SUPPLY CHAIN
INFRASTRUCTURE –PROSPECTS
AND CHALLENGES IN
RECESSION HIT ECONOMY
Presented by:-
Rajeev Kumar
Research Scholar, MBA ( FMS BHU)
JRF-UGC

Introduction
Recession & it’s Impact
Role of Supply Chain Infrastructure
Components of Supply Chain Infrastructure System
Prospects and Challenges of Supply Chain Infrastructure
Future Prospects & Challenges ahead
Supply Chain Network Infrastructure Planning
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Introduction
India has re-emerged as one of the fastest growing
economies in the world. Failing to improve the
country’s infrastructure will slow down India’s growth
process. The demand for infrastructure investment
during the 11th Five Year Plan (2007-2011) has been
estimated to be US$ 492.5 billion.
As per the Andersen Consulting Report on Supply
Chain Infrastructure the supply chain as a concept and
a reality is moving far beyond the confines of an
individual organization. It has become a dynamic
process that involves the simultaneous acquisition and
continuous reevaluation of partners, technologies, and
organizational structures.
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What is recession ?
In the United States, the Business Cycle Dating Committee of the National
Bureau of Economic Research (NBER) is generally seen as the authority for
dating US recessions. The NBER defines an economic recession as: "a
significant decline in economic activity spread across the economy, lasting
more than a few months, normally visible in real GDP, real income,
employment, industrial production and wholesale-retail sales."
A recession has many attributes that can occur simultaneously and
includes declines in component measures of economic activity (GDP) such
as consumption, investment, governments’ spending and net export
activity.
Economist Richard C. Koo (2009) wrote that under ideal conditions, a
country's economy should have the household sector as net savers & the
corporate sector as net borrowers, with the government budget nearly
balanced & net exports near zero.
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Recession & it’s Impact
Employment Companies Competitors Diminishing
(Heavy Knock out) (Barely managed to (Weaker ones Resources (Financial
survive) perished) meltdown)
During recession, many macroeconomic indicators vary in a similar way. Production, as
measured by gross domestic product (GDP), employment, investment spending, capacity
utilization, household incomes, business profits and inflation all fall, while bankruptcies
and the unemployment rate rise.
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Infrastructure Development in India
Indian government’s first priority is rising to the challenge of maintaining and
managing high growth through investment in infrastructure sector.
Physical infrastructure covering transportation, power and communication
through its backward and forward linkages facilitates growth; social
infrastructure including water supply, sanitation, sewage disposal, education
and health, which are in the nature of primary services, has a direct impact on
the quality of life.
With the current GDP growth of 8%, in which there is contribution
of nearly 57% from services and 16% from manufacturing
sector there is a need for proper alignment of resources. To sustain
this growth India needs to develop sound infrastructure so that the
right input of skilled, qualified and socially contented labor; visible
and reliable supply chains; prompt and accurate information for
decision making; efficient process and updated technology can be
given to the operations of manufacturing and services.
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Role of Supply Chain Infrastructure
There has been a steady increase in the urban population
on account of rapid industrialization, natural growth and
migration from rural areas. This has prompted the
working out of alternative ways of meeting the
increasing transport demand given the constraints of
land and capital, and the need to control energy
consumption, pollution and accidents.
Every Supply Chain Management (SCM) has three major aspects
namely; Quality, Cost and Time i.e to produce and deliver product
and services at the right time with the right quality and right cost.
Infrastructure plays a major role in order to accomplish the SCM
objectives.
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Infrastructural Factors on Operations of an Organization (Source :
http://www.coolavenues.com/mba-journal/operations/infrastructure-development-india?page=0,1)
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The figure shown depicts the influence of various infrastructural
factors on operations of an organization or a project. The output of
the well managed operations creates better services and products
which are the assets of any country.
Infrastructural development in a country helps to run the
operations of any company efficiently and effectively. Since cost is
a reality and price is a possibility and due to high competition
price is decided by the market forces, the controlling of cost is
very imperative and is within the scope of a organizations’ SCM
practices.
Customer demands for better services, growing dominance of
technology, the view of the individual enterprise as just one component of
the total value system, the increase in interconnectedness and globalization
of business and economics and the widening range of stakeholders to be
satisfied are all factors contributing to the substantial supply chain
challenges.
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Components of Supply Chain Infrastructure System
Council of Logistics Management (1991) defined that logistics is ‘part of the supply chain
process that plans, implements and controls the efficient, effective forward and reverse flow
and storage of goods, services and related information between the point of origin and the
point of consumption in order to meet customers’ requirements’.
Johnson and Wood’s definition (cited in Tilanus, (1997) uses ‘five important key terms’,
which are logistics, inbound logistics, materials management, physical distribution, and
supply-chain management.
Information systems include modeling and management of decision
making, and more important issues are tracking and tracing. It provides
essential data and consultation in each step of the interaction among
supply chain partners and processes. Supply chain infrastructure
basically comprises human resources, financial resources, packaging
materials, warehouses, transport and communications.
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Role of Transportation in Supply Chain
Infrastructure
Mobility is one of the most fundamental and important characteristics of economic activity as
it satisfies the basic need of going from one location to the other, a need shared by
passengers, freight and information.
Jean-Paul Rodrigue (1998) defined the
economic importance of transportation. He
highlighted that the general standpoint and the
economic impacts of transportation can be,
•Direct impacts related to accessibility change
where transport enables larger markets and
enables to save time and costs.
•Indirect impacts related to the economic
multiplier effects where the price of
commodities, goods or services drop and/or
their variety increases.
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The supply chain transport infrastructure can be evaluated on
following parameters such as:
•Networks. Setting of routes enabling new or existing interactions
between economic entities.
•Performance. Improvements in cost and time attributes for
existing passenger and freight movements.
•Reliability. Improvement in the time performance, notably in
terms of punctuality, as well as reduced loss or damage.
•Market size. Access to a wider market base where economies of
scale in production, distribution and consumption can be improved.
•Productivity. Increases in productivity from the access to a larger
and more diverse base of inputs (raw materials, parts, energy or
labor) and broader markets for diverse outputs (intermediate and
finished goods).
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The major impacts of transport on economic processes can be categorized as
follows:
Geographic specialization: Improvements in transportation and
communication favor a process of geographical specialization that increases
productivity and spatial interactions.
Large scale production: An efficient transport system offering cost, time and
reliability advantages permits goods to be transported over longer distances.
This facilitates mass production through economies of scale because larger
markets can be accessed.
Increased competition: When transport is efficient, the potential market for a
given product (or service) increases and so does competition. A wider array of
goods and services becomes available to consumers through competition
which tends to reduce costs and promote quality and innovation.
Increased land value: Land which is adjacent or serviced by good transport
services generally has greater value due to the utility it confers to many
activities. In some cases, the opposite can be true if related to residential
activities.
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Role of Warehousing in Supply Chain
Infrastructure
There is no as such clear cut formula to estimate or forecast the
demand at marketplace precisely. When a firm needs an inventory,
it must be stored in such a way that the physical attributes of the
inventory items can be preserved as well as protected. Thus, the
inventory produces the need for warehousing.
The functions of warehousing include stockpiling, stock mixing,
trans-loading and contingency protection.
Warehousing can be viewed as a physical system, involving facility
space, labor and equipment, where inbound products are put
away, stored and protected until the outbound product shipment related
processes occur. A warehouse management system is a key part of
the supply chain and primarily aims to control the movement and
storage of materials within a warehouse .
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Prospects and Challenges of Supply Chain
Infrastructure
According to Obiora Madu (2011) infrastructure is defined as part of a structure, material
or economic base of a society or an organization. Therefore, infrastructure can be
seen as the basic structure that fosters the good performance of cities’, states’ or
countries’ essential services.
In this sense, for a country to have a good supply chain infrastructure system in the
different modes of transportation, constant investments from both public and private
sectors are needed.
Organizations, especially in a competitive and globalised
world, require infrastructure compatible with their needs and
demands, in order to transmit their products and services to
different producers and demand centres in different parts of the
globe.
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Future
Challenges Prospects
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The major opportunities are highlighted below by Obiora Madu (2011).
•Many big Indian corporate such as Tata and Reliance Industries have been attracted
by the potential of this sector and have established logistics divisions. They started
providing in-house logistics services, and soon sensing the growth of the market, have
started providing services to other corporate as well.
•Large express cargo and courier companies such as Transport Corporation of India
(TCI) and Blue Dart have also started logistics operations. These companies enjoy the
advantage of already having a large asset base and an all-India distribution network.
•Indian shippers are gradually becoming more aware of the benefits of logistics
outsourcing. They are now realizing that customer service and delivery performance are
equally important as cost to remain competitive in this global economy.
•The Indian economy is growing at over 9% for the last couple of years (compared to
the world GDP growth rate of 3%), which implies more outputs and more demand for
specialized logistics services.
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Supply Chain Network Infrastructure Planning
Alan Kosansky and Ted Schaefer(2011) suggested 10 Guidelines for Supply Chain Network
Infrastructure Planning.
•Network structure, which determines 75%- 80% of total supply chain costs, offers the
biggest opportunity to reduce those expenditures.
•Optimize supply chain infrastructure to realize maximal cost savings.
•Understand the changes that can be impacted.
•Consider technological analysis to make the supply chain decisions.
•Modern infrastructure planning requires a collaborative effort.
•The planning process needs to include many different scenarios to ensure a robust
solution.
•Consider hybrid solutions to ensure low-cost, high level customer service.
•Models and analysis mean nothing without implementation.
•Optimized supply chains minimize inefficiencies.
•The answer is in the data.
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References
•Argyres, N.S. (1999). The Impact of Information Technology on Coordination: Evidence from the B-2
“Stealth” Bomber, Organization Science, 10(2), 162-180.
•De, P. (2004). Transport Cooperation in BIMST-EC: Issues and Way Forward, Research and Information
System for Developing Countries (RIS), New Delhi.
•Gallaher Michael P., and Alan C. O’Connor (2002). Economic Impact Assessment of the International
Standard for the Exchange of Product Model Data (STEP) in Transportation Equipment Industries. NIST
Planning Report 02-5. Gaithersburg, MD:NIST.
•Koo, Richard (2009). The Holy Grail of Macroeconomics-Lessons from Japan's Great Recession, John
Wiley & Sons (Asia) Pte. Ltd.
•Kosansky, A. and Schaefer, T. (2011). Guidelines for Supply Chain Network Infrastructure Planning.
USA, Industrial week.
•Lee, H. I. and S. Whang (2000). Information Sharing in a Supply Chain. International Journal of
Technology Management , 373-387.
•Planning Commission, (2007). Projections of Investment in Infrastructure during the Eleventh
Plan, Government of India, New Delhi. 16.
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