Mumbai: Peter Guarraia, partner at consultancy firm Bain and Co. and senior leader in the firm’s global performance improvement practice, has advised companies across the world on how to build supply chain and logistics as a competitive strategy. With more than 20 years of management consulting experience, Guarraia has worked on a range of issues, from supply chain optimization to manufacturing, production efficiency and merger integration. He spoke in an interview about how Indian companies should focus on digitization to build their supply chain and keep an eye out for on demand delivery, the next big thing in e-commerce. Edited excerpts:
How are we doing on supply chain and logistics efficiency in India? The number that sticks to mind is the supply chain cost of 13% of gross domestic product. Are we doing well on that front?
You are not doing well versus other countries. In terms of talent, you’ve got some talent but obviously you need more supply chain talent. You could do with twice as many. Thinking about logistics, just moving things from state to state is still quite difficult. Those are two big issues. But there are a lot of changes taking place. So the changing tax regime, the way the government of India is thinking about the ‘Make In India’ campaign, these are going to make India as a much more attractive place to do business. From a global perspective, most multinational companies look at India and say, that’s a market I want to be in. The opportunity is there so they are willing to put up with the short-term supply chain challenges.
What are your clients in India telling you?
Really, what they are looking at is how do I optimize my performance for the future? And the topic we are raising is digitization of supply chain. There are companies here which are going to leapfrog to where companies are in the United States. Why? Because they aren’t tied to an existing asset base, existing supply chain processes. Given the emerging trends in supply chain, you can actually go from emerging market type of characteristics to world-class characteristics very quickly.
Through finding a third-party partner. Or by applying some software tools in the market, whether it is Big Data analytics or mobile applications or tracking technology. Our clients in India are saying, ‘I want to take advantage of this, how do I do it?’
Is the solution to better supply chain investment in information technology (IT)?
Yes. But it is not that simple. Business-to-business supply chain exists. What you are seeing now is business-to-consumers market evolving so rapidly, our business clients are saying, how do I become more like Amazon? Or like Domino’s Pizza—where I can order a pizza, and I can track that pizza from making it to the oven to the front door. Can I do that with my industrial product?
Which obviously can be done on a mobile phone?
The answer is ‘yes’ and ‘no’. And I apologize for giving a two-part answer. The ‘yes’ part first. At the most basic level, you can use SMS to collect very simple bits of data and make very robust decisions about supply chain. However if you start to get more and more sophisticated, there are effective tools like Big Data analytics which allow you to proactively think where you should be placing your inventory, how you should be configuring your network. There are tracking software tools that allow you to track a product from manufacturing to distributor to the customer.
All these things exist and can be implemented very quickly. The pace of change is incredibly quick. So it used to take three months to get a server. Now you can just call Amazon analytics and in 5 minutes you have a server running for you. The complexity in the system—and this is the ‘no’ part—there are two problems companies face. They don’t have the expertise in the company to run all this technology. So you have all these data flowing in, what do you make of it? So you have all these decisions to make, who makes it? The second point is: the technology that exists out there is unproven, it has been deployed and people have made it work in certain situations but it is not what I would call battlefield-tested. So you can actually end up spending a lot on a solution that doesn’t allow you to do what you want to.
Can companies do this by themselves? Especially small companies, or say start-ups in the e-commerce business, because they seem to have that ambition.
There are a lot of people out there who believe they can make logistics and supply chain their strategic, competitive weapon. I think the reality is when you talk about Amazon. That level of infrastructure and customization capability is very hard to replicate. And if you think you are going to replicate that as a small entrepreneurial company, you either have a very narrow, targeted set of products or a very narrow, targeted set of customers.
If you want to open the market up as broadly as possible, be it products or services or customers, it probably makes sense for you to use a third-party logistics provider who can give you the benefits of scale very quickly. If you are looking for an Amazon-like experience and you have the scale and resources to build out the capabilities—that’s IT, logistics, processes, management team—by all means you should do that because it will allow you to differentiate the market.
So do you think it will be easy to build out a delivery company in India today?
I think it is attractive, not easy. That’s the beauty of India. It is a very large, diverse market and if you are focused on delivering a high-quality service, then you can do it. It would be much harder to do that in the United States because the barriers to entry are so high.
Just on the point of delivery, we are seeing more people talk about on-demand delivery and same day. Are the days of waiting for two or three days gone?
Absolutely. I actually think this will be more advanced here than in the United States and the reason is because Mumbai and Delhi has a much dense environment. And the cost of labour here, relative to product, is much lower than in the United States. Having a UPS or FedEx guy carrying products from door to door is prohibitively expensive. Here, you can find the labour to do that and do it very efficiently.
On-demand delivery is going to be the next battlefield in competition. If you look at Amazon in the US, it is picking out every major municipality and starting to think how to put hubs in every one of them for same-day delivery. What they are doing is pre-positioning inventory, so they know or suspect things that have a lot of demand and they will push that inventory to the municipality. It is not like you can get a TV or a washing machine but for some critical things, same-day delivery is the way to go.
How is the supply chain space going to look like in India five years down the line? Modelling a scenario is something that Bain is really good at.
So here’s what I think; one region will look much more like another. So I think you will have same-day delivery here, you will have autonomous warehouses here with robotic pick and pack, a much more transparent supply chain where customers and manufacturers can track goods back and forth. Will you be world-class? No. But you will be a lot closer to the US and any other Western European country.
I don’t know about drone delivery. I don’t know if it is going to even work in the US. It is an interesting side show; I don’t see it as an economically viable way of doing it. Except in the most dense markets, and maybe there, but not because the power-to-weight ratio isn’t there.