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G Raghuram, Indian Institute of Management,
1. Framewor
Logistics and supply chain management concerns itself with two principal actors:
the suppliers and the users. The supply side to effective logistics and supply chain
management is characterized by poor infrastructure in India. This is especially
there in the area of transportation and storage. hile IT infrastructure is improving
at a faster pace! it is still inade"uate. #n the financial side! while ban$ing services
are improving! insurance is inade"uate. The suppliers of logistics form part of the
infrastructure sector. The focus of this paper is to e%amine the supplier user
lin$ages! both from the perspective of the suppliers and users. e study the mar$et
environment! status and trends! and supplier user interface. In this conte%t!
improvement possibilities in the supply chain are e%plored.
It has been estimated that logistics and supply chain management related costs are
in the range of &' to &( per cent of the GD) for a developing country while it is
around &* to '+ per cent for a developed country ,Raghuram! &--'.. /It has been
estimated that transportation related costs alone account for appro%imately &+ per
cent of the 01 G2)! &( per cent for 03! &4 per cent for 5anada and - per cent for
6rance ,5rainic and Laporte! &--7.8. The difference! apart from reflecting the
country9s geography! is due to better customer service parameters and in fact a
better material "uality of life in the developed countries. 5ustomer sensitivity has
been moving along similar lines in India! with aspirations for improved service and
material "uality of life.
This paper attempts to develop a common framewor$ for analysing all the issues of
the infrastructure sector dealing with logistics. The infrastructure can broadly be
classified as hardware and software. The hardware consists of the physical assets
which comprise of the terminal:storage facilities! right of way for movement and
the vehicles:e"uipment which are the facilitating medium for movement. The
software! which is essentially the service super structure! consists primarily of
maintenance! operations and value added services. 6igure & outlines this
framewor$ which helps understand the comple%ity of activities re"uired to provide
a holistic support for logistics ,)angotra and Raghuram! &--7..
; Framewor !o A"a#$%e
I"&ra%!ru'!ure Se'!or
Infrastructure Hardware
Terminal : 1torage
Right of ay
<ehicles : ="uipment
Infrastructure Software
<alue ?dded 1ervices
F(gure 1
The above framewor$ can be applied to the various infrastructure flows! namely
physical! information and cash.
?s an e%ample! we e%amine this framewor$ in the conte%t of the physical flow. In
the case of railways in India! all the activities are under one umbrella for freight
logistics! e%cept containerised transport which is managed by a different
organisation /5#25#R8! however owned by the railways. hile this has the
benefit of a standardised service! the service levels themselves are poor because of
the monolithic nature of the organisation. #n the other hand! in the case of the road
sector! the activities are under different organisational entities! leading to relatively
better service levels especially at the customer interface. This better service level
has resulted in the customer mode choice being in favour of road which has a
higher mar$et share of 4+ per cent of the total ton $m freight traffic. @owever! it is
still a matter of debate as to whether unbundling of the infrastructural activities!
possibly along the lines suggested in 6igure &! would actually improve service
/including cost and safety parameters8! especially since transactions cost due to
increased need for coAordination would go up significantly. It is also felt that for
resource additionality for investment in these sectors! such unbundling may be
essential to attract private operators.
The ne%t section outlines the market environment of the infrastructure sector!
defining the specific nature! variety and scope of the service desired. The following
section deals with the current status and trends of the various infrastructure
sectors. The final section e%amines the supplier user interface.
). Mare! E"*(ro"me"!
6igure ' outlines a framewor$ to segment the users as bul$! industrial! consumer
durable and consumer goods manufacturers. Bul$ goods manufacturers deal with
raw materials e%traction and subse"uent conversion /eg! cements sponge iron! etc8.
Industrial manufacturers deal with capital goods and machinery and processed
inputs /eg! steel! machine tools! lubricants! etc8. 5onsumer durable manufacturers
deal with white goods /eg! refrigerators! washing machine!
F(gure )
Framewor !o Segme"! U%er%
Bulk Industri
<alue ?ddition /<?8
Low @igh
5onsumer Type Intermediar
C of Logistics
5osts as
)roportion to <?
@igh Low
1ensitivity to
Low @igh
television! etc8. 5onsumer goods manufacturers deal with non durable /eg!
pharmaceuticals! toiletries! etc8.
Bul$ goods are typically transported in large shipment sizes. Therefore dedicated
vehicles! specialised modes of transport and handling are important. Industrial
goods have high value and are often critical. Therefore the need for speedier
transport of goods. 1ome items re"uire specialised transportation and handling. 6or
consumer durable goods! inventory costs trade off are significant. ?ppropriate
distribution networ$s play an important role. 6or consumer goods! availability is an
important factor. Logistics choices are governed by better service levels rather than
costs. ?ppropriate distribution networ$s and warehouse locations play an
important role. The users are often willing to pay a premium for superior service.
e consider four $ey attributes on which these segments can be distinguished.
They are value addition /<?8! consumer type! percentage of logistics costs as
proportion to <?! and customer sensitivity to availability.
<alue addition refers to the difference in the selling price of the output and the cost
price of material inputs. This is typically lower in the bul$ goods industries and
higher in the consumer goods industries.
By consumer type we mean whether the consumers are intermediaries who add
value through further conversion of the product! or the final consumers of the
product. Bul$ and industrial sectors sell products which go through further
conversions! while consumer durable and consumer good sectors sell products to
the final consumers.
The percentage of logistics cost to the total value added signifies the importance of
logistics related activities from the cost perspective. It is high for bul$ goods
manufacturers! while it is low for the consumer goods manufacturers. 6or bul$
goods! total logistics cost as a proportion of value addition is about 7+ per cent! out
of which transportation costs constitute nearly two third. 1uch customers are very
price sensitive. 6or consumer goods and durables! total logistics costs as a
proportion of value addition does not e%ceed &+ per cent! out of which
transportation costs constitute less than a third. 1uch customers are very service
5ustomer sensitivity to availability is how sensitive the customer would be in
switching product loyalties! should availability /or! any other service parameter8 be
in "uestion. It is generally low for bul$ goods manufacturers! while it is high for
consumer goods manufacturers.
?part from the commodity wise segmentation provided while discussing the
framewor$ in the paper! other dimensions of segmentation should also be $ept in
mind. 1ome of these are by special nature of the commodity! geographic or by use.
6or e%ample! perishable commodities or hazardous commodities re"uire
specialised infrastructure support. 0nderstanding geographic /originAdestination8
re"uirements would enable a focus on appropriate infrastructure investments!
especially from the perspective of economies of scale. The segmentation by use
would enable an assessment of value addition provided to the customer and the
conse"uent re"uirements of infrastructural services. 6or e%ample! movement of
samples! spares! or repair and return would re"uire a high level of coAordination
and appropriate speedy servicing to truly add value to the customer.
e discuss below two e%amples of special nature of commodities! namely
perishable products and hazardous goods. Both of these are inade"uately provided
for in the Indian conte%t.
Transportation and storage of perishable foods and drugs need ade"uate and
geographically spread cold chain infrastructure! including cold rooms and
warehouses! refrigerated truc$s! appropriate containers with cold pac$s etc. These
commodities need to be $ept cold till they are consumed! so as to maintain their
freshness and reduce wastage. Losses and wastage in perishables is estimated to be
as high as D+C.
Transportation of hazardous goods assumes great importance for a variety of
industries such as petrochemicals! te%tiles! dyes and chemicals etc. The logistics
problems arise due to the handling re"uirements and safety aspects. The
transportation and storage of such goods are both under and over regulated. 0nder
regulation often leads to accidents with conse"uential damages and inade"uate post
accident measures. #n the other hand! over regulation leads to delays and high
costs of transportation.
The demand today is for heightened service performance A shorter lead times! more
fre"uent deliveries! no losses! and delivery within specified time windows! as well
as value added services li$e bar coding of secondary pac$aging! direct
store:customer delivery and insurance. ?t the
same time! the users could be induced to pay a premium for such infrastructure
services! and even more if a branded service stands guarantee.
+. S!a!u% a", Tre",%
e e%amine the status and trends of $ey infrastructure providers who enable the
physical! information and cash flows. 6or the physical flow! we classify the
infrastructure according to the technology of the mode used for the right of way.
These are rail! road! water! air and pipeline. 3ey infrastructure providers in each
mode are described! followed by intermodal /materials handling and warehousing8
and multimodal transport operators. This is followed by providers for the other two
flows! namely information technology services and ban$ing! and lastly integerated
service providers called Business Logistics 1ervices.
Indian !ailwa"s
In &--7A-*! IR carried nearly &' million passengers per day and lifted more than
&.' million ton of freight traffic daily on a networ$ spread over 4'! ;-( route $m
/right of way8 covering 4--( stations /terminals8. ?s of >arch &--*! there were
7'++ locomotives /4' per cent diesel8 and '!4;!+++ wagons /vehicles8 ,Indian
Railways! &---..
The IR networ$ essentially consists of two gauges: broad gauge and metre gauge.
Broad gauge! although forming 4- per cent of the route! generated -* per cent of
the freight output in net ton $ms and -& per cent of the passenger output in
passenger $ms. Transhipment from broad gauge to metre gauge and vice versa is a
costly affair. The operating ratio /total cost:total revenue8 for metre gauge is &7&
per cent as compared to *& per cent for broad gauge. To increase the capacity of
the system and to improve the efficiency of its networ$! IR has been involved in an
ambitious proEect of converting &D!+++ $ms from metre gauge to broad gauge.
1election of routes:areas for conversion is an important decision which may be
based on a cost benefit analysis. 1pecifically! the cost of gauge conversion
/estimated to be 7( per cent of laying a new railway line8 and the benefits due to
factors such as lesser transhipment re"uirements! greater load carrying capacity for
the networ$! greater terminal efficiency and rolling stoc$ utilisation due to reduced
turn around times! and the improved reliability:fle%ibility of the networ$ needs to
be evaluated.
The IR have been affected by competition from road! often attributable to poor
customer orientation. 6or e%ample! although wagon utilisation is going up! the time
ta$en for the customer to get a wagon is increasing with attendant uncertainty. This
reflects in customers preferring roads /especially consumer goods! consumer
durable and industrial manufacturers8 or having to buffer with additional inventory
/bul$ goods manufacturers8. ?ssuming that current rail customers have to $eep a
month9s additional inventory! the increased investment cost to the customers is of
the order of Rs '(AD( b! resulting in a wor$ing capital cost of Rs D.( b per year.
IR does not find a place in the consumer goods and durables mar$et. In the bul$
segment! IR is a maEor player! but could be pricing itself out with consistent fare
increases. The overall share of traffic in ton $ms in&--7A-* for IR was under ;+
per cent. #ut of the total traffic in ton $ms in &--7A-*! coal accounted for ;( per
cent! food grains && per cent! fertilisers * per cent! cement! ores! and petroleum and
petroleum products 7 per cent each.
The financial support available to IR is inade"uate to meet the investment
re"uirement for various proEects. This has prompted IR to loo$ for alternative
means of financing and e%ecution of proEects. ?t a strategic level! the restructuring
of railways is an issue to facilitate revenue increases and cost minimisation. ?t a
tactical level! all possible efforts to improve customer orientation would be critical.
Roads are classified into 2ational @ighways /2@8 and 1tate @ighways /1@8!
which primarily carry the freight traffic! and a few other categories which
primarily provide connectivity. The total length of 2@ is D(!+++ $m and that of 1@
&D+!+++ $m. #ut of the total &4(!+++ $m length of 2@ and 1@! only ' per cent of
their length is four lane! D; per cent two lane and 4; per cent single lane. Between
&-(& and &--;! the total number of vehicles has grown over eighty fold from +.D m
to '(.D m! ie! *+++ percent while the 2@ and 1@ have barely increased by (( per
cent and &&* per cent respectively. 5ongestion on the 2@! which constitute ' per
cent of the total road length but carry D7 per cent of traffic in ton $m! has thus
become a significant problem.
Road conditions in India are among the worst in the world. 5ommercial vehicles in
India are able to run only '(+ $m on an average per day! as compared to 4++ $m
per day in the developed countries. The accident rates per vehicle $m are among
the highest in the world. The economic losses due to poor conditions of roads is
estimated at Rs '++AD++ b per annum ,>ohan! &--4..
The wor$ing group on roads for the =ighth 6ive Fear )lan predicted that freight
and passenger traffic are e%pected to rise further to *++ BT3 and D+++ B)3
respectively by '++&. The elasticity of road traffic growth visAGAvis GD) growth is
&.( for freight traffic and ' for passenger traffic. ith a GD) growth rate of 7 per
cent! the road traffic is e%pected to grow at a rate of &+ per cent per annum. There
is a need to create e%pressway facilities to allow for rapid! unhindered and safe
movement of fast moving vehicles. 6or medium traffic density corridors! widening
to two lanes and strengthening of pavement and support infrastructure would be
essential. 6or low traffic density roads! construction of missing lin$s! and
improvement of riding "uality and safety need to be ta$en up.
?ccording to estimates made by the surface transport ministry! Rs 7;( b will be
re"uired for removal of deficiencies in the road sector over the ne%t &+ to &( years.
#f this! the four laning of the Hgolden "uadrilateralH lin$ing the four metros alone
is estimated to cost Rs '&+ b. There is need to add another D'!+++ $m to the 2@
networ$! which is li$ely to cost about Rs ;+++ b. This will have to be achieved by
the construction of toll roads through organisations which would be a partnership
between government and the private organised construction industry.

#rucking Companies
There are over &.( m truc$s on the Indian roads. The industry is completely in the
private sector. There are two $inds of players: truc$ing companies and truc$
operators. The former are really organised mar$eting companies! while the latter
are generally owner driven! operating in a cut throat competitive environment with
low overhead costs and margins. The truc$ing mar$ets in India are well developed
both in terms of geographical spread and mar$et access through a bro$erage
Due to the low margins! truc$ers tend to overload for shortAterm financial returns.
The marginal returns from overloading are high enough that they can be shared
with those incharge of enforcement! leading to a brea$down of the entire system.
6urther! there are inordinate delays at chec$points. ?ccording to unpublished
reports of Indian >otor Transport 5ongress! this delay is upto (+ per cent of the
total transit time of truc$s.
There is a move towards e%press distribution system. The operators are now able to
offer services with predetermined schedule with a provision of penalty in case of
default. In order to offer these services! a dedicated fleet of vehicles are needed.
Therefore! the ownership of truc$ing companies becomes an important issue.
Rather than private operators owning one or two vehicles! large operators with
branded service would be essential. 1trategies li$e choice of business focus on a
route! a region! or a commodity! fleet composition /type and capacity8 and size etc
would be crucial.
The truc$ manufacturing sector has come up with much needed variety only since
the *+9s. =fficiency improvements in truc$ing operations depends significantly on
the availability of multiple types of vehicles.
It is to the credit of the truc$ing sector that on price and on service dimensions li$e
door o door delivery and claims processing! it has effectively competed with rail.
Truc$ing serves the consumer goods! consumer durables and industrial products
almost entirely and is ta$ing an increasing share of the bul$ goods. Reforms li$e
removal of roadside ta% collections! and more liberalised financing of truc$s would
be essential for further growth of the sector.
Shipping Companies
The strength of the Indian fleet is around ;(+ ships of Eust under 7Am grt /a
carrying capacity of over &+ m tons8. The average age of the Indian fleet at &(
years! which compares favorably with the average age of world fleet. The
importance of shipping is due to the fact that -( per cent of Indian e%ports and
imports by volume is by sea. ?bout 7+ per cent of the cargo moves by foreign
shipping companies. hile availability of shipping per se is not a problem for the
trade! the policy on promoting Indian shipping is ambiguous. 5ontainer traffic is
proEected to cross ' m T=0s by '+++. There is also some growth in coastal
shipping! especially since road and rail modes are "uite congested.
?mendments in the >erchant 1hipping ?ct have opened private capital mar$ets to
Indian vessel operators. The amendments also allow e"uity holding upto (& per
cent by foreign companies in Indian shipping companies! enabling the latter access
to better technology! management and funds. The shipping industry has not been
recognised as an infrastructure for various concessions. 6or e%ample! depreciation
is allowed at '+ per cent on written down value basis which is less than the other
modes of commercial transport which enEoy ;+ per cent depreciation.
The issues facing the shipping industry serving India are technology upgradation!
increased container carrying capacity and focus on coastal shipping.
India has an e%tensive coastline of around 4+++ $m! with && maEor ports and &D-
operable minor ports. The maEor ports account for -( per cent of the total traffic
handled. The maEor port traffic has been growing at &+ per cent annually over the
recent few years. #ut of the total traffic in tons during &--7A-*! petroleum and
petroleum products account for over ;+ per cent! iron ore &* per cent! coal &( per
cent! containers * per cent and fertiliser ; per cent.
During &--;A-(! out of over &'!&4- port calls by vessels at the maEor ports! nearly
'-!+++ ship days were accounted for by pre berthing delays! ';!+++ ship days due
to non wor$ing time at the berth! and D7!+++ ship days as wor$ing time at the
berth. ? rough assessment of the standing charges payable on various counts!
$eeping in view the profile of the ships! was 01I'(* m for pre berthing delays!
01I&*- m for non wor$ing time at the berth and 01ID&( m for wor$ing time at
the berth. The unproductive time consisting of pre berthing delays and non
wor$ing time at the berth add upto 01I;;7 m. This accounts for nearly Rs &4 b as
standing charges paid by the trade ,Raghuram! &--7.. During &--7A-*! similar
calculations amount to Rs '( b. This amount would wipe out a significant portion
of the foreign earnings of the shipping sector. Thus! cargo shipped from Indian
ports becomes cost inefficient and non competitive in the international mar$et.
1iltation is another problem affecting the maEor ports. This implies reduced draft
availability! necessitating the use of uneconomical vessels and berthing delays.
It is imperative that ports be developed in a manner that they can be more efficient
in stac$ing! loading! unloading and evacuating cargo. There are moves to simplify
and rationalise port tariffs and restructuring ports to ensure a lean and responsive
organisation. #ther deregulation li$e in the petroleum products imports industry
has released bottlenec$s in infrastructure in terms of addition of new terminals and
petroleum handling facilities. These have been financed entirely with private
capital or as in the case of TI15#9s leased berths at @aldia. )rivate investors could
also rehabilitate! operate and maintain container terminals as has been done in the
case of J2)T.
?part from the maEor ports! development of minor ports is $ey step in developing
coastal shipping. ? lot more private interest has been evo$ed here by states li$e
GuEarat and >aharashtra! presumably because the private parties see greater
control in a minor port. =ven shipping companies have entered the fray. The entry
of shipping companies in the port sector is a good thing to happen and must be
encouraged! since there are significant synergies in this.
Airlines and Airports
India has eight international airports including the four maEor metros and *(
domestic airports. The maEor airports handle over -+ per cent of the international
traffic along with ;+ per cent of the domestic traffic. There has been a significant
increase in the air traffic ever since the government policy of open skies. The first
segment to be liberalised was the air cargo service.
Growth in the aviation sector is primarily due to the private operators! and air
e%press and courier companies. The growth is a result of a need for an efficient and
speedy door to door cargo delivery re"uirement. In this respect! airport operations
are still a bottlenec$. Recently! airports have also been opened up for privatisation.
In the e%press and small pac$age mar$et! ac"uisition of aircraft and e%pansion of
services and a stream of new air eligible commodities have played significant roles
in the growth of air cargo.
This is an emerging mode of transportation for products li$e petroleum /including
gas and crude oil8! ironAore pellets! coal! etc! apart from the traditional products of
water and sewage. In the Indian conte%t! petroleum transportation by pipelines is
receiving significant attention. 5urrently! out of eleven petroleum pipelines /ten for
products and one for crude8 in the public sector! I#5 owns seven product and one
crude oil pipeline. ith the &;;D $m long 3andla K Bhattinda product pipeline! the
I#5 networ$ of (+-D $m carried D+.( million tons of crude and petroleum
products during &--7K-*.
India9s e%isting pipeline networ$ is grossly inade"uate for transporting petroleum
products! whose demand is e%pected to reach &&( million tons by '+&&A&'. During
&--7A-*! ';C of petroleum products were transported by pipeline! D&C by road!
D*C by rail and 7C by coastal shipping. The pipeline mode is preferable to the
other modes as it is cheaper! safer! more convenient and involves lesser losses and
is environmentally neutral.
Government has set up a holding company called )etronet! with e"uity
participation by maEor oil )10s. ?s many as &* product lines have been identified
to be implemented by )etronet. )rivate sector companies are also planning to set
up their own pipeline networ$s. R)L has proposed to construct a D+++ $m pipeline
networ$! cutting across seven states to carry petroleum products from Jamnagar to
Materials Handling and %arehousing
1cientific warehousing is largely provided by public sector organisations! li$e
5entral arehousing 5orporation /558 and 1tate arehousing 5orporations.
These are generally perceived to be only for food grains and fertiliser! since they
were historically developed for the agricultural sector. @owever! most
organisations still resort to use of own warehousing! often in privately rented
premises e"uipped poorly! rather than public warehousing. Third party logistics
companies are a new entrant in providing warehousing.
?vailability of sophisticated materials handling technologies is limited. Labour is
most commonly used for materials handling. 5onse"uently! in India! the total loss
of goods while
transporting from the production centre to the final user is estimated to be &; per
cent! while in developed countries it would be in the range of ;A4 per cent. The
wastage in case of agricultural commodities and other perishable commodities is
significantly higher! estimated at D+ per cent. Delays are also a conse"uence of the
above problems.
Important decisions related to warehousing are: own vs rent! centralised vs
decentralised warehousing! number of warehouses! capacity of warehouse!
location! layout and design and level of technology! especially for materials
Multimodal #ransport &perators
>ultimodal transport refers to transportation of goods across more than one mode
in an integrated and seamless manner from the origin to the destination.
5ontainerisation of goods is a $ey technology in ma$ing multimodal transport
more effective and efficient. 5ontainerised transportation is provided by
5#25#R! maEor shipping lines and other multimodal transport operators />T#s8.
Terminal infrastructure li$e Inland 5ontainer Depots /I5Ds8! and 5ontainer 6reight
1tations /561s8 are provided by 5entral arehousing 5orporation! 5#25#R! and
certain shipping lines. ? >ultimodal Transport of Goods ?ct was enacted in &--D
to provide the necessary legislative framewor$ to promote multimodal transport.
5ontainerisation has brought about a technological revolution on account of
benefits such as door to door delivery! speedy intermodal transfers! low handling
costs! reduced brea$age and pilferage! lower insurance costs etc. It has been
recommended that to ma$e ports more efficient in handling container traffic! it is
necessary to evacuate containers away from port areas to I5Ds. ?part from
containerisation! roll on roll off /R#R#8 services also facilitate multimodal
transport. =%amples are truc$s using ferries for river and gulf crossings! or even
longer segments! say along the coast! or by rail along $ey congested road
segments. The recent R#R# service offered by 3on$an Railway 5orporation for
truc$s is an e%ample of the latter.
hile there is growth in the physical infrastructure! the growth in the service
infrastructure is less than desirable! in spite of the enabling legislation. <arious
shortcomings have since been identified in the ?ct. 2ecessary ban$ing! insurance
and document transfer support has not yet fallen into place. The need of the hour is
a branded! single window service which the >T#s can provide. ?lso speedy and
transparent custom clearance will help in a large way to facilitate multimodal
transport for e%ports and imports. hile multimodal service infrastructure has
developed in the e%port import domain! its scope in domestic movement is largely
The government is also thin$ing about streamlining customs formalities and
allowing private truc$ers to move containers Hin bondH over roads! reducing
delivery times. There is a need to simplify the customs procedures! especially for
container stuffing and destuffing operations. ? more effective system of providing
insurance to the inland segment of freight movement is re"uired.
Information #echnolog" Services
Information Technology /IT8 plays a crucial role in improving the service levels of
any company.
IT software which is used in >anagement Information 1ystems for trac$ing raw
materials! finished goods! inventory management! etc. is provided by software and
consultancy companies. Integrated software li$e =nterprise Resource )lanning
/=R)8 is being used increasingly. =lectronic transfer of documents through
=lectronic Data Interchange /=DI8! on line transaction processing and other
networ$ services are beginning to be commercially available. ? new revolution in
terms of =Acommerce is e%pected to influence the nature of logistics and supply
chain management considerably. Decision support system oriented software for
supply chain management is also coming into the mar$et. Information technology
solutions providers! communication companies and third party logistics companies
offer such services.
ith the continued reduction in import tariffs of communication e"uipment and the
entry of IT multinationals! Indian companies have started implementing state of the
art communication systems! viz! <1?T! leased lines! etc! which aid logistics
management. The reach and reliability of such services is still less than desirable.
1tandardisation of these software and documentation is another problem.
?doption of IT has been slower than what is technologically possible due to lac$ of
availability of wide communication networ$s in the public domain! lac$ of
awareness on the part of the users and lac$ of suitable legislation for dispute
Ban$s are a $ey infrastructure in the cash flow part of supply chain management.
Luic$ clearance of chec$s! advances against letters of credit! insurance against
payment defaults etc are essential services. The utility of a che"ue as an instrument
for payment and transfer of money depends upon its "uic$ clearance. The ban$ing
system has grown tremendously in reach. The number of commercial ban$
branches has increased from a little over ;+++ in &-(& to nearly 4;!+++ in &--7. In
the same period the number of che"ues cleared went up from '*+ la$h to 7*DD la$h
per annum.
Ban$s are ma$ing increase use of information technology! including mechanised
clearance of che"ues. =lectronic funds transfer through inter ban$ electronic
networ$ is another facilitator of supply chain management. @owever! in terms of
speed and value added service! there is scope for improvement.
Business 'ogistics Services
The service sector which was characterised by not so professional and local agents
involved as clearing and forwarding agents! distribution agents! stoc$ists!
wholesalers etc! who competed primarily on Hcontacts!H is giving way to a branded
national service re"uirement being provided by third party logistics companies.
These companies also manage the transportation and storage infrastructure. Today!
there are atleast si% companies with a national presence and providing such
services to multinationals! high value and critical item industries! li$e computers!
engineering spares! etc.
Insufficient access to high "uality infrastructure and the resultant capital
investments re"uirements are deterrents to this otherwise sunrise sector.
-. Su..#(er U%er I"!er&a'e
=%amining the infrastructure provider and user interaction! we can state that the
bul$ manufacturers would be more dependent on the infrastructure hardware! while
at the other end! the consumer goods manufacturers would be more dependent on
the infrastructure software and even more specifically on value added services.
hile e%amining the mar$et for an infrastructure hardware provider! say a terminal
operator! it can be stated that the bul$ manufacturer mar$et is more significant then
a consumer good manufacturer. 1imilarly! for storage services! the consumer good
manufacturer mar$et would be more significant than the bul$ manufacturer. This is
because consumer goods have to reach retail outlets! often through a brea$ bul$
point where storage services are essential. @owever! bul$ goods often can be
transported directly from point of production to point of consumption. Thus! the
infrastructure provider has to be sensitive to the mar$et environment in terms of
their logistical re"uirements.
6or the user! one of the $ey decisions regarding infrastructure is how much to
insource versus outsource. The more e%tensive the logistics re"uirements and:or
the more uncertainty due to logistics supply! insourcing would be a right direction.
=lse! the general norm in this business is outsourcing. If insourcing /as generally in
the case of bul$ manufacturers8! capacity and location of infrastructure would be
$ey decisions. If outsourcing /as generally in the case of consumer goods and
durables8! selection of infrastructure service provider and appropriate contracting
terms in a partnership conte%t would be $ey decisions.
The overall significance of the infrastructure sector can be assessed from the
investment re"uirements estimated for the coming decade. ?ssuming! an average
&+ to &' per cent per annum industrial growth and a &( per cent average growth
rate for e%ports for the ne%t decade! the estimated investments re"uired in the
infrastructure sector are as given below: Rs ;+++A;(++ b for the five year period
&--4A-7 to '+++A+&! and Rs 7(++ b for the period '++&A+' to '++(A+4. These
include investments in power! telecom and urban infrastructure! which do not have
direct implications limited to logistics. The sector wise financial re"uirement for
the &+ year period are: power Rs (+++ b! telecom Rs &+++ b! roads Rs &&(+ b!
ports Rs '(( b! urban infrastructure Rs '*++ b and railways Rs '+++ b ,>ohan!
The maEor bottlenec$s in infrastructure management are: /a8 generating resources!
/b8 using them effectively in asset creation! and /c8 effective and efficient
operations management. To overcome these bottlenec$s! better sta$e holding by
involving the private sector has been recommended. The involvement of private
parties in a significant way has yet to ta$e place.
Infrastructure providers will have to reorganise themselves along business
divisions and reorient their outloo$ to fit into the logistics re"uirements of their
customers. 1haring of information with customers and improving the "uality of
such information is another important step. 6or e%ample! a trac$ and trace system
to enable online information of cargo status is critical. The IR9s freight operations
information system is a desirable step in this regard. 0sing IT networ$ features! all
infrastructure service providers should provide online access to customers on a
variety of features li$e pricing! schedules! status! order processing! etc.
>ost infrastructural services can provide value addition to the customer by
appropriately e%tending the scope of services! $eeping in mind customer needs.
?nalysis would typically include mar$et segmentation and then e%amining the
costs and benefits for various alternatives both from the customer segment and
infrastructure providers9 perspective. 0nless there is long term thin$ing!
investment planning would be sub optimal. ?ppropriate strategic orientation on the
part of infrastructure providers is called for.
&. 5rainic TG and Laporte G! )lanning >odels for 6reight Transportation!
European Journal of Operational Research, &--7
'. Indian Railways! Year Book 1997-98! &---
D. >ohan Ra$esh! The India Infrastructure Report, 2ational 5ouncil of
?pplied =conomic Research! 2ew Delhi! &--4
;. )angotra )) and Raghuram G! Resource >obilisation 1trategies for
6inancing of Transport Infrastructure and 1ervices! ?sian Transport
Journal, a! &--7
(. Raghuram G! Logistics >anagement: ?n Introductory 2ote! "ikalpa, &--'
4. Raghuram G! To#ards a $ational %hippin& 'olic! - ( %tud! of the Indian
%hippin& Industr! )1G >onograph no. 47 Indian Institute of >anagement!
?hmedabad. &--7
Bac$ to @ome