When finance minister Mr. Arun Jaitley, in a press conference, revealed the above-target tax collection from GST receipts, India’s dream of digitalisation felt stronger. We have talked about the relation between GST and digitalisation in our previous editions, but it’s impact on the very important process of product distribution remained unsaid. Highlighting the impact of GST on product distribution, we bring to you the 50th edition of our Saralweb research note.
GST and distribution networks
One of the widely promoted benefits of GST has been, removal of cascading in taxes. The tax submitted while buying the product, can be claimed in GST return, thus the tax also travels through the complete supply chain. Though taxes have been an eternal part of purchase and distribution, the integration of the process in channels has raised a special need for tracking the complete chain. Complete track of the supply chain has always been crucial, for quality as well as financial requirements. Moreover, it has always had an impact on revenues. With taxation involvement, the need for well understood and well laid channels is more than ever.
William J. Stanton defines the distribution channel as the set of people and firms involved in the transfer of title to a product, as the product moves from product to the ultimate consumer or business user. One may note that the definition, talks about transfer of title to a product and not the product itself. With the involvement of different stakeholders, the parity within the chain, is challenged. The challenges vary on the basis of the product. For fast moving and perishable products, order fulfilment needs to be catered in accurate yet rigorous manner. For slow moving, but expensive products, inventory management can turn into a tedious task.
Among all these challenges, organisations look for a distribution channel that brings them closest to the supply chain management goal which, as defined by Keskinocak and Tayur is to deliver the correct product, to the correct place, at the correct time, while maintaining cost efficiencies. Combining the above mentioned definitions, we can conclude that channels are responsible for the transfer of title of product in a cost efficient manner, and their performance shall be defined accordingly.
Performance of Distribution network
Apart from cost efficiency, availability of a product at the right time, at the right place, is crucial for any channel. If a network delivers a product late, although cheap, it has completely failed. Similarly, if the cost included in delivering a product is very high, it will make an impact on the total cost of the product. This justifies Prof. Peter Drucker’s statement “Channels are primary and products are secondary.” The performance of a distribution network is essential for a product’s success, and a balance between cost and response time, defines the performance of the network.
The response time is dependent upon various factors such as number of distribution centres, transportation cost, facility cost, changing customer preferences, etc. With new entrants and the added GST taxation leverage an organisation cannot rely upon one style of distribution network to perform well. ITC had an already established distribution network, which they used while expanding product portfolio. In today’s scenario, with complex marketplace, this approach might not work. Flexibility in distribution network is essential for survival, and flow of information is the spine.
An organisation with a proper channel for information flow, can any day induce changes in their channel length, channel exclusivity or channel quality, but if the web of information is not dealt with, the organisation might jeopardise the channel’s flexibility, thus challenging an organisations growth and survival.
1: Pinar Keskinocak Shidhar Tayur , Quantitative Analysis for Internet-Enabled Supply Chains, 2001