory management involves the timely and accurate stocking of goods, automation of the inventory update, replenishment, sales orders, deliveries and returns to provide an exact stock position. Technology advancements have contributed tremendously to supply chain functions such as inventory, order, warehouse and logistics management. For instance, a warehouse management system can optimise warehousing operations and inventory management. It allows a company to manage its inventory in real time, providing data on the latest order, shipment, or receipt and any movement in between. A good warehouse management software can minimise lead times by restricting inventory movement and enhancing the reliability of the inventory records, and hence, supporting the just-in-time environment. Technology-driven business solutions such as predictive inventory management, warehouse robots and distribution network planning are largely being demanded by Indian warehouses.
According to industry reports, the Indian inventory management software market is expected to grow at a CAGR of 14.5 per cent during the forecast period 2017-23. Certain new trends are likely to emerge post-Covid-19. Occupiers and supply chain managers will evaluate if it is better to own multiple warehouses at different locations instead of a single large regional warehouse. The warehousing industry is also likely to benefit from the shift of manufacturing units outside China. Many companies globally are looking to reduce their dependence on one particular country for their entire manufacturing needs. Going forward, companies would prefer keeping higher inventories over just-in-time, thereby increasing the demand for the warehousing space.
3PL, 4PL and reverse logistics
Third-party logistics (3PL) is a concept where a single logistics service provider manages the entire logistics function for a company. 3PL enables companies to focus on their core business activities while enabling them to access emerging technologies and tap unfamiliar markets. The core activities under 3PL are order processing, order fulfilment, inventory management, warehousing, transportation, customs clearing and fleet management. The ongoing Covid-19 crisis will have a minimal impact on 3PL providers. While market fluctuations and uncertainties will impact a few developers in the short term, the demand is set to regain in the medium to long term with changing behavioural patterns of consumers and smaller manufactures trying to use 3PL to gain scale and operational efficiency. Growth in e-commerce and organised retail has led firms to demand bigger and more efficient warehouses, faster delivery options, and improved last-mile connectivity, which opens up several opportunities for 3PL companies.
Initiatives like logistics efficiency enhancement programmes aimed at simplifying logistics activities and streamlining 3PL operations will increase demand for dedicated 3PL logistics aggregators. Further, the National Logistics Policy is in the pipeline and will help drive the growth of 3PL firms. 3PL is an emerging market, which captures a small share of the entire logistics market at present. However, it has a promising future with a high expected growth rate over the next two to three years. Meanwhile, fourth-party logistics (4PL), which facilitates single-point reference for all logistics requirements and provides consulting services and end-to-end supply chain management for businesses, is gaining traction due to the increasing demand for omni-channel retailing. The core activities under 4PL include supervision of transport management, inventory data analysis, monitoring of warehousing functions, and coordination of other operations. 4PL providers are being engaged to facilitate the integration of the multichannel retail model with businesses.
With the thriving e-commerce sector, the demand for companies providing reverse logistics services has also increased. The largest e-tailers like Flipkart and Amazon have their in-house logistics solution providers, while others are making use of companies like LogiNext, Regeneris India, Delcart and Wow Express for their value-added services. Reverse logistics is at a nascent stage at present, but it is expected to gain momentum, with firms launching full-fledged reverse logistics operations.
Freight forwarding reportedly accounts for the third-highest share of the logistics market at around 10 per cent. In 2020, the market size of the Indian logistics industry was around $190 billion, of which freight forwarding was estimated at $19 billion. The freight forwarding market can be categorised into road, rail, air, and sea freight forwarding. Globally, the air and sea freight markets generate maximum revenue for forwarders, despite carrying the least percentage of total cargo. This trend can be seen in the Indian market as well.
The upcoming National Logistics Policy is expected to streamline rules and address supply-side constraints, leading to lower logistics costs and greater competitiveness for Indian products worldwide. As per industry experts, the policy will allow seamless multimodal freight transfer and make freight movement cost efficient. In July 2020, the Ministry of Shipping waived waterway usage charges in a bid to encourage the use of waterways for cargo movement. It is estimated that the move will lead to an increase in the movement of inland waterway traffic from 72 million tonnes (mt) in 2019-20 to 110 mt in 2022-23. The Ministry of Railways has also come out with the National Rail Plan, which aims to enhance railway infrastructure and increase rail freight share to 45 per cent. The Multi-Modal Logistics Parks Policy is another key policy initiative to improve the country’s logistics sector. This initiative will lower freight costs, reduce vehicular pollution and congestion, and cut warehouse costs to promote domestic and global trade.
As per India Infrastructure Research, the size of the logistics market is expected to touch $229 billion in 2022. Considering that freight forwarding accounts for around 10 per cent of the market, the size of the Indian freight forwarding market is estimated to be around $22.9 billion in 2022.
The road ahead
Supply chain management today needs to be highly efficient to meet the increasing expectations of consumers. Smart technologies in logistics are becoming a major focus within supply chain management as faster and more accurate shipping reduces lead times and transportation expenses. Technological developments in the
logistics sector have surpassed manual methods in connecting sellers, 3 PL partners and customers. While a large part of warehousing operations are still manual, there is increasing adoption of the latest technologies such as AI, digitisation of supply chain, IoT and blockchain, robots and drones, thus transforming the supply chain business.