GST now provides respite to warehouses?
With the roll out of Goods and Services Tax (GST), warehousing has come out as one of the biggest beneficiaries. CARGOTALK explores how the warehousing industry is getting a makeover through the advent of the tax regime.
Apart from the conventional service of storing, warehousing plays a crucial role in the economy by packaging, labelling, quality inspection, barcoding, reverse logistics and other value-added services. The rollout of the tax reform measure could reduce total number of warehouses in the country by at least 40 per cent in the coming months, according to industry experts. GST is aimed to reshape the warehousing industry with reduction in number of warehouses, better inventory control, reduced cost, more organised warehouses, to name a few. CARGOTALK takes a glance on how’s the consolidation of warehouses helping the industry to grow further, in the post GST scenario.
Chandra Sekar K, CEO, Jayem Warehousing, says, “The practice of maintaining multiple warehouses across the states to avoid CST and entry taxes will be a story of the past. Consolidation of warehouses in few strategic locations will result in cost efficiencies with reduction in the cost on real estate, labour and transportation. Consolidation will mean lesser number of stocking points, no stock outs and lower demand variation. This in turn improves demand planning. Companies can now make decisions on warehouse location, size, technology adoption, and supply chain model based on logical factors like proximity to consumption centers, manufacturing locations, and inventory control, etc.”
“With increased operational efficiencies and cost effectiveness, GST is going to provide a huge relief with respect to various problems faced by the supply chain & logistics industry. Service providers could benefit in the long run, as they implement the hub&-spoke model for supply chain networks by operating large central warehouses and remodelling their transportation routes. As anticipated, GST has ushered in an era of upgradation and consolidation of warehouses in the supply chain & logistics industry. New mother warehouses will come up at key strategic locations, which can cater to the needs of customers based pan-India. GST has a positive impact on the warehousing sector, as demand will now be driven by consumption patterns and customer’s preferences rather than tax-friendly locations,” points, Vineet Kanaujia, Vice President – Marketing, Safexpress.
“Moreover, the average speed of goods transportation has also gone up. Cargo trucks are able to cover longer distances. The supply chain & logistics industry would therefore be both an enabler and beneficiary in the Indian economic growth saga for years to come,” he continued.
With GST, redesigning the flow of movement with warehousing at strategic locations will come into action gradually. With the aim of reducing operating cost, purely being based on supply chain efficiencies only, corporates will tend to consolidate their scattered facilities to one with better capacities and better technical support which would be around major consumptions centers. Decisions on warehousing would be influenced basically on reach to market, size and quality requirements,” explains, Rajiv Passi, Head Express, Sugam Group.
Bipin Kulkarni, VP Sales and Marketing, Spear – An FM Logistic Company, shares, “Market integration in the postGST era has brought a uniform tax regime cuts across regional boundaries and had made taxation an irrelevant parameter for the warehousing and distribution. GST has facilitated centralisation and consolidation of warehouses without adding, rather reducing, the costs. Consolidated warehouses facilitated to adapt better automation/technological changes reducing human resource and rising cost involved with it. Post GST companies are looking for consolidating cost with help of Multi Client Facilities (MCF). We are already witnessing lot of new opportunities in warehousing sectors. Post GST, MCF will be preferred choice of customers.”
“Our first of many MCFs in Bhiwandi near Mumbai will start from early December. This will be a state-of-the-art facility which will have 250,000 sq.ft. of space under single roof and a storage capacity of 35,000 pallet positions, supported by WMS and handling equipment. Another MCF for NCR region which will be approx. 600,000 sq.ft. in area will be operational by next year,” Kulkarni informs.
From mere brick and mortar shelters to highly sophisticated stockrooms, the warehousing industry is getting a quick makeover with the tax regime. “Today's modern warehouse design is larger, taller, wider, brighter, smarter, and more flexible. Basic design in the 21st century includes higher ceiling heights (36 feet and higher), flat concrete floor surfaces, LED and natural light features, expanded trailer storage, and highly automated materials handling equipment operated intelligent software. Technology applications, advanced automation, and progressive building design all add up to provide flexible support
Consolidation will mean lesser number of stocking points, no stock outs and lower demand variation GST has a positive impact, as demand will now be driven by consumption patterns and customer’s preferences With GST, redesigning the flow of movement with warehousing at strategic locations will come into action gradually GST has facilitated centralisation and consolidation of warehouses without adding, rather reducing, the costs
to end-to-end supply chain,” adds Sekar.
Echoing similar views, Kulkarni says, “From godowns to warehouses, the industry has come a long way to become the backbone of manufacturing and other industries. It is growing fast, undergoing various dynamic and technological changes reducing human effort. Technologies like tracking mechanism, warehouse management system, material handling equipment, just in time, packing & prepacking, kitting & de-kitting, bundling, pricing and many more has changed the face of warehousing services provided by 3PL companies.”
“Although initial reactions against GST may have been extreme in some places, but things are settling down for sure, and teething troubles will ease, too. The main challenge will be a commitment by the supply chain & logistics firms to adapt to the change and make GST readiness a pre-requisite within their companies as well as amongst their vendors and suppliers. Once the paperwork is in place and the understanding of the tax regime sets in, the initial problems will be ironed out soon,” Kanaujia adds.
Effect of GST on existing warehouses
Commenting on the current state of smaller warehouses that are already existed/existing in the country, Sekar informs, “Smaller warehouses will either be shut down or merged with bigger warehouses for operational efficiencies. Most of these warehouses are operating below their capacities and the requirement of having warehouses in each state is no more a necessity.” Kulkarni notifies, “Decision to have a warehouse will not be based on the tax consideration but purely based on consumption centre. Companies prefer to have warehouses closer to bigger consumption centers. Moreover, not all industries are consolidating their warehouses; industries like auto and engineering are not affected much as they still have to run smaller warehouses near OEMs to cater to their JIT demands. However, FMCG and retail companies are consolidating.”
“For supply chain & logistics industry, after initial hiccups, the dust is settling down slowly. As we move ahead, interstate form filling is getting reduced in a big way, and the transit-time from Destination A to Destination B will keep coming down. Not to forget that warehouse locations will no longer be dependent on state taxation systems and transportation of goods will keep getting more efficient,” shares Kanaujia.
“3PL industry is evolving from traditional service delivery systems to highly integrated and technically equipped player striving to meet the service demands. Because of the fewer warehouses, the warehouses can be ramped up and equipped with state-of-the-art technology to facilitate long term benefits.
Latest WMS and modern robotics can be used for the effective and efficient warehouse management,” enlightens Sekar. “Warehousing industry is experiencing whole new change in the trend right from skilled work force to highly automated/smart techniques of warehousing or distribution. Improved technological changes and efficient operations will facilitate better supply chain for all the manufacturers,” opines Kulkarni.
Bipin Kulkarni VP Sales and Marketing, Spear – An FM Logistic Company & India Cargo Awards winner 2016
Chandra Sekar K CEO Jayem Warehousing
Vineet Kanaujia India Cargo Awards winner 2015 & Vice President – Marketing, Safexpress.
Rajiv Passi Head Express, Sugam Group & India Cargo Awards winner 2016