In the current competitive business scenario, logistics and supply chain have a greater significance, for which managing a warehouse efficiently is vital. The process of warehousing evolved from just simple storage of goods into a scientific process based on storage, consolidation, product mixing, contingency stock holding, goods protection, and smoothening of the supply chain. As a result, companies have slowly begun outsourcing the warehousing fun¡ction to professional service provider organisations with expertise in all such activities.
Warehousing service in India was started about 50 years earlier, with the setup of the Central Warehousing Corporation (CWC) in 1957 and Food Corporation of India (FCI) in 1964 by the Government.
Till the turn of the 21st century, the share of the organised segment of private warehousing business within the total warehousing industry was negligible due to its capital intensive nature and lack of willingness of manufacturing and trading industries to outsource warehousing functions. As of 2013, warehousing segment represented around 26 per cent of total logistics market in India, and the organised private segment accounted for around 6 per cent of the warehousing market. This share is expected to grow up to 10 per cent in the next five years owing to steady penetration of organised service providers into Tier-2 and Tier-3 cities of the country.
Market dynamics The Indian warehousing market can be segmented into three types Private Ware¡houses, Public Warehouses, and Contract Warehouses. The Private Warehouses segment is highly fragmented which comprises own managed facilities of manufacturers as well as by their channel partners, apart from various unorganised service providers. Many manufacturers have their own chains of storage facilities owned and controlled by their stockiest and distribution agencies. A major reason for such a scenario is attributed to the non-regulated status of the logistics industry, because ´logistics´ has not yet been given a formal industry status by the Government. Inadequate infrastructure, mainly in terms of smaller capacities, is another obstacle for warehousing in India.
A typical warehouse in India is likely to be between 5,000 sq.ft to 50,000 sq.ft, whereas an average warehouse in developed countries is estimated to be in the range of 250,000 sq.ft to 500,000 sq.ft. Majority of the warehouses in the country have less than 10,000 sq.ft space, built with poor construction standards, and are equipped with primitive material handling equipment. The prospects of enhancing and improving infra¡structure by adopting advanced technologies (including IT systems) are significantly low.
Support initiatives The announcement in the Indian Budget 2012-13 to enhance investment-linked deduction of capital expenditure incurred in building and operating cold chain facilities and warehouses for food grains from 100 per cent to 150 per cent, is likely to make investments in these segments more attractive, thereby driving development.
In addition, announcement of efforts to create nearly 15 million tonnes of food grain storage capacity in the country under the Private Entrepreneurs Guarantee Scheme is another major driver for growth of agriculture commodity-related warehousing infrastructure in the country. The Government has targeted creation of a total 10 million tonnes of storage capacity in the form of modern silos by the end of FY2014. This is likely to reduce the massive shortage of storage space for agri-produce in the country.
The encouraging incentives of exempting excise duty on air-conditioning and material handling equipment announced in Budget 2011-12, has been augmented with the extension of excise duty exemption to installation of Mechanised Handling Systems and Pallet Racking Systems in ´mandis´ or warehouses for horticultural produce.
The provision of three per cent subvention (within 7 per cent interest per annum) on post-harvest loans up to six months against negotiable warehouse receipt to farmers is likely to significantly encourage farmers to keep their produce in agri-produce warehouses and cold storages.
In addition, within Budget 2013-14, Rs 5,000 crore was allocated to NABARD to finance construction for warehousing in rural areas through a Window to Panchayats to finance construction of godowns. It provides an operational plan (or) process to distribute the Rs 5,000 crore fund allocated for development of agricultural sector specific warehousing facilities. While the previous year´s Budget announced that Rs 5,000 crore was allocated for creating warehousing facilities under Rural Infrastructure Development Fund (RIDF), the 2013-14 Budget entrusted more organisations with the responsibility of distributing the allocated fund for attaining a rapid development of warehousing facilities for agricultural produce within rural areas. India loses an estimated Rs 50,000 crore of agri-produce every year due to lack of sufficient warehousing and storage facilities as per reports of Ministry of Food Processing. Logistics service providers and developers of logistics infrastructure must focus on leveraging the multiple supporting measures such as these offered by the Government for creating warehousing and cold storage facilities in rural areas, and tap the immense opportunities available in agri-produce warehousing services across the country.
Expected Impact of GST Currently, manufacturers in India typically maintain separate warehouses or distribution centers for each individual State. In several cases, this setup is logistically inefficient and causes higher inventory holding costs than an ideal scenario. Location of logistics facilities is not uniform across the country and is dependent on process and procedural bottlenecks such as entry tax, octroi and multiple taxes in each State, rather than on the aspect of having a well-spread network, but this scenario is likely to improve with the introduction of the proposed uniform Goods and Services Tax (GST) regime.
Subsequent to implementation of GST, six to eight major regional hubs are expected to be formed, each with a coverage radius of about 500 km. However, more than 80 per cent of logistics user companies are still unprepared to deal with the impact and expect LSPs to guide and support them in transformation of ware¡housing activity once GST is implemented.
Storage plagues Indian warehousing Apart from the massive loss of agri-produce due to lack of proper storage facilities in the country, manufacturing industries also experience high levels of damage and pilferage during handling and storage at their warehouses. Losses due to damages and pilferages in warehouses range from 2-5 per cent of total annual inventory value for most manufacturing industries.
Such a high number of cases of pilferage during storage mainly at service provider warehouses is leading to significant pressures on service providers to employ advanced security systems, tracking systems, as well as increased professional security personnel at warehouses, all resulting in higher cost of operation and erosion of margins for service providers. However due to high costs involved and also due to uncertainty over return on investment posed by lower customer loyalty (more than 80 per cent end users in India have just one year contracts with LSPs), LSPs have been slow in adopting such technologies. Shortage of skilled/trained human resources to appropriately handle different types of goods, especially fragile and sensitive goods is also a major reason for higher level of goods damaged in warehousing.
Improving efficiency The annual Indian logistics benchmarking study conducted by Frost & Sullivan found that over one-third of the logistics end users maintain above 15 days of inventory for both raw materials and finished goods. Further, at least half of the end users maintain inventory of one week. This means a huge amount of inefficiency in warehousing. Both the LSPs and end users in India have been constantly trying to find ways to improve logistics performance and warehouse operations is an area where supply chain managers can focus to gain maximum efficiency for minimum cost. To get the maximum efficiency out of the warehousing operation, a number of best practices can be adopted to improve warehouse goods handling productivity and overall customer satisfaction. Although best practices in logistics and warehousing vary from industry to industry and by the type of products shipped, there are a number of best practices that can be applied to most of the end-user companies.
When considering the level of effort involved in warehouse operations, the greatest expenditure of effort is found to be in the picking process. To gain efficiencies in picking process means the time to collect all goods included within an order needs to be reduced, and this can achieved in multiple ways.
Companies with the most efficient warehouses were found to have arranged the most frequently picked items closest to the shipping areas to minimise picking time, by reviewing sales data to ensure that the most frequently picked items were stored close to the shipping area. Minimising travel time between picking locations can greatly improve productivity. However, to achieve this increase in efficiency, companies must develop processes to regularly monitor picking travel times and storage locations.
The way forward The Indian warehousing market has a high growth potential driven by the Government´s support initiatives, proposed GST regime, and increasing preference of logistics end-user companies to outsource activity to professional LSPs. Organised LSPs and those focusing on developing and managing agri-produce warehouses are expected to benefit significantly. LSPs with capabilities to guide and support end users in a post-GST scenario are also likely to have significant growth opportunities.
Warehousing service providers should strive to reduce the damages and pilferages of customer goods in their premises through enhanced infrastructure and security systems, and also focus on imparting training to their staff on careful/scientific handling of different types of goods within warehouses.
Warehousing service providers can gain end user confidence and engage them in long term deals in return for taking up such initiatives unilaterally. End users on their part should commit for long-term contracts with LSPs in return demanding better infrastructure, security, and commitments for assured performance by service providers through formal service agreements. Enhancing warehouse efficiency through technology adoption is another need of the hour that again has to be addressed together by LSPs and end users through long term commitments with each other and realising combined benefits.