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International Journal of Production Technology and Management (IJPTM)

Volume 6, Issue 2, July-Dec 2015, pp. 06-15, Article ID: IJPTM_06_02_002


Available online at
http://www.iaeme.com/IJPTM/issues.asp?JType=IJPTM&VType=6&IType=2
ISSN Print: 0976- 6383 and ISSN Online: 0976 – 6391
© IAEME Publication

STUDY ON THE DEVELOPMENT OF


INDUSTRIAL WAREHOUSING IN INDIA
Dr. J. Rengamani
Associate Professor
AMET Business School, AMET University

V. Venkatraman
Research Scholar, AMET University

ABSTRACT
The Indian logistics market has evolved from traditional transport
companies to a full-fledged logistics service provider, which offers various
supply chain services such as transportation, warehousing and other value
additions. Traditionally, there existed only pure transport or warehousing
service providers of the in-house nature. The trend changed towards providing
customized services and started being outsourced to specialized players in the
industry. Thus emerged the concept of third-party logistics (3PL), where
companies provide outsourced or third-party logistics services to companies
for part, or sometimes all of their supply chain management functions. Third-
party logistics providers typically specialize in integrated operation,
warehousing and transportation services that can be scaled and customized
based on market conditions and the demands and delivery service
requirements for their products and materials. The burgeoning Indian
economy, strongly supported by increasing FDI, improved market reforms and
regulations and growing consumption levels in the country has been the major
driver of the logistics market. Outsourcing of manufacturing activity has been
on the rise for industries such as automotive and ancillary products, pharma
and industrial equipment’s. In addition, the entry of global organized players
in the retail sector has been another driver for the development of organised
players in the country.
Key words: Warehouses, Bonded warehouses, Supply chain management.
Cite this Article: Dr. J. Rengamani and V. Venkatraman. Study on the
Development of Industrial Warehousing In India, International Journal of
Production Technology and Management, 6(2), 2015, pp. 06-15.
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Dr. J. Rengamani and V. Venkatraman

1. INTRODUCTION
The supply chain is a vital component, efficient planning of which can bring down
costs to a great extent. Manufacturers are working towards leaner supply chains with
lesser lead times in order to gain competitiveness in the market. Transportation,
warehousing and distribution are the critical components of the entire supply chain.
With manufacturing activity increasing in the last few years, logistics has gained
equal importance in order to provide better goods at lesser cost. The logistics market
in India was valued at 5.6 trillion in 2010 and is forecast to grow at CAGR of over
eight percent over the next five years. World Bank has ranked India 47th among 150
countries, in terms of logistics performance in 2010 and its potential in the future.
It is forecast to grow annually at a rate of 15 to 20% to reach ` 17 trillion by 2015.
However, logistics costs in India constitute around 13 to 14% of its GDP against
seven to eight per cent being spent by developed countries such as the US, Japan and
other European countries. This is due to market constraints such as highly fragmented
structures, poor infrastructure and complicated tax structure.
Factors affecting location of a warehouse are proximity to Container Freight
Stations(CFSs) and Inland Container Depots (ICDs), nodal point connectivity with
rail – road –ports, part of logistics parks development, proximity to manufacturing
hubs, SEZs &Feasibility Study On Industrial Warehousing in India markets,
strategically located to serve as ‘hub’ for a hub-and-spoke model for supply Chains.
Government regulations are favorable for development of bonded warehouses in
CFS and near the ports as there are no excise, customs or sales taxes payable for
goods stored in bonded warehouses and moving from one bonded location to another
in a sealed condition. SEZ rules provide for certain minimum and maximum area
requirements for processing zones and warehousing zones in SEZs. Sales Taxes
payable on inter-state sale of goods currently make it convenient for companies to
have state level small warehouses where goods are transported as branch transfers to
avoid taxes. This makes supply chain to function below optimal efficiency. With the
applicability of Value Added Tax (VAT) to all the states from 2009 onwards, the
concept of state level small warehouses will vanish. There will be emergence of
‘huband-spoke’ model of supply chain management as is prevalent in many of the
developed economies so that the costs can be lowered by efficient supply chain
management.
All these factors fuel the demand for warehouse development and are conducive
to development of huge warehousing complexes. The challenges, however, are the
limited availability of contiguous land parcels of optimal size and under-developed
rail-road and other infrastructure facilities.
Supply Chain Management is a network of facilities that produce raw materials,
transform them into intermediate goods and then final products, and deliver the
products to customers through a distribution system. It spans procurement,
manufacturing and distribution (Lee &Billington 2010) the basic objective of supply
chain management is to “optimize performance of the chain to add as much value as
possible for the least cost possible”. In other words, it aims to link all the supply chain
agents to jointly cooperate within the firm as a way to maximize productivity in the
supply chain and deliver the most benefits to all related parties (Finch 2006).
Adoption of Supply chain management practices in industries has steadily
increased since the 1980s. A number of definitions are proposed and the concept is
discussed from many perspectives. However Cousins et al. (2011); Sachan and Datta

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Study on The Development of Industrial Warehousing In India

(2008); Storey et al. (2009) provided excellent review on supply chain management
literature. These papers define the concept, principals, nature, and development of
SCM and indicate that there is an intense research being conducted around the world
in this field they critically assessed developments in the theory and practice of supply
management.
A warehouse is a commercial building for storage of goods. Warehouses are used
by manufacturers, importers, exporters, wholesalers, transport businesses, customs,
etc. They are usually large plain buildings in industrial areas of cities and towns and
villages. They usually have loading docks to load and unload goods from trucks.
Sometimes warehouses are designed for the loading and unloading of goods directly
from railways, airports, or seaports. They often have cranes and forklifts for moving
goods, which are usually placed on ISO standard pallets loaded into pallet racks.
Stored goods can include any raw materials, packing materials, spare parts,
components, or finished goods associated with agriculture, manufacturing and
production.

2. OBJECTIVES
 To know the Key challenges for warehousing in India.
 To know the warehouse connectivity through multimodal transport in India.
 To know the opportunities for warehousing in India.

3. LITERATURE REVIEW
Gunasekaran and McGaughey (2003) extended the scope of SCM beyond material
management, partnership, information technology to the Total Quality Management
areas like management commitment, organizational structure, training and
behavioural issues. As firms' survival lies on integration, a good understanding of the
integration process is a key aspect in SCM. Mouritsen et al. (2003) discussed that
basic hypothesis “the more integration (wider the scope) – the better the management
of the chain" is not always true and proved that it depends very much on the
“environment" of the supply chain and the power relations between the participants in
the supply chain. Authors proposed a set of management techniques and tools to
analyze successful SCM strategies. It is also observed that research is not limited to
hypothesis testing and data analysis, but more advanced techniques like simulation,
Artificial Neural Network, and Fuzzy logic are also used for optimization and
decision making in SCM.
Koh and Tan (2012) used the principles of fuzzy logic for analyzing and
monitoring performance of suppliers based on the criteria of product quality and
delivery time whereas Chiu and Lin (2011) showed how the concepts of collaborative
agents and artificial neural networks (ANNs) can work together to enable
collaborative supply chain planning (SCP).It appears from literature review that
researchers have studied supply chain management from a system perspective, or the
systemic natures of interactions between the participants of supply chain are observed.
Although numerous studies views SCM from different perspectives, this paper gives
the better understanding of supply chain activities.
SCM has been interpreted by various researchers. Based on the relatively recent
development of the supply chain literature, it is not surprising that there has been
much debate as to a specific SCM definition.

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Dr. J. Rengamani and V. Venkatraman

Ganesh and Harrison (2011) has defined SCM as a network of facilities and
distribution options that performs the functions of procurement of materials,
transformation of these materials into intermediate and finished products, and the
distribution of these finished products to customers.
Lee & Corey (2010) stated that SCM consists of the integration activities
takingplace among a network of facilities that procure raw material, transform them
into intermediate goods and then final products, & deliver products to customers
through a distribution system.
Christopher (2012) defined the supply chain as the network of organizations that
are involved, through upstream and downstream linkages, in the different processes
and activities that produce value in the form of products and services in the hands of
the ultimate customer.
Richard Lamming (1996) has given a general review on lean supply chain in
which Lean supply has been characterized as “beyond partnership”. Lean supply is
the system of purchasing and supply chain management required to underpin lean
production.
Ben-Daya et al. (2008) explored the topic in a particular context, i.e. The
industrial district (ID), that constitutes a specific production model where complex SC
networks can be identified. SC cooperation may take on several forms in IDs and may
produce several benefits (e. g. Upgrading quality and reducing costs).

4. CHARACTERISTICS OF IDEAL WAREHOUSES


In the above section you have learnt about different types of warehouses. In each of
these warehouses adequate arrangements are made to keep the goods in proper
conditions. However, any warehouse is said be an ideal warehouse if it possesses
certain characteristics, which are given below:
 Warehouse should be located at a convenient place near highways, railway stations,
airports and seaports where goods can be loaded and unloaded easily.
 Mechanical appliances should be there to loading and unloading the goods. This
reduces the wastages in handling and also minimizes handling costs.
 Adequate space should be available inside the building to keep the goods in proper
order.
 Ware houses meant for preservation of perishable items like fruits, vegetables, eggs
and butter etc. Must have cold storage facilities.
 Proper arrangement should be there to protect the goods from sunlight, rain, wind,
dust, moisture and pests.
 Sufficient parking space should be there inside the premises to facilitate easy and
quick loading and unloading of goods.
 Round the clock security arrangement should be there to avoid theft of goods.
 The building should be fitted with latest fire-fighting equipment’s to avoid loss of
goods due to fire.

5. TYPES OF WAREHOUSES
After getting an idea about the need for warehousing, let us identify the different
types of warehouses. We have learnt that warehousing caters to the storage needs of
different types of commodities. In order to meet their requirement various types of
warehouses came into existence, which may be classified as follows.

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Study on The Development of Industrial Warehousing In India

Some warehouses are completely automated, and require only operators to work
and handle the entire task. Pallets and product move on a system of automated
conveyors, cranes and automated storage and retrieval systems coordinated by
programmable logic controllers and computers running logistics automation software.
These systems are often installed in refrigerated warehouses where temperatures are
kept very cold to keep product from spoiling, especially in electronics warehouse
where they require specific temperature to avoid damaging the parts, and also where
land is expensive, as automated storage systems can use vertical space efficiently.
These high-bay storage areas are often more than 10 meters (33 feet) high, with
some over 20 meters (65 feet) high. Automated storage systems can be built up to
40m high. For a warehouse to function efficiently, the facility must be properly
slotted. Slotting addresses which storage medium a product is picked from (pallet rack
or carton flow), and how they are picked (pick-to-light, pick-to-voice, or pick-to-
paper). With a proper slotting plan, a warehouse can improve its inventory rotation
requirements—such as first in, first out (FIFO) and last in, first out (LIFO)—control
labor costs and increase productivity.
Traditional warehousing has declined since the last decades of the 20th century,
with the gradual introduction of Just In Time (JIT) techniques. The JIT system
promotes product delivery directly from suppliers to consumer without the use of
warehouses. However, with the gradual implementation of offshore outsourcing and
off shoring in about the same time period, the distance between the manufacturer and
the retailer (or the parts manufacturer and the industrial plant) grew considerably in
many domains, necessitating at least one warehouse per country or per region in any
typical supply chain for a given range of products.
Recent retailing trends have led to the development of warehouse-style retail
stores. These high-ceiling buildings display retail goods on tall, heavy duty industrial
racks rather than conventional retail shelving. Typically, items ready for sale are on
the bottom of the racks, and crated or palletized inventory is in the upper rack.
Essentially, the same building serves as both warehouse and retail store.

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Dr. J. Rengamani and V. Venkatraman

Another trend relates to Vendor Managed Inventory (VMI). This gives the vendor
the control to maintain the level of stock in the store. This method has its own issue
that the vendor gains access to the warehouse. Large exporters/manufacturers use
warehouses as distribution points for developing retail outlets in a particular region or
country. This concept reduces end cost to the consumer and enhances the production
sale ratio.
Cross docking is a specialized type of distribution center (DC) in that little or no
inventory is stored and product is received, processed (if needed) and shipped within a
short time frame. As in warehousing, there are different types of cross docks.
Reverse logistics is another type of warehousing that has gained attention in our
"green-conscious" world. The term refers to items that are going from the end user
back to the distributor or manufacturer.
Refrigerated warehousing industries make up approximately one fifth of the
market size of general warehousing. Most of the market is concentrated in the
Midwest, but California has the largest market share of the states. In 2006, the
average market size of the industry was slightly over $3 billion, and the market
continued growing in the following half decade. The capacity of Refrigerated
Warehouses in the United States: October 1, 2011 was reported as being:

Refrigerated Warehouses TYPE Volume in Cubic Feet


Cooler Space, Usable 709,889,000
Freezer Space, Usable 2,513,043,000

6. FOCUS AREAS FOR INFRASTRUCTURE DEVELOPMENT


The major drivers of the logistics industry are economic growth and transport costs.
India has been growing at an average rate of over 7.5% over the last 10 years1,
primarily driven by the services sector. Manufacturing and exports have also shown
considerable growth. However, the logistics sector has not kept pace. Logistics costs
in India are also high as compared to other countries.

7. LOGISTICAL COST AS PER BRIC COUNTRIES


The Indian transportation sector when benchmarked with global standards seems to be
lagging far behind, both in terms of capacity and efficiency. Primary reasons for this
are lack of capacity creation, lack of funds. This is quite evident from India’s 46th
rank among 155 countries in the World Bank’s International Logistics Performance
Index Global Ranking. India’s LPI score was 3.08 (on a scale of 1-5, with 5 being the
highest). Singapore, with a score of 4.13 was the top performer, the USA scored 3.93
and came 9th whereas India’s neighbor China came 26th with a score of 3.52. The
following chart shows scores of India in comparison to Singapore, USA and China on
each of the five areas on which countries were scored as on 2012.

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Study on The Development of Industrial Warehousing In India

Demand for Warehousing in India

8. GROWTH OF WAREHOUSE IN INDIA

There will be future demand for warehousing sector because do to the lack of
adequate space in the ports and IDC and CFS.

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Dr. J. Rengamani and V. Venkatraman

9. OPPORTUNITIES OF WAREHOUSING IN INDIA


India has become a manufacturing hub for most industries. The main reasons for this
are increasing domestic consumption and the cost-effectiveness of outsourcing
manufacturing activities. Some industries have gained tremendous traction over the
last few years, cashing in on the ongoing trendof the economy. These include the
following:
 • Automotive
 • Retail
 • Pharmaceutical
 • Agriculture

10. AUTOMOTIVE
The automobile industry in India has attracted much attention due to thesharp increase
in the sales of automobiles in the country. In January2010, total automobile sales in
the domestic market reached 1,11,4157 units. The figures show an increment of
44.9% compared to the sales units of7,68,698 in the same period last year.
Annually, the Indian automobile industry is growing at an average rate of 30%
and marking itself as one of the fastest-growing industries in India. The market,
estimated to have a turnover of over ` 3 trillion in 2011, is expected to grow by 11 to
13% during 2011-12.
Now, with the advent of foreign players into the market, the increasing importance
of efficient logistics and Just In Time (JIT) services, has made the automotive
logistics industry in India evolve much faster as compared to that in other sectors.
Almost all players in the automotive industry use 2PL or 3PLfor a part of their
logistics operations. A trend towards creating a perfect blend of in-house and
outsourced service components to effectively manage supply chains is leading to the
emergence of 4PL services. Warehousing has been gaining tremendous importance
due to the growing need to reduce storage and lead times for inventory.
In addition, the concentration of the auto manufacturing activity in a few places
has led manufacturers to construct warehouses in strategic locations, which then
serves as the central point for distribution and collection of finished and intermediate
products including auto parts. This primarily works on the theory of augmentation and
assortment. The government has also contributed to the growth of the warehousing
sector. It has established Special Economic Zones (SEZs) especially for auto
manufacturers, usually close to the ports, to cater to the growing demand in the
automobile sector. SEZs in Haryana, Jharkhand, Karnataka, Maharashtra, Tamil Nadu
and West Bengal are established by government.
It is now planning to set up two new automotive manufacturing hubs spread
across10,000 acres each in central and eastern India. Mahindra World City is a
prominent SEZ, located in Chennai, Tamil Nadu. Companies such as Wabco-TVS,
Brakes India Limited, Madras Engineering Industries, Sundaram Brake Linings,
Sundaram Clayton, Sundaram Fasteners, Timken India and UACL Fuel Systems have
setup their manufacturing units in the SEZ to harness the advantage of being the
major auto export hub in India. The main purpose of these SEZs is to help
manufacturers either set up their own warehouses or outsource them to 3PLs.

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Study on The Development of Industrial Warehousing In India

The SEZs provide manufacturers with dedicated as well as shared-user facilities


wherein, two or more manufacturers share the ware housing services in order to cut
down their supply chain costs. This has also increased the need for the use of modern
technology such as RFID and WMS to track the goods in the warehouses.
The 3PLs such as DHL and NYK also provide value-added services such as
assembling, pre-delivery inspection, cross-dock facilities, consolidation and
deconsolidation centers, automation and sorting, catering to the needs of the
automakers. The auto logistics market is expected to transform from traditional in-
house logistics to increased outsourced activity to specialized 3PLs.This in turn is
expected to result in sophisticated and mature supply chains, thus reducing costs and
fostering the growth of the auto logistics market.

11. CONCLUSION
Warehousing forms an important constituent of the supply chain as it is where
manufactured goods are collected, stored and distributed to the point of consumption.
Warehousing in India, accounts for about 20% of the Indian logistics market and is
expected to grow at a rate of 35 to 40% annually, displaying high potential for growth
over the next few years. Changing business dynamics and the entry of global 3PLs
hassled to the re-modeling of the logistics and warehousing services in India. From a
mere combination of transportation and storage services, logistics is fast emerging as
a strategic function that involves end-to-end solutions that improve efficiencies. The
growth of organized industry sectors such as retail, automotive, manufacturing,
pharma and agriculture, etc, in India is expected to give rise to more integrated supply
chains requiring better services, processes and storage facilities. Increasingly,
warehouses are being used to serve several important functions, beyond mere storage
of products, requiring warehouse service providers to expand their scope to include
more sophisticated services.
Dynamic market requirements have made it imperative for Indian warehousing
players to overcome challenges and maintain, improve and sustain competitiveness.
Various measures such as skill development, policy initiatives and government
measures, IT adoption and increased investments in the sector can be effective in
increasing the competitiveness of the Indian warehousing players.
However, this journey can be smoothened and simplified if the challenges and
concerns are addressed with collaborative efforts among all stakeholders including the
government and its agencies, policy-makers, entrepreneurs, investors, logistics service
providers, manufacturers, farmers and sellers. The mutual integration among them
will rewrite the success story for the logistics and warehousing industry.
Various initiatives will have to be undertaken to reduce the skill gap in the
warehousing sector in India. This will necessarily require a multi-pronged approach
by various industry stakeholders. In addition, the training needs to be tailored to the
requirement of warehousing such as cold chain, ICDs, etc. The training methods will
also need to be upgraded using technology such as e-learning, online distance courses
and practical classes through simulation.
In the changing market scenario mass awareness initiatives need to be identified to
reveal the importance of warehousing and career opportunities in this sector. The roll-
out of GST is expected soon but the full implementation could take few months. The
government will have to work overtime for its pan-India implementation. Along with
GST, the government will need to increase its coordination with state governments at
all levels.

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Dr. J. Rengamani and V. Venkatraman

India’s warehousing technology market is growing steadily, with the upswing in


demand from the logistics, retail, and manufacturing sectors, as well as through
government promotion. Increase in IT adoption and knowledge infrastructure is seen
to provide a boost to the growth and maturity of warehousing players in India. IT
adoption carries the potential to increase the competitiveness of warehousing players
by delivering substantial operating savings while also improving the quality of order
fulfilment. Considering the above, warehousing Sector is supported by the
Government of India with the help of State and Central government. It is one of the
newest sectors which took place recently. But taking into account the present scenario
India will have to upgrade its technology and extend more facilities in order to with
stand competition from other countries. It should ensure a proper plan for the
warehousing development in India.

REFERENCES
[1] McKinsey Quarterly – “Transforming India’s Logistics infrastructure”
[2] Department of Commerce
[3] Warehousing Development Regulatory Authority (WDRA)
[4] Jones Lang LaSalle Meghraj – “The Transforming Landscape of Indian
Warehousing”

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