Despite aggressive announcements in the WMS world, ARC’s global market studies have historically shown India to be a minor market when it comes to WMS adoption. Warehouses are still seen as a place of storage rather than a value addition point. The general attitude towards IT deployment is also not so positive because of availability of low-cost labor. Those in the industry have traditionally argued that low-cost labor makes a good ROI of WMS more difficult. Although wages are on the rise, it remains far lower than in the West, which does not justify the costly WMS deployments. Many global and local WMS suppliers have come up with cheaper options of WMS on cloud for the Indian market, but there are other challenges that warehouse owners have to contend with.
Heading the list is the complicated taxation system. The current dual governance structure with central level taxes in the form of Central Sales Tax (CST), Customs duty, Service tax, and Excise duty, and State level taxes in the form of Value Added Tax (VAT), Stamp duty, Land revenue, Luxury tax, and State excise makes the Indian taxation system very complex. In order to save taxes, logistics companies are forced to locate small warehouses in all the States where they do business. The cost of adopting WMS may be offset by locating small warehouses which can be managed manually. This complexity can be simplified by the implementation of goods and service tax (GST). GST will lead to the abolition of almost all the indirect taxes incurred by companies and customers. Further, companies would no longer be required to have warehouses in every State just to facilitate stock transfers and avoid indirect taxes. But GST is yet to be implemented in India.
Poor road infrastructure comes second because it hampers the free flow of goods. However, a lot of work is underway in this sector. Projects such as north-south and east-west road corridors, the Golden Quadrilateral and other NHAI projects, and the development of multi-modal and inter-modal transportation are being promoted to enable better connectivity. In addition, an ambitious National Highway Development Program (NHDP) has been established.
Approval for foreign direct investment (FDI) played a bigger role in building good infrastructure. In 2012, Government of India approved 51 percent FDI in multibrand retail (like Walmart) and 100 percent in single brand retail (like Swarovski where every product in the store carries the Swarovski brand). Many foreign retailers in the wholesale business (such as Tesco & Tata) have started investing in various activities like setting up warehouses, working with the Government to make land available at reasonable rates, and engaging in private-public partnerships. These foreign retailers have already been adopters of best WMS software and would replicate the success in India too to ensure that their investments are safe. The public private partnerships (PPP) policy initiatives have led to an interest among private Indian players, such as GATI, Blue Dart, and Adani Logistics.
E-commerce is also growing at a faster rate in India compared to all other Asian countries which calls for a robust WMS in place. WMS is fast-becoming a basic requirement to improve store-level inventory accuracy, and expand order and fulfillment options. Many retailers that sell direct to consumers through a corporate website are also purchasing WMS to support their integrated distribution initiatives.
In conclusion, adoption of WMS in India’s price-sensitive market is proceeding at a slow rate due to availability of low-cost labor. However, in research on the ROI of WMS, ARC has found that most companies grossly underestimate how many mistakes – in the form of any deviation from the perfect order – cost them. Automation in the form of RF enabled WMS can drive almost perfect picking accuracy – 99.9 + percent. Organized sector has seen success by using WMSs and the outlook is changing in the unorganized segment as well due to the awareness and subsequent development. Now, warehouses are adopting new technologies and the focus has shifted from reducing costs to increasing profits. The coming years will represent a critical inflection point in the growth of efficient warehousing in India.
Neelam Singh is a Senior Analyst at the ARC Advisory Group whose focus is covering key Supply Chain and Logistics technologies, trends, and best practices in Asia.