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Impact of GST on Supply Chain Management

Submitted By: Arpit Shah Mohit Dhanawat Prashant Saxena Roopansh Jain

Supply Chain Management

Impact of GST on Supply Chain Management

Table of Contents
Executive Summary .................................................................................................................................. 3 Supply Chain Management ....................................................................................................................... 4 Tax System................................................................................................................................................ 4 Indirect Tax in India.............................................................................................................................. 4 Goods and Service Tax ......................................................................................................................... 5 Simulation on the effect of GST on Supply Chain ................................................................................... 7 Possibilities of Tax Rate ........................................................................................................................... 8 How GST can influence the Supply Chain Management of a company ................................................... 9 Without GST/ Present Tax structure ..................................................................................................... 9 With proposed GST ............................................................................................................................ 12 Warehousing strategy-Should we change or not? ................................................................................... 15 Special Scenario Managing the Product Transfer within Internal Divisions ....................................... 17 Expected industry response to GST ........................................................................................................ 18 Conclusion .............................................................................................................................................. 19 References ............................................................................................................................................... 19

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Supply Chain Management

Impact of GST on Supply Chain Management

Executive Summary
Government of India is proposing to substitute the present tax system VAT and Excise with GST (Goods and service tax). There would be common tax for all goods or services being consumed or availed respectively (CGST, SGST and IGST). At present, companies have aligned their policies and operational strategies as per existing tax structure. With the change in the whole tax structure in India, many industries may have to change their supply chain strategy. Companies will try to align themselves with the change to minimize the tax or fiscal cost. Tax factors will play a role in deciding which state to set the warehouse in, what mode/route to follow for a particular state, whether to have a dealer in separate state or have a warehouse as the differential tax rates may affect these factors. A scenario analysis was done to check the impact of GST on different supply chains by comparing it to the present tax structure. With the GST in place, all the taxes might become creditable, whereas in present tax structure the CST gets cascaded in the pricing, and adds up in the cost of intermediaries. Second, most critical point is in present tax structure the goods are not taxable under interstate transfer within companys warehouse but with GST, it will also be taxable as per interstate goods and service tax at applicable rates. Both the above, changes in the taxation are crucial factors for companies to decide on their supply chain strategies. Many industries may plan to go centralized from their current decentralize mode of operation, and reduce their warehouses to eliminate the Interstate GST. We concluded that the introduction of GST in India will lead to a massive supply chain restructuring for some of the industries. It will lead to centralization of warehouses and thus reducing the number of warehouses significantly. It may have an impact on the total cost which has to be bear by customers in case of transfer of goods from one state to other. It might also lead in direct transfer of goods from manufacturer to Dealer/Customer, thus eliminating the IGST when moving the goods from one state to other.

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Supply Chain Management

Impact of GST on Supply Chain Management

Supply Chain Management


In present world of stiff competition, Supply Chain Management is one of the critical factor in the sustainability of any business. In the pre-liberalization era, the inclination of businesses was more towards selling and producing, but with time, competition, and opening of economies supplying the goods at right place, at right time and in right form is necessary for its success and acceptability. Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that the merchandise is produced and distributed at the right quantities to the right location, and at the right time, in order to minimize system wide costs while satisfying service level requirements. Supply chain strategy of any business depends on many factors that can be internal to the company or can be governed by markets place or by the government. One of the factors that impact the supply chain is the Tax or Fiscal costs. In country like India, there is cutthroat competition in almost every industry and in every field. Maximization of revenues and minimization of cost is the requirement of each company, and companies change their business model and operating strategies to sustain in the industry. Companies change their operating location where they get tax subsidies, labor support and government support. Therefore, tax in such situations is important to decide the supply chain strategy.

Tax System
In India, government levies different types of taxes on different type of activities, like value added tax, service tax, excise duty, luxury tax, entertainment tax etc from production of goods to consumption of goods or services one has to go through different kind of tax regimes. Indirect Tax in India Presently, there are four types of taxes in India, 1. 2. 3. 4. Custom Duty - Custom duty is imposed on the goods imported from other country Excise Duty - Excise duty is imposed on goods manufactured in India Sales Tax - Sales tax is imposed on goods transported or sold to consumers, Service tax - Service tax is imposed on the services availed by the consumer

beyond the surcharges, octroi etc. the custom duty depends on the goods and its value, government control the excise duty and service taxes. Sales Taxes are of two types 1. Value Added Tax (VAT) Imposed on addition in value by the manufacturer at each stage, decided by state government 2. Central Sales Tax (CST) imposed on transfer of goods from one state to another state, decided by central government

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Supply Chain Management

Impact of GST on Supply Chain Management

Goods and Service Tax Government of India is proposing to substitute the present tax system VAT and Excise with GST (Goods and service tax). There would be common tax for all goods or services being consumed or availed respectively. The Goods and service taxes would be in three parts: 1. CGST Central Goods and Service Tax to be imposed on goods or services consumed or availed within state 2. SGST State Goods and Service Tax to be imposed on goods or services consumed or availed within state 3. IGST Interstate Goods and Service Tax to be imposed when any goods or services consumed or availed outside the state of origin

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Supply Chain Management Critical Points of GST and present tax structure Excise Duty, VAT, CST, Service Tax Excise duty and VAT are charged on value added to each stage of manufacturing CST is not creditable and it get cascaded every time it is charged Inter-state goods transfer within companies warehouse doesnot attract any tax (CST)

Impact of GST on Supply Chain Management

GST (CGST, SGST, IGST) GST will be charged on value added but its scope of value addition is yet to be defined The cascading of IGST/CSGST/SGST cannot be defined as the credit policy is not available Interstate goods transfer will be liable for IGST even if it is within the company warehouse

Companys tries to minimize the tax burden by locating their warehouses and factories such that maximum tax benefit can be availed. At present, companies have aligned their policies and operational strategies as per existing tax structure. With the change in the whole tax structure in India, many industries may have to change their supply chain strategy. Companies will try to align themselves with the change to minimize the tax or fiscal cost. The restructuring decision will be involved at every stage of supply chain

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Supply Chain Management

Impact of GST on Supply Chain Management

Simulation on the effect of GST on Supply Chain


A simulation was done by the Accenture Business Solutions using the real Supply Chain data of a major CPG company Two scenarios were run keeping the same demand and supply, changing the taxation structure from the present (scenario 1) to the GST structure (scenario 2).

The new tax is expected to reduce the number of warehouses that manufacturers are required to maintain in different states, resulting in a big increase in demand for integrated logistics solutions. Its very probable that companies will move to newer and more centralized hub and spoke distribution models. The GST will begin to make a difference to decisions about the physical supply chain, freeing executives from having to locate manufacturing bases and distribution networks with tax benefits foremost in mind and allowing them to think about operating flexibility and efficiency from the customers standpoint. As such, the GST will put domestic business leaders on an even keel with importers that do not need to pay consumption taxes.

Assumptions made to run the simulation


GST is assumed at 10% State GST and 10% Central GST 1 day Service Level implies 250 kms distance travel for secondary freight Primary Freight Cost is the transportation cost between the plants and the warehouses Page | 7 Indian Institute of Management Rohtak

Supply Chain Management


Impact of GST on Supply Chain Management

Secondary Freight Cost is the transportation cost incurred between the warehouses and the customers Demand and supply was set constant in both scenarios and same service level was maintained through simulation.

Inferences from the simulation


There is a reduction in the number of warehouses required to have the same service levels Average inventory level is reduced on account of convergence towards the centralized distribution system. There is a reduction in primary freight cost due to consolidation of freight Secondary freight cost increases because of increase in the weighted average distance between the warehouse and customers In the present tax structure, CST, Excise and VAT are the main taxes levied. These are proposed to be subsumed in GST By reducing the no. of warehouses, lower taxes are levied in the 2nd scenario resulting in either the lower price of the product or the higher profit margin for the producer.

Possibilities of Tax Rate


Some of the factors which may further impact supply chain restructuring are as follows: Different SGST in different states, some states with higher SGST than others IGST may be different than CGST + SGST IGST may not be claimable against CGST or SGST SGST can be claimed only against SGST and so with CGST and IGST Page | 8 Indian Institute of Management Rohtak

Supply Chain Management

Impact of GST on Supply Chain Management

These factors will play a role in deciding which state to set the warehouse in, what mode/route to follow for a particular state, whether to have a dealer in separate state or have a warehouse as the differential tax rates may affect these factors.

How GST can influence the Supply Chain Management of a company


Scenario Analysis We did a scenario analysis to check the impact of GST on different supply chains by comparing it to the present tax structure. A factory in Himachal Pradesh was assumed and four routes having different supply chains were considered for comparison. 1) 2) 3) 4) Goods directly supplied from factory to end customers in HP in bulk Goods supplied from the factory in HP to customers in Delhi via a dealer in Delhi Goods supplied from the factory in HP to end customers in HP via dealer in HP Goods supplied from the factory in HP to the end customers in UP via a warehouse in UP.

Without GST/ Present Tax structure Assumptions: Base Price Excise duty Excise cess VAT CST Profit margin 100.00 12.00% 3.00% 12.50% 12.50% 10.00%

Route One For a product manufactured and sold in the same state, the applicable taxes are Excise duty, Excise Cess and VAT. As per our assumptions, for a base price of Rs 100, an excise duty of Rs 12 is levied (12% of 100). An additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid. The total of the three amounts to 112.36 on which a VAT of 12.50 % is imposed. Thus the total cost to the firm for supplying a product within state is the sum of the Base price, excise duty and cess and VAT. The total cost comes out to be Rs 126.41 for route 1. Route Two For a product manufactured in one state and sold in other via a dealership in other state, the applicable taxes are Excise duty, Excise Cess, CST and VAT.

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Supply Chain Management

Impact of GST on Supply Chain Management

As per our assumptions, for a base price of Rs 100, an excise duty of Rs 12 is levied (12% of 100). An additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid. The total of the three amounts to 112.36 on which a CST of 12.50 % is imposed to travel the goods from one state to another. Thus the invoice paid by the dealer to the dealer is 126.41. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 126.41 is kept as profit. VAT of 12.50 % is then applied on the value achieved after addition of profit margin to the invoice paid by the dealer. Thus the total price in this case comes out to be Rs 156.43. Route Three For a product manufactured and sold in the same state and sold via a dealership, the applicable taxes are Excise duty, Excise Cess and VAT. As per our assumptions, for a base price of Rs 100, an excise duty of Rs 12 is levied (12% of 100). An additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid. The total of the three amounts to 112.36 on which a VAT of 12.50 % is imposed to travel the goods from one state to another. Thus the invoice paid by the dealer to the dealer is 126.41. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 126.41 is kept as profit. VAT of 12.50 % is then applied on the value achieved after addition of profit margin to the invoice paid by the dealer. Thus the total price in this case comes out to be Rs 156.43. Route Four For a product manufactured and sold in other state and sold via warehouse and dealership, the applicable taxes are Excise duty, Excise Cess and VAT. As per our assumptions, for a base price of Rs 100, an excise duty of Rs 12 is levied (12% of 100). An additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid and the good is then transferred to the warehouse in other state. The total of the three amounts to 112.36 on which a VAT of 12.50 % is imposed to travel the goods from one state to another. Thus the invoice paid by the dealer to the warehouse is 126.41. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 126.41 is kept as profit. VAT of 12.50 % is then applied on the value achieved after addition of profit margin to the invoice paid by the dealer. Thus the total price in this case comes out to be Rs 156.43.

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Duty paid Product - Without GST
Factory (Himachal Pradesh)

Impact of GST on Supply Chain Management

Route -1 Basic Price: 100.00 Excise Duty 12.00 Exicse cess 0.36 112.36 VAT 14.045 Total 126.41

Route -2 Basic Price: Excise Duty Exicse cess CST Invoice to dealer Profit margin Base price by dealer VAT Total
Route -2

Route -3 100.00 12.00 0.36 112.36 14.05 126.41 12.64 139.05 17.38 156.43
Route -3

Route -4 Basic Price: Excise Duty Exicse cess STO warehouse VAT Invoice to dealer Profit margin Base price by dealer VAT Total 100.00 12.00 0.36 112.36 112.36 14.05 126.41 12.64 139.05 17.38 156.43

Basic Price: Excise Duty Exicse cess

100.00 12.00 0.36 112.36 VAT 14.05 Invoice to dealer 126.41 Profit margin 12.64 Base price by dealer 139.05 VAT 17.38 Route -4 156.43 Total
Warehouse (Uttar Pradesh)

Route -1 Dealer (Delhi)

Dealer (HP)
Dealers (UP & Bihar)

End Customer Bulk

End customer (Delhi)

End customer (HP)

End customer

Taxes Paid Route 1 Tax paid to govt. By factory By customer MODVAT Claimable By customer Route -3 Tax paid to govt. by factory by dealer by customer MODVAT claimable by dealer by customer Route -4 Tax paid to govt. by factory by warehouse by dealer by customer MODVAT claimable by dealer by customer

26.41 0.00 26.41

26.41 17.38 0.00 14.05 17.38

Route -2 Tax paid to govt. by factory by dealer by customer MODVAT claimable by dealer by customer Some points to be noted: 26.41 17.38 0.00 0.00 17.38

12.36 14.05 17.38 0.00 14.05 17.38

1) Route 2 and Route 3 are similar except that in case of state transfer dealer cannot claim MODVAT benefit thereby absorbing the taxes in margins. Therefore to benefit the dealers company open warehouses in different regions.

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Impact of GST on Supply Chain Management

2) Route 4 is adopted against Route 2 if there are large customer in particular region to serve. It also prevents taxes and delivers better service to customer. Warehouse Stock transfer gives the opportunity to buyer to claim MODVAT tax credit. With proposed GST Assumptions Base Price Excise duty Excise Cess IGST CGST SGST Profit margin 100.00 0.00% 0.00% 12.50% 6.25% 6.25% 10.00%

Route One For a product manufactured and sold in the same state, the applicable taxes are CGST and SGST As per our assumptions, for a base price of Rs 100, a CGST and SGST of 6.25 each is levied (6.25% of 100). The total amount comes out to be 112.50. Route Two For a product manufactured in one state and sold in other via a dealership in other state, the applicable taxes are CGST, SGST and IGST. As per our assumptions, for a base price of Rs 100, an IGST of 12.50 % is imposed to travel the goods from one state to another. Thus the invoice paid by the dealer to the dealer is 112.50. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 112.50 is kept as profit. SGST and CGST of 6.25 % each is then applied on the value achieved after addition of profit margin to the invoice paid by the dealer. Thus the total price in this case comes out to be Rs 139.22. Route Three For a product manufactured and sold in the same state and sold via a dealership, the applicable taxes are CGST and SGST. As per our assumptions, for a base price of Rs 100, a CGST and SGST of 6.25 each is levied (6.25% of 100). The total invoice paid by the dealer comes out to be 112.50. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 112.50 is kept as profit. CGST and SGST of 6.25 % is then applied on the value achieved after addition of profit margin to the invoice paid by the dealer which is paid by the customer.

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Supply Chain Management Thus the total price in this case comes out to be Rs 139.22. Route Four

Impact of GST on Supply Chain Management

For a product manufactured and sold in other state and sold via warehouse and dealership, the applicable taxes are SGST, IGST and CGST. As per our assumptions, for a base price of Rs 100, an IGST of 12.50 % on base price is paid to transfer the goods from factory to warehouse in other state. The total amounts to 112.50 on which a CGST and SGST of 6.25% is imposed and invoice paid by the dealer to the warehouse is 126.56. As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 126.56 is kept as profit. CGST and SGST of 6.25 % are then applied on the value achieved after addition of profit margin to the invoice paid by the dealer. Thus the total price in this case comes out to be Rs 156.62.

Duty paid Product - With GST


Factory (Himachal Pradesh)

Route -1 Basic Price: 100.00 Excise Duty 0.00 Exicse cess 0.00 100.00 CGST 6.25 SGST 6.25 Total Route - 112.50

End Customer Bulk

100.00 0.00 0.00 100.00 IGST 12.50 CGST 0.00 SGST 0.00 Invoice to dealer 112.50 Profit margin 11.25 Base price by dealer 123.75 CSGT 7.73 SGST 7.73 Total 139.22 Route -2

Route -2 Basic Price: Excise Duty Exicse cess

Route -3 Basic Price: Excise Duty Exicse cess CGST SGST Invoice to dealer Profit margin Base price by dealer CSGT SGST Total
Route -3

Route -4 100.00 0.00 0.00 100.00 6.25 6.25 112.50 11.25 123.75 7.73 7.73 139.22 Basic Price: Excise Duty Exicse cess IGST CSGT SGST Invoice to warehouse CGST to dealer SGST to dealer Invoice to dealer Profit margin Base price by dealer CGST SGST Total 100.00 0.00 0.00 100.00 12.50 0.00 0.00 112.50 7.03 7.03 126.56 12.66 139.22 8.70 8.70 156.62

Route -4 Warehouse (Uttar Pradesh)

Dealer (Delhi) End customer (Delhi)

Dealer (HP)

End customer (HP)

Dealers (UP & Bihar)

End customer

Taxes Paid Route - 1 Tax paid to central govt. By factory By customer Indian Institute of Management Rohtak Route -3 Tax paid to central govt. By factory by dealer

6.25 0.00

6.25 7.73 Page | 13

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Impact of GST on Supply Chain Management

MODVAT Claimable By customer Tax paid to state govt. By factory By customer MODVAT Claimable By customer

6.25 6.25 0.00 6.25

Route -2 Tax paid to central govt. By factory by dealer By customer Tax Claimable from center by dealer By customer Tax paid to state govt. By factory by dealer By customer Tax Claimable from state by dealer By customer

0.00 7.73 0.00 0.00 7.73 12.50 7.73 0.00 12.50 7.73

By customer Tax Claimable from center by dealer By customer Tax paid to state govt. By factory by dealer` By customer Tax Claimable from state by dealer By customer Route -4 Tax paid to central govt. By factory by warehouse by dealer By customer Tax Claimable from center by warehouse by dealer By customer Tax paid to state govt. By factory by warehouse by dealer By customer Tax Claimable from state by warehouse by dealer By customer

0.00 6.25 7.73 6.25 7.73 0.00 6.25 7.73

0.00 7.03 8.70 0.00 0.00 7.03 8.70 12.50 7.03 8.70 0.00 12.50 7.03 8.70

Some important notes: 1) In case of Route 2, dealer can claim tax benefit at their end and pay the differential of both CGST and SGST. It is a gain for dealer for interstate deliveries. Route 2 and Route 3 will involve similar tax idea as it involves only CGST and SGST at different state level. 2) In Route 4 the warehouse will be charged with CGST and SGST which was earlier not applicable with VAT system. It will add tax burden to company to include the warehouse in different state d further delivering the goods from warehouse to dealers and distributors.

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Impact of GST on Supply Chain Management

Warehousing strategy-Should we change or not?

Decentralized warehouses: 1) Many warehouse in nearby region to serve better 2) Cost of maintaining the warehouse cumulatively would be high but can be presumed to be compensated by better service and tax saving 3) Demand forecasting at individual warehouse level 4) High transportation for delivering the product to smaller warehouses from factory 5) Low transportation problems in sending the goods from warehouses to dealers/distributors Centralized warehouse: 1) One big warehouse to cover more geographical area 2) Cost of maintaining the warehouse is low as the fixed cost of maintaining many smaller warehouse would be higher 3) Demand forecasting will be central level and fluctuation and inventory management would be easier 4) High transportation for delivering the product to dealers and distributors from such big warehouses 5) Low transportation problems in sending the goods from factory to single warehouse in one region

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Impact of GST on Supply Chain Management

Scenario Summary
Base Price

VAT & CST

GST

Route 1 Route 2 Route 3 Route 4 Route 1 Route 2 Route 3 Route 4 100.00 100.00 126.41 12.36 14.05 100.00
-

100.00
-

100.00 100.00
-

100.00
-

100.00
-

Factory

Total claimable Tax paid Total non-claimable Tax paid Base Price

126.41 26.41 139.05 17.38 156.43

112.36 12.36 126.41 14.05 139.05 17.38 156.43

112.50 12.50 -

112.50 12.50 123.75 15.47 139.22

112.50 12.50 126.56 14.06 139.22 17.40 156.62

Warehouse

Total claimable Tax paid Total non-claimable Tax paid Base Price

Dealer

Total claimable Tax paid Total non-claimable Tax paid Base Price

126.41 139.05 26.41 17.38 -

112.50 123.75 12.50 15.47 -

Customer

Total claimable Tax paid Total non-claimable Tax paid

Final Price

126.41 156.43

112.50 139.22

From the above table, we can infer that with the GST in place, all the taxes might become creditable, whereas in present tax structure the CST gets cascaded in the pricing, and adds up in the cost of intermediaries. Second, most critical point is in present tax structure the goods are not taxable under interstate transfer within companys warehouse but with GST, it will also be taxable as per interstate goods and service tax at applicable rates. Both the above, changes in the taxation are crucial factors for companies to decide on their supply chain strategies. Many industries may plan to go centralized from their current decentralize mode of operation, and reduce their warehouses to eliminate the Interstate GST. With more centralization, the focus will move towards managing lesser but bigger warehouses. This may increase in demand from central warehouse, therefore to transfer more material companies may try to increase the truck sizes such that the number of trips can be reduced or increase the number of trips. This will change the truck usage pattern, and it may influence the logistics to increase the load capacity of trucks to minimize the cost of transportation per item.

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Impact of GST on Supply Chain Management

Special Scenario Managing the Product Transfer within Internal Divisions


Scenario: A big manufacturing company (like Larsen and Toubro) has its manufacturing facilities at many locations (for the specific case we take it as Mumbai). L&T also has its various regional warehouse and offices in different parts of the country. Its business deals with selling the goods and services to outside customers and supply to its internal divisions that can further sell/consume it to service the other company (say Indian Oil). For the case, let the L&T has its central warehouse in Faridabad, internal division is L&T, Delhi and end customer is BHEL, Haridwar. Product flow would be from L&T Mumbai to BHEL Haridwar. L&T Delhi is the vendor for BHEL Haridwar. In the present tax structure, the product flow would be 1. L&T Mumbai can give the material to central warehouse in Faridabad (no interstate goods transfer tax would be applicable as it is a stock transfer), 2. the central warehouse can supply the good to L&T Delhi (with applicable taxes like Excise, CST/VAT), 3. L&T Delhi supplies to BHEL Faridabad (with taxes as CST and Excise Duty as applicable) 4. Invoice of material will also move as per the delivery point of material 5. Since, central warehouse serves other customers also, material from Mumbai comes to Faridabad for further supplies. In the proposed tax structure of GST, every movement of goods invites the taxes either IGST or CGST/SGST. Therefore, in the above example product transferred from Mumbai to its Delhi division would be double taxed (first from Mumbai to Faridabad and then from Faridabad to Delhi). Company can chose an alternate to minimize its taxes by following method: 1. L&T Mumbai can invoice the material directly on name of L&T Delhi instead of Central Warehouse as was in previous case, 2. Although, invoice is for L&T Delhi, the Goods can be routed through its central warehouse only, as the central warehouse is already available 3. This can help in optimizing the transportation from Mumbai to Central Warehouse, as the deliveries to central warehouse now consist of both the L&T Delhi division material and its own requirements 4. The material is going through central warehouse but the invoice routing is changed (skips the central warehouse), therefore the double taxation from Mumbai to central warehouse and from central warehouse to L&T Delhi can be eliminated with single invoice of Mumbai to L&T Delhi division directly.

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Impact of GST on Supply Chain Management

Expected industry response to GST


The impact of GST would be dependent up on nature industry. Businesses that demands closeness with the end consumer and cannot afford risk of high lead-time or lower service response time may not change their warehousing strategy but businesses that are self-driven / deals in necessary items may change their supply chain strategy to minimize the tax impact. Few industry specific influence of GST on supply chain strategy is discussed below Industry: Fast Moving Consumer Goods SCM requirement - low lead-time, high response time, and delay in service can severely affect the business, highly consumer preference dependent, easy substitutes available Likely Attitude of GST No major change is expected in warehousing strategy of FMCG companies, it is the necessity of the companies to maintain their highly sophisticated networking of goods and products Reason FMCG companies are highly dependent on consumer preference, it may be high risk for companies to opt for major changes in their warehousing strategy and move from decentralization towards centralization, centralization may invite higher lead-time, distance from consumers and it increases the burden on transportation and logistics to ensure timely delivery of goods. Industry: Heavy Engineering and Equipments SCM requirement lead-time generally not much dependent, involves in big contract works therefore things are according to schedule, pull strategy products, customers are usually big companies Likely Attitude on GST Companies may eliminate the regional warehouses and directly deliver the products to customers. This will reduces their warehouse operation cost and the effect of service delay can be accommodated for such big projects Reason Heavy engineering equipment companies have generally pull demand products, with GST in place the additional burden of taxes would either be borne by companies or companies may try to pass on the burden to end consumer. In present world of high competition, companies may try to reduce their cost and eliminate their less utilized regional warehouses Industry: Necessary goods manufacturer SCM requirement lead-time may or may not be dependent but better customer service is desirable of such companies, pull strategy products, customers are generally large in number, Likely Attitude on GST Companies may not eliminate the regional warehouses and serves the end consumer. The companies will not worry about tax changes and such companies may transfer the additional burden to end consumer Reason Necessity goods gives the companies advantage to dictate the terms. With GST companies may try to pass the burden to consumer as it is expected that for necessary items consumer would be willing to Page | 18 Indian Institute of Management Rohtak

Supply Chain Management

Impact of GST on Supply Chain Management

pay higher price. Therefore, companies may not change their supply chain strategy and focus more on better delivery and service response. Industry: Highly price elastic products SCM requirement low lead-time, small consumers, easy substitutes, highly price sensitive, change in demand pattern cannot be predicted Likely Attitude on GST Companies may not change their supply chain strategy in order to maintain high efficient delivery and better serve, in addition in order to maintain the prices, the companies mayhave to take the burden of additional taxes on to themselves, OR, if prices needs to be changes it may change at industry level. As the additional taxes if applied will be for the whole industry therefore the change in supply chain strategy may happen at industry level and not at company level. Reason Price elastic products are Push strategy products, they need to be filled in market and moving from decentralization to centralization may not be effective for such highly push driven products. The companies cannot afford to lose the market because of high prices or non-availability. Industry: E-commerce SCM requirement low lead-time, small consumers, easy substitutes, change in demand pattern cannot be predicted, low margin products Likely Attitude on GST there may be two possibility for such companies, either they may not be able to change their supply chain strategy in order to maintain a good and efficient delivery system or companies may change their business model itself i.e. companies may change their business model and work as interface between consumer and suppliers. Reason E-commerce is usually low margin driven industry and operating with large number of warehouses with additional tax burden may not be suitable in long run, therefore the companies may find it difficult to operate in small regional warehouse operation mode. e

Conclusion
We can conclude that the introduction of GST in India will lead to a massive supply chain restructuring for some of the industries. It will lead to centralization of warehouses and thus reducing the number of warehouses significantly. It may have an impact on the total cost, which has to be bear by customers in case of transfer of goods from one state to other. It might also lead in direct transfer of goods from manufacturer to Dealer/Customer, thus eliminating the IGST when moving the goods from one state to other.

References
1. Accenture Report 2011, Goods and Service Tax responding to an unprecedented opportunity to transform supply chain performance in India, Anurag Sckhri, Ganesan Ramachandran 2. Designing and Managing the Supply Chain, David Simchi-Levi, Philip Kaminsky, Edith Simchi-Levi, Ravi Shankar Page | 19 Indian Institute of Management Rohtak

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Impact of GST on Supply Chain Management

3. Business Standard article, Companies gear up to face GST Impact, Delhi, April 15th 4. Transporter Magazine, March2012 , GST Impact on Logistics industry in India

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