Group Project_Impact of GST on Supply Chain Management

Submitted By:Arpit Shah

Mohit DhanawatPrashant Saxena

Roopansh Jain

Impact of GST on Supply Chain Management

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

Page | 2Indian Institute of Management Rohtak


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 company’s 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.



Supply Chain ManagementIn 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 SystemIn 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 IndiaPresently, there are four types of taxes in India,

1. Custom Duty - Custom duty is imposed on the goods imported from other country2. Excise Duty - Excise duty is imposed on goods manufactured in India3. Sales Tax - Sales tax is imposed on goods transported or sold to consumers,4. 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



Goods and Service TaxGovernment 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



Critical Points of GST and present tax structure

Excise Duty, VAT, CST, Service Tax GST (CGST, SGST, IGST)Excise duty and VAT are charged on value added to each stage of manufacturing

GST will be charged on value added but its scope of value addition is yet to be defined

CST is not creditable and it get cascaded every time it is charged

The cascading of IGST/CSGST/SGST cannot be defined as the credit policy is not available

Inter-state goods transfer within companies warehouse doesnot attract any tax (CST)

Interstate goods transfer will be liable for IGST even if it is within the company warehouse

Company’s 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



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. It’s 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 customer’s 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



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



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 companyScenario 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) Goods directly supplied from factory to end customers in HP in bulk 2) Goods supplied from the factory in HP to customers in Delhi via a dealer in Delhi3) Goods supplied from the factory in HP to end customers in HP via dealer in HP4) 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 100.00Excise duty 12.00%Excise cess 3.00%VAT 12.50%CST 12.50%Profit margin 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.

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.



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.





Duty paid Product - Without GST

Basic Price: 100.00 Basic Price: 100.00 Basic Price: 100.00 Basic Price: 100.00Excise Duty 12.00 Excise Duty 12.00 Excise Duty 12.00 Excise Duty 12.00Exicse cess 0.36 Exicse cess 0.36 Exicse cess 0.36 Exicse cess 0.36

112.36 112.36 112.36 112.36VAT 14.045 CST 14.05 VAT 14.05 STO warehouse 112.36Total 126.41 Invoice to dealer 126.41 Invoice to dealer 126.41 VAT 14.05

Profit margin 12.64 Profit margin 12.64 Invoice to dealer 126.41Base price by dealer 139.05 Base price by dealer 139.05 Profit margin 12.64VAT 17.38 VAT 17.38 Base price by dealer 139.05Total 156.43 Total 156.43 VAT 17.38

Total 156.43

Route -2Route -1 Route -3 Route -4

Factory (Himachal Pradesh)

End Customer Bulk

Dealer (HP)

End customer (HP)

Warehouse (Uttar Pradesh)

Dealer (Delhi)

End customer (Delhi)

Dealers (UP & Bihar)

End customer

Route -1 Route -2 Route -3

Route -4

Taxes Paid

Route – 1 Route -3Tax paid to govt. Tax paid to govt. By factory 26.41 by factory 26.41By customer 0.00 by dealer 17.38MODVAT Claimable by customer 0.00By customer 26.41 MODVAT claimable by dealer 14.05

by customer 17.38

Route -2 Route -4Tax paid to govt. Tax paid to govt. by factory 26.41 by factory 12.36by dealer 17.38 by warehouse 14.05by customer 0.00 by dealer 17.38

MODVAT claimable by customer 0.00

by dealer 0.00 MODVAT claimable

by customer 17.38 by dealer 14.05

by customer 17.38Some points to be noted:

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.



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

AssumptionsBase Price 100.00Excise duty 0.00%Excise Cess 0.00%

IGST12.50%

CGST 6.25%SGST 6.25%

Profit margin10.00%

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.


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.




Route Four

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.


Duty paid Product - With GST

Basic Price: 100.00 Basic Price: 100.00 Basic Price: 100.00Basic Price: 100.00 Excise Duty 0.00 Excise Duty 0.00 Excise Duty 0.00Excise Duty 0.00 Exicse cess 0.00 Exicse cess 0.00 Exicse cess 0.00Exicse cess 0.00 100.00 100.00 100.00

100.00 IGST 12.50 CGST 6.25 IGST 12.50CGST 6.25 CGST 0.00 SGST 6.25 CSGT 0.00SGST 6.25 SGST 0.00 Invoice to dealer 112.50 SGST 0.00Total 112.50 Invoice to dealer 112.50 Profit margin 11.25 Invoice to warehouse 112.50

Profit margin 11.25 Base price by dealer 123.75 CGST to dealer 7.03Base price by dealer 123.75 CSGT 7.73 SGST to dealer 7.03CSGT 7.73 SGST 7.73 Invoice to dealer 126.56SGST 7.73 Total 139.22 Profit margin 12.66Total 139.22 Base price by dealer 139.22

CGST 8.70SGST 8.70Total 156.62

Route -1Route -2 Route -3 Route -4

Factory (Himachal Pradesh)

End Customer Bulk

Dealer (HP)

End customer (HP)

Warehouse (Uttar Pradesh)

Dealers (UP & Bihar)

End customer

Dealer (Delhi)

End customer (Delhi)

Route -

Route -2Route -3 Route -4

Taxes Paid

Route - 1 Route -3Tax paid to central govt. Tax paid to central govt. By factory 6.25 By factory 6.25By customer 0.00 by dealer 7.73



MODVAT Claimable By customer 0.00By customer 6.25 Tax Claimable from center Tax paid to state govt. by dealer 6.25By factory 6.25 By customer 7.73By customer 0.00 Tax paid to state govt. MODVAT Claimable By factory 6.25By customer 6.25 by dealer` 7.73 By customer 0.00

Tax Claimable from state by dealer 6.25By customer 7.73

Route -2 Route -4Tax paid to central govt. Tax paid to central govt. By factory 0.00 By factory 0.00by dealer 7.73 by warehouse 7.03By customer 0.00 by dealer 8.70Tax Claimable from center By customer 0.00by dealer 0.00 Tax Claimable from center By customer 7.73 by warehouse 0.00Tax paid to state govt. by dealer 7.03By factory 12.50 By customer 8.70by dealer 7.73 Tax paid to state govt. By customer 0.00 By factory 12.50Tax Claimable from state by warehouse 7.03by dealer 12.50 by dealer 8.70By customer 7.73 By customer 0.00

Tax Claimable from state by warehouse 12.50by dealer 7.03By customer 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.

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 higher3) 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



Scenario SummaryVAT & CST GST

Route 1 Route 2 Route 3 Route 4 Route 1 Route 2 Route 3 Route 4

Factory

Base Price 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Total claimable Tax paid

- - - - - - - -

Total non-claimable Tax paid

- - - - - - - -

Warehouse

Base Price - - - 112.36 - - - 112.50


- - - 12.36 - - - 12.50


- - - - - - - -

Dealer

Base Price - 126.41 126.41 126.41 - 112.50 112.50 126.56


- 12.36 26.41 14.05 - 12.50 12.50 14.06


- 14.05 - - - - - -

Customer

Base Price 126.41 139.05 139.05 139.05 112.50 123.75 123.75 139.22


26.41 17.38 17.38 17.38 12.50 15.47 15.47 17.40


- - - - - - - -

Final Price 126.41 156.43 156.43 156.43 112.50 139.22 139.22 156.62

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 company’s 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.



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 be1. 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.



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 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

ConclusionWe 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.

References1. 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

3. Business Standard article, “Companies gear up to face GST Impact”, Delhi, April 15th 4. Transporter Magazine, March’2012 , GST Impact on Logistics industry in India


Documents

Group Project_Impact of GST on Supply Chain Management