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Logistics Cost Meaning in Indian GDP

Lets us look at the constitution of GDP where Agriculture contributes 18.1% to GDP, Industry 26.3%, services 55.6%, etc. This tells us about the constitution of GDP where each individual sector assumes a size as a share of GDP. Does Industry at 26.3% of GDP, tells up about the state of Industry in India? It primarily tells us about the size of the Industrial sector in our country.

Incidentally, Logistics encompasses all these sectors and if carved out as a separate constituent it’ll also show up as a %age in the GDP pie. That’s how the existing

academic research work in the logistics sector tends to aggregate total logistics costs and express them relative to some economic baseline, such as GDP. But that gives an idea of only the size of the 3PL Logistics Industry in the country. And size does not automatically relate to performance i.e. bigger or smaller is better etc. The case of logistics adds to the confusion due to the fact that unlike many other sectors logistics assumes two roles in trade policy agenda ~ One is the trade-in services of which logistics is considered a separate cluster for discussions and 2nd is trade facilitation where logistics is assumed to be facilitating the trade. While the 1st represents the size of the sector and can be seen as the %age of GDP but does not necessarily tell anything about its performance and hence its interpretation with respect to trade facilitation may not be correct.

Now, lets us discuss the composition of the Logistics cost deduced as 13% of GDP ~ how did one arrive at this cost of 13% of GDP? With Logistics gaining importance around the globe, different studies have been conducted in different parts of the world to establish a comparative number to it. The methodology to deduce this figure has gone through a kind of evolution. From a trade research point of view, the logistics costs can be measured or proxied through various approaches viz, as a %age of total firm cost, as a %age of GDP and using performance variables such as World Bank’s LPI.

Regardless of which approach is taken to measurement, a key requirement for trade research focusing on logistics is the need for comparable data across a variety of countries and time periods. For most of the studies, so far, the data source used is either National Accounts data used by OECD member countries (ISIC Rev. 3 classification) or Input-Output data used by non-OECD countries. The issue with these data sets is that industry classification in these data sets does not consider Logistics as a separate sector. Thus the building blocks which go into making Logistics costs within these data sets are proxied. So many proxies need to be made in the data sets to deduce logistics cost and as a result, logistics cost has been defined in three scales in these data sets namely narrow, medium and broad.

The narrow definition takes into account very specific segments related to Logistics captured in datasets whereas the broad definition takes into account the ancillary segments as well in addition. India being a non-OECD country, the data taken to deduce the logistics cost in her case is based on Input-Output data of 2003-04, and the Logistics sector value-added as a %age of GDP for India was calculated as 6.42% as per ‘narrow’ definition and 18.42% as a ‘broad’ definition. The big gap in numbers is confusing and indicates that there is a lot that has been included in the broader definition of Logistics with respect to data. And it is quite possible that lots of undesired data may have been included due to the structure of the data itself.

Other leading researchers, in a paper published in 1999, computed the logistics cost for India and expressed it at 12.9% of GDP which is almost average of the values deduced from narrow, medium, and broad definitions of logistics as deduced from Input-Output data. So, this seems to be the basis of 13% Logistics cost. Though this number 13% (12.9%) is even disputed in academic circles as it seemed to have included data on passengers as well and considering that India is a populous country, the passenger movement expenditure in India would be substantial hence the dispute seemed significant.

A Few Points Emerge From This:

• 1st the number so far cited as %age of GDP has lots of questions marks as the datasets used to deduce the number has inherent structural problems.
• 2nd the number which appears as a %age of GDP is representative of the size of the sector, may assume relevance from a broader policy perspective but may not have much application to trade practitioners.
• 3rd, the number certainly is not to be seen as representative of the transactional costs. The transactional cost would vary from segment to segment, from industry to industry, and from company to company.
• 4th, this also does not mean that logistics cost in India is high or low, or logistics in India is efficient or not. This only points out that without identifying the micro issue of inefficiency, we may end up (largely, we actually do) employing solutions for issues that are not there and leaving the concurrent issue unresolved thereby damaging the supply chain further.
• 5th, a bigger number for Logistics costs as a % age of GDP is generally seen as an opportunity by the investor’s community largely with the perception that transactional costs exist at this level and can be brought down substantially. However, the opportunity is with respect to the size of the sector and exists in business models or macro infrastructural platforms and not in transactions!

Watch out for this section for more on Logistics Cost and its various dimensions!

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Mr. Supply Chain Manager (Mr. SCM) is always under pressure from Mr. CFO to reduce inventory levels while balancing the needs of Mr. Sales & Services Manager to reduce and fulfill client downtimes. So where must Mr. SCM draw the line?

Role of Reverse Logistics Solutions in India

Reverse Logistics helps Mr. Supply Chain Manager to keep both his clients happy. He now has the wherewithal to deliver parts to clients for service within agreed SLA’s while incorporating a process to get the faulty part back to the mother warehouse, thus helping Mr. CFO.

India, due to its large geography and complex regulatory environment, has always posed a monstrous challenge for the movement of spare parts across states and far-flung regions for Mr. SCM. So how can he set processes to work in such an unorganized sector?

The ANSWER lies in working with the right partner – one who offers specific solutions through set systems and processes.

Industry experts speak of the following benefits through reverse logistics: Reverse logistics done properly can decrease returns processing costs by 25%, increase productivity by at least 10%, increase asset realization by 2x to 4x, increase customer satisfaction by 100%, and increase profitability by 2% to 5 % apart from being compliant with waste management, especially e-waste regulations.

One of my recent experiences with a leading OEM for home networking products (Wi-Fi Routers to be precise) was less than pleasing once the router was declaring faulty by the call center executive. I was provided with the phone number of their service center in Andheri – East. Andheri – East! There goes my day. I had to go over to Saki Naka and give my faulty router and collect the good one. The exercise was simple but I dedicated an entire half-day to this process thus ensuring that my work suffered. This company could have easily offered this service: Field SWAP, where:

• A 3PL Logistics like Genex carries the fresh part to the client (me)
• Asks for the faulty part while handing over the good part
• Carries the part back to a repair center and if repairable does so and return it for managing warranty cases
• Faulty equipment scrapped as per company or e-waste guidelines

We at Genex LogiSolution cater to this large un-tapped need at the client’s place in the Indian market. We offer customized solutions that fit the need of every client without increasing their costs. Come tap into our network of warehouses and Logistics Centers spread around the country and an established distribution network (partly owned). Genex Logistics offers Warehousing & Distribution services across industries to Time-critical After Sales, Production Logistics, Finished Goods, Promotional material and reverse Logistics, etc.

Genex Logistics currently manages more than 500,000Sq Ft of space and is likely to add another 500,000 Sq Ft in the next few months time frame. The industry segment that we are catering to for warehousing is Apparel & Fashion, Retail & FMCG, Power Electronics, High-end office furniture, high-end automation spare parts, high-end cosmetics, drugs & pharma, Industrial batteries, wine & Liquors, Precision Engineering & Automotive.

FAQs of Reverse Logistics

Q: What is Reverse Logistics? Reverse Logistics involves the movement of goods from their final destination back to the manufacturer or a designated disposal point.

Q: Why is Reverse Logistics important in India? In India, Reverse Logistics presents an untapped opportunity to recover value from returns, promote sustainability, and open new revenue streams.

Q: What challenges does Reverse Logistics face in India? Challenges include inadequate infrastructure, regulatory complexities, and the need for consumer awareness.

Q: How can technology help in Reverse Logistics? Technology like IoT and data analytics can optimize processes, improving efficiency and reducing costs.

Q: What is the role of consumer engagement in Reverse Logistics? Consumer engagement is crucial in encouraging responsible product returns and recycling through incentives and awareness campaigns.

Q: How can businesses collaborate for successful Reverse Logistics? Businesses should form partnerships with logistics providers, recycling firms, and regulatory experts to streamline operations and ensure compliance.

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