What Happens When You Leap Frog The Industrial Revolution?

The story of India Inc is much like a Bollywood movie. It seems to have skipped all vital steps but it still makes sense and is fun; much like in the telecom industry, where India went from waiting five years for a phone connection to every person having a cell phone. Old India jumped to India Inc, from agricultural revolution straight to services revolution skipping most stages of the industrial revolution.

Warehousing at Its Minimum

India is still young and unsophisticated when it comes to warehousing. A country that makes important contributions to modern technology has a surprisingly unrefined supply chain for most of its businesses. Most warehouses or ‘godowns’, as they are called, span anywhere from 10 000 sq. ft. to 100 000 sq. ft. Most places may just run on a bare minimum ERP system. Today, Indian warehouses use only a limited number of AS/RS cranes, the tallest of the installations being about 30m, with most of them being aisle changing cranes. The major industries that seem to be adopting AS/RS cranes just due to the sheer volumes (and sometimes the bulkiness of the product) happen to be Paper, Defense, Tire and Paints.

Taxman and Caution Inhibit Automation

A main deterrent to automation has been the tax structure that prevents centralization. Due to the tax structure that makes an interstate sale taxable, inventory is fragmented within the country, and volumes are not consolidated at one point. With inventory lying in places that are 10 000 sq. ft. even, automation opts itself out.

There is a certain mindset today that possibly bars senior management in several industries from making huge capital investment – at the cost of having higher operational expenses every month – maybe even for the next 5 years. There may be few places where automation’s cost may be justified at current volumes, but even those companies somehow just seem to shy away from making the “right” investments if they happen to be huge.

Tolerant Customer Base

Tolerant customer base

Tolerant customer base

In addition to this, India has a very tolerant customer base, which makes accurate order fulfillment less critical. How many times does a customer walk into a grocery store to ask for “Tide” and gets “Rin” instead? Yet, customers are happy to have detergent at all. It is common to scramble to get to the grocery store early to buy bread before it is out for the day. Surely a stark contrast to behavior abroad: If a customer does not find what he wants in a store for a total of, say, three times he never goes back to that store. In spite of this, those of us in the automation industry are smiling.

Land and Labor Pushing Automation

The sheer lack of land space is going to drive the need for automation in India. Today, if a distribution center calls for 50 acres of land, it is about convincing over 20 farmers to sell their land. This is an intense ordeal that even some of the big players in the industry have failed at. With land being expensive and sometimes even unavailable, the only way to grow may be vertical. This could be indeed the deal clincher in India for automation. Although labor is relatively cheap in India, low productivity and skill sets negate the advantage. Thus the lack of skilled labor along with the need for accuracy will additionally drive automation.

A Smarter Tax System, Hopefully

When implemented, the Goods and Services Tax (GST) will overrule the current Central Sales Tax (CST) and hence negate the need for keeping inventory in every state. Although there is a lot of skepticism about when this change will actually take place and in what form, there seems to be a general awakening amongst the players to do the ‘right thing’. The hope of getting closer to the proposed tax change has led a lot of firms to rethink their supply chains and check them for efficiency.

Way Forward

What we call intralogistics today is a byproduct of the Industrial Revolution. As India has skipped it and is heading straight to the Services Revolution, the promising way for warehousing to keep up with requirements is automation. We cannot afford to ask if automation is the right thing. Rather, the right questions are:

  • What is the level of automation needed?
  • How can it be justified?
  • How can automation be phased in?

Think accuracy, think order volumes, think lack of land, think of unproductive labor – think about what the industrial revolution meant to the world. Naturally, you are thinking automation. It’s time for India’s warehouse’s to embrace it.

29 Responses to What Happens When You Leap Frog The Industrial Revolution?

  1. Kamalesh says:

    investment in IT by different organizations have been on the rise. This would enable them to understand the business better, thus enabling them to strategize better. Data analytics would enable organizations to optimize their operations at various levels. Automation is here to stay. Automation is the panacea to this ever changing complicated India. I liked the analogy with the Bollywood movie.

    • asim behera says:

      Kamalesh, thanks for the comment. Investment via any means and any sector definitely helps a developing nation. Data analytics is lights years away when it comes to logistics industry. A major chunk of the logistics industry does not have a Warehouse Management System (WMS). Implementing a WMS could be a good first step into streamlining one’s business.

  2. Saagar Hingorani says:

    Very well written. Specially liked the analogy with a Bollywood movie.

    Indian warehousing industry has miles to go and there is tremendous scope of improvement in every aspect of it. Given the current food inflation that is bothering everyone I believe cold storage warehouses will play a role in reducing the food wastage. Statistics say that the amount of food wasted by our country is enough to feed a country like Vietnam!

    • asim behera says:

      Saagar, thanks for perusing the blog and your kind comment. You are correct in your analysis of food wastage. India wastes roughly 30% of its produce from ‘farm to fridge’. For sake of comparison what India wastes is what the UK produces in a year. Imagine what wonders can be done if all that food is saved and funneled to the ones who need it most.

  3. Ashish Mohanty says:

    Really nice article Asim. Time & hope will justify the level of automation.

  4. Anshul Gupta says:

    Great article, Asim! It provides a unique insight to some of the challenges you have to face in India. I really liked the “Tolerant Customer Base” section which can be applied to so many other industries as well.

    • Asim Behera says:

      Anshul, thanks for the comment. India is a very challenging market place for any new foreign entrant, but at the same time it’s fun! I very much agree with you on the tolerant customer base applying to other domains, be it buying something as simple as your choice of beverage to something like buying an automobile. It’s rare that you’ll find your exact choice readily, you’d have to wait or come back again. The same applies to services, be it a technician showing up for some minor repairs or a major overhaul because you are experiencing a downtime; the customer is happy if the technician shows up at all, forget within a stipulated time.

  5. Saurav Batra says:

    Great Article, Summarizes the logistical challenges in India really well.

    I completely agree with the tax issues. Unfortunately, India has a fairly complicated tax structure with taxation at both central and state levels. The central sales tax stunts interstate commerce growth and forces manufacturers to operate warehouses in each individual state. You would think it would be easier in a country one-third the size of china, but the special economic zones favoring tax benefits complicate this logistical nightmare even further.

    However, there is hope the CST and all indirect taxes are due to be replaced by a unified GST (Goods and Service Tax) in April 2012.

    • Asim Behera says:

      Saurav, appreciate the ratification. Knowing India thus far I am not holding my breath on GST being implemented by April 2012, but one thing is for sure that majority think GST is the right move forward and whenever it does get enforced, it will surely bring in numerous positive changes on how we do business today.

      • Saulo says:

        Many thanks for an uillenevabbe submit, would study your personal others topics. thank you your thinking within this, I soon became a bit strike by this post. Thanks again! You wanna make a good point. Portrays natures best by the wonderful facts here. I do think that in case more individuals consideration for it like this, they’d have a better moment in time obtain the hold ofing the issue.

  6. Jonathan Reynolds says:

    Great blog, Asim! You are truly an authority on business and logistics in India, and providing a unique and rare insight for those of us across the pond.

    • Asim Behera says:

      Jonathan, I am by no way an authority but I do like to keenly observe my surroundings and assess. Thanks for the comment!

  7. Joanna Sosnowski says:

    I like your approach on the “way forward” section!

    It looks like you have a lot ahead of you with the TAX situation. I hope that changes for you sooner than later!

    Look forward to reading the updates.

  8. Sachin Daware says:

    Nice article. This is the time now when India Inc. needs really to evaluate and rise. Positively infrastructure is just heading north rapidly. Automation in Warehouses is now interestingly discussed and also started rolling. We can see a bright future here. Interesting and informative article.

    • Asim Behera says:

      Sachin, I couldn’t agree with you more. I strongly feel it’s only a matter of time before Lean, Just in Time, Efficiency become second nature to India Inc.

  9. Rami Musa says:

    Thanks for sharing. Well-written and informative article.

  10. Roger Mefford says:

    Interesting article. What can you tell us about the infrastructure, highways, roads, bridges, etc, of the India distribution network? I understand this is another major area of underdevelopment which challenges the cost justification for an automated system that reduces order picking to hours only for the product to take days to deliver. Is there a plan in place to improve the highway network?

    • Asim Behera says:

      Roger, thanks for your comment. On a whole India is playing catch-up with infrastructure, despite the fact that there are programs underway to improve infrastructure overall the entire spectrum is not being looked at holistically. The Indian infrastructure has come a long way especially the major interstates. National Highway Authorities of India (NHAI) which was instituted in 1988 and become operational in 1995 has done quite a bit in a short time. NHAI is implementing major projects such as the Golden Quadrilateral and NSEW Corridors which when complete will provide excellent network across India, however the problem lays for access within the city limits or as we call the last mile delivery. Road infrastructure within the city limits is not adequate and whilst improvement projects are in the planning and execution phase everything takes much longer given that you cannot hamper the current operations. The tax system I spoke about in my blog further exaggerates delays as it’s typical to find 100s of trucks lined up at state and city borders.

  11. David A. Twining says:

    Great article. Really an eye opener into understanding India’s warehousing needs and the restrictions holding automated warehousing back at this time. The obstacles faced in moving India toward automated warehousing are definitely not insurmountable but will have to be addressed not just in the tax structure but also in India’s overall understanding of the advantages of automated warehousing. I really enjoyed this very informative article.

    • Asim Behera says:

      David, thanks much for the encouraging comment. You are right India Inc. has to focus on the bigger picture so that a unified plan for improving logistics as a whole can be implemented.

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