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GST India and its impact on Supply Chain Management

Jan 04, 2017

In today’s competitive world, supply chain management is one of the decisive elements that determine the sustainability of a business. An organization’s supply chain strategy depends on many factors that can be internal to the company or can be governed by the market conditions or the government policies. One of the factors that impact supply chain management is the tax or the fiscal costs.

Supply Chain Management (SCM) is the dynamic simplifying of a business’ supply-side activities to maximize customer value and to gain a competitive advantage in the marketplace. Supply Chain Management epitomizes an attempt by suppliers to develop and implement supply chains that are as efficient and economical as possible.

Supply chain strategies are the essential backbone of business organizations today. Every business has a standard for inventory turnaround that is in place to ensure optimum profit for the business. Any loss of inventory anywhere in the supply chain will result in the loss of value. Effective control of inventory and inventory visibility acquire prominence as key factors within the Supply Chain Management process.

Read: Supply Chain Trends To Follow In 2017

Impact of GST on Supply Chain Management

The structure of the supply chain is significantly influenced by different taxes based on the location of the business. By eliminating multiple state taxes, the logistics companies can consolidate their warehouses instead of maintaining one in each state to avoid central tax.

The cost savings by the companies as a result of the GST can be used for further investment to advance serviceability. After the implementation of GST, the design of the supply chain will be based on customer service and logistics cost. The GST will assist firms in increasing the accuracy of their forecasts.

Read: Supply Chain Market in 2018

Benefits of GST

Post implementation of the GST, following are the benefits that will be relished by companies in the supply chain management mechanism:

    • Tailored Supply Chain: With GST, manufacturers can move towards personalized supply chain models to suit customer needs and their supply chain requirements. Also, the elimination of stock transfer benefits is likely to increase the share of direct dispatches for large and medium-size dealerships.
    • Enhanced Inventory Management: GST enables elimination of multiple state-level taxes which will optimize stock points and reduce channel inventories. After the GST implementation, fewer transit stays will benefit advance lead times and decrease inventory levels at stocking points. Potential consolidation can create opportunities for more efficient warehouse management.
    • Peripheral decrease in incoming logistics costs: Post implementation of the GST, the incoming supply chain will see peripheral benefits for direct out-of-state purchases and logistics costs. Therefore, manufacturers can expand their vendor base beyond state boundaries and modify their sourcing models with the help of GST.

Read: Are you leaving your inbound logistics to chance?

    • Cash flow management for exporters: With GST implementation, tax exception benefits will continue with minimal impact on the bottom line, and the streamlined tax structure will inspire more exports.
    • Modified aftermarket distribution models: The GST can have a big impact on the spares aftermarket because of increasing requirements for storage and retail penetration. Forward-thinking players may evolve their distribution footprint to move away from consignment stocking, and enable modified supply chain models while also ensuring high-quality service and availability at lower costs.

On the whole, the supply chain management industry will require to gear up to get the most out of the GST environment.

The Road Ahead

Every member of the supply chain must rise to the challenge and take up their roles. Ample preparation, an entrepreneurial attitude, and overcoming challenges will be essential to a successful transformation. In the long run, India’s supply chain industry can witness several interesting trends in the post-GST world. With the GST triggering a wave of new trends and an overall lift for supply chain players in India, the industry is bound to improve its overall competitiveness on an international scale.

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