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Impact of GST on Indian Automotive Supply Chain

Submitted to Prof: Samir K. Srivastava
Submitted by Group 8 Section - F Paramjyothi Akula PGP26356 Piyush Kadu PGP26346 Manish Anand PGP26350

Date of submission: 20 March 2011

Table of Contents
What is GST? ........................................................................................................................................................................... 3 How GST Will Work? ............................................................................................................................................................... 3 GST and Present System of VAT .............................................................................................................................................. 4 Impact of GST on Various Sectors ........................................................................................................................................... 4 Taxes to be subsumed under the GST .................................................................................................................................... 4 Challenges of the proposed GST model .................................................................................................................................. 5 Automobile Industry Overview and Trends ............................................................................................................................ 5 Overview ............................................................................................................................................................................. 6 Yearly-Analysis .................................................................................................................................................................... 6 Production Trend ................................................................................................................................................................ 6 Domestic and Exports sales trend....................................................................................................................................... 6 Demand-supply mismatch .................................................................................................................................................. 7 Capacity addition ................................................................................................................................................................ 7 Challenges in the Automobile Industry............................................................................................................................... 8 Trends Impacting Supply chain ........................................................................................................................................... 8 Demand side trends ........................................................................................................................................................ 8 Supply side trends ........................................................................................................................................................... 9 Impact of GST on Auto Sector ........................................................................................................................................... 10 Impact of GST on used-car market ................................................................................................................................... 12 Impact of GST on Supply Chain ............................................................................................................................................. 13 Impact of Removed Tax Barriers on Cross-border Sales....................................................................................................... 14 Network Re-engineering ....................................................................................................................................................... 14 Impact on Warehousing ........................................................................................................................................................ 15 Impact on Service Level ........................................................................................................................................................ 15 Recommendations to firms................................................................................................................................................... 16 Recommendations to policy makers..................................................................................................................................... 16 References ............................................................................................................................................................................ 16

What is GST?
Goods and Service Tax is a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the service. On most of the goods and services the rate of tax remains the same but as per the necessity of the nation some goods or services can be declared as exempted or Zero rated. The whole system is developed in such a way that it avoids the cascading effect and the final consumer bears the burden of all the tax. Generally, in such a system Exports are zero rated and all the taxes paid while purchasing and manufacturing the goods including the taxes paid on raw material and services are returned to the exporter to make the exports competitive. The sellers or service providers collect the tax from their customer, who may or may not be the ultimate customer, and before depositing the same to the exchequer, they deduct the tax they have already paid. This is simply very similar to VAT which is at present applicable in most of the states and can be termed as National level VAT on Goods and Services with only one difference that in this system not only goods but also services are involved and the rate of tax on goods and services are generally the same.

How GST Will Work?

Generally, the dealers registered under GST (Manufacturers, Wholesalers and retailers and service providers) charge GST on the price of goods and services from their customers and claim credits for the GST included in the price of their own purchases of goods and services used by them. While GST is paid at each step in the supply chain of goods and services, the paying dealers dont actually bear the burden of the tax because GST is an indirect tax and ultimate burden of the GST has to be taken by the last customer. This is because they include GST in the price of the goods and services they sell and can claim credits for the most GST included in the price of goods and services they buy. The cost of GST is borne by the final consumer, who cant claim GST credits, i.e. input credit of the tax paid.

GST and Present System of VAT

In principle, there is no difference between present tax structure under VAT and GST as far as the tax on goods is concerned because GST is also a form of VAT on Goods and services. Here at present the sales tax, with an exception of CST, is a VAT system and in case of service tax the system also has the Cenvat credit system hence both sales tax and service tax are under VAT system in our country. At present the goods and services are taxed separately but in GST the difference will be vanished.

Impact of GST on Various Sectors

Introduction of GST will greatly improve the quality of the indirect tax system and, therefore, make it possible to have higher resources on a sustainable basis, which will make the fiscal situation more sustainable. This reform will solve many critical issues in the long run. According to a recent study on the impact of GST, India could gain as much as $15 billion annually once the GST is in place. Discounting these flows at a modest 3 per cent per annum, the present value of the GST will work out to about half a trillion dollars. GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture. The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports.

Taxes to be subsumed under the GST

Taxes or levies to be subsumed will be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services. It should be part of the transaction chain which commences with import / manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other. The subsumation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST. Revenue fairness for both the Union and the States should also be considered. The following central taxes will be subsumed under the GST: i. ii. iii. Central Excise Duty Additional Excise Duties The Excise Duty levied under the Medicinal and Toiletries Preparation Act

iv. v. vi. vii. viii.

Service Tax Additional Customs Duty, commonly known as Countervailing Duty (CVD) Special Additional Duty of Customs - 4% (SAD) Surcharges Cesses

The following state taxes will also be subsumed under the GST: i. ii. iii. iv. v. vi. VAT / Sales tax Entertainment tax (unless it is levied by the local bodies). Luxury tax Taxes on lottery, betting and gambling. State Cesses and Surcharges in so far as they relate to supply of goods and services. Entry tax not in lieu of Octroi

Challenges of the proposed GST model

Presently most of the States need substantial share in the central taxes apart from revenue raised at their own level under constitutional power. This is due to imbalance economic development and other reasons. The dual GST model will offset certain industry from Centre to States thereby reducing revenue generation for the Centre. Accordingly, the Centre will have to depend on the revenue from the revenue-rich States to share with revenue-low States. The challenge is multi-fold proper revenue accounting and collection, technological upgradation, revamping baking channel for State-wise revenue allocation, political support, etc. Due to the inherent need of different States for revenue, any new tax regime to be successful, it must ensure that the States get their requisite revenue for proper governance and development. With the growth of economy, the need for revenue would be constantly on the rise and the Central Government will have to do a balancing act between the revenue-rich States and revenue-low States by properly sharing the revenue as per their needs. Over a period of time the States may demand a constitutional arrangement for revenue sharing mechanism.

Automobile Industry Overview and Trends

Presently the automobile sector in India contributes 6.5% to the nations GDP, making it a prominent player in the economy. Indian automobile industry is in the booming trail, the overall industry sales increased by 10% to 13.58 million units during 2010-11, but the players margins will come under pressure due the second time swell in interest rates and fuel prices. The proposed GST also would have a significant impact on the margins. The players are worried that the component industry has not been able to ramp up production quickly enough, to meet the rising demand. The cumulative increase in vehicle prices because of several factors could be 7-8%, thereby impacting consumer sentiment. Due to the partial roll back excise duty during February the prices of the

vehicle have been increased by 2%. The buoyant automobile industry is set to slow down, relatively, and register a growth rate in low double-digits in 2010-11, primarily due to the high base effect of 2010-11. During 2009-10, Commercial Vehicle segment has recorded the highest growth percentage of 38.30% to 531395 units followed by Two-Wheeler at 26.00% at 0.93 million units. Passenger Vehicles and Three wheeler sales have been increased by 25.60% and 25.90% respectively. The growth of the Indian middle class along with the growth of the economy over the past few years has attracted global auto majors to the Indian market. The attractiveness of the Indian markets on one hand and the stagnation of the auto sector in markets such as Europe, US and Japan on the other have resulted in shifting of new capacities and flow of capital to the Indian automobile industry.

Overview
The automobile industry in India happens to be the ninth largest in the world. Following Japan, South Korea and Thailand, in 2010, India emerged as the fourth largest exporter of automobiles. Several Indian automobile manufacturers have spread their operations globally as well, asking for more investments in the Indian automobile sector by the MNCs. Indian auto industry, which is currently growing at the pace of around 18% per annum, has become a hot destination for global auto players like Volvo, General Motors and Ford. The Indian automobile industry is going through a phase of rapid change and high growth. With new projects coming up on a regular basis, the industry is undergoing technological change. The major players are expanding their plants and focusing on mass customization, mass production.

Yearly-Analysis
The industry demand is directly proportional to the population. Presently in India there are 100 people per vehicle. Indian automotive industry is strong and productive sector for the economy growth. It gives nearly 5% of the employment to the countrys population. Continue improving quality results in exports of automobile and ancillary industry is boosting out the demand in oversees business. The Indian auto-players are expanding their presence in overseas market. In the last 5 years the foreign investment in this sector nearly doubled.

Production Trend
The Indian automotive industry face a tough time during FY08 and its production were almost stagnated. From the early FY09, the industry started showing marginal growth in terms of production and reached to 14.04 million units till FY10. Due to the huge insist in the domestic market companys sale nearly 88% of their total production in the country and rest 12% vehicles they export.

Domestic and Exports sales trend

In terms of domestic sales the industry is showing positive approach from the last 3-years.The Indian exports are increasing gradually form the past 5-years and reached to 1.80m units in FY10. Earlier the industry

depended on the foreign auto parts, but due to the increase of the global players in the country and establishing the plants ended painless move to the Indian auto-players.

Source: SIAM, Cygnus Research

Demand-supply mismatch
The new capacity addition till 2012, may anticipate a demand and supply mismatch in the short term. Demand is only expected to grow by 10-12% every year. In 2009-10 the domestic auto industry was utilizing 80-85% of its capacity, but this may drop to 65% by 2012. India may be in a similar position in 2012 as the global auto industry is in right now. The global capacity utilization in 2009-10 was around 65%, down from 80% in 200809. In the near future it is expected that there will be a Demand and supply mismatch.

Capacity addition
The existing players in the market are expected to add 0.9 million units to the 2.6 million units capacity of the passenger vehicle segment and 0.6 million units to the 0.75 million units capacity of the commercial vehicle segment. Meanwhile, global automakers who currently only assemble in India, are expected to set up production units, in order to be more competitive with local players. With the demand in the domestic auto market posting an exponential growth in 2009-10 versus the faint international scenario, most manufacturers are concentrating on markets such as India and China for growth. In compact car segment, new cars such as the Volkswagen Polo, Ford Figo, and Nissan Micra are launched. Meanwhile, in the commercial vehicle segment, the LCV and the heavy trucks are expected to get a major boost. As far as LCVs are concerned, players such as Mahindra & Mahindra, Ashok Leyland-Nissan and General Motors-SAIC are expected to enter with new products, while nearly all major truck makers such as Tata Motors, Mahindra, Ashok Leyland and Volvo-Eicher are launching a new heavy duty multi-axle truck range.

Challenges in the Automobile Industry

Source: Cisco IBSG

Trends Impacting Supply chain

Demand side trends

Uneven Growth - The demand for cars is growing, stemming in large part from China, India, and Eastern Europe. Established automotive markets in the United States, Western Europe, and Japan, however, are flat to declining. This uneven growth raises implications for the supply chain. For one, OEMs and their tier-1 suppliers must establish a local presence to benefit from these new growth opportunities in emerging economies. They must also tap into the local supply base to take advantage of cost levels and to fulfill local content requirements. At the same time, they must integrate local operations into their global supply chain management systems and programs. For example, sourcing processes from local suppliers must be aligned with global quality-assurance guidelines and procedures. Fragmentation - Traditional car segments such as sedans, vans, hatchbacks, and pick-up trucks are fragmenting more and more into niches. Derivative car segments, on the other handsuch as minivans, and two-seaters, as well as cross-over vehicles such as, SUV coupes, and sport vansare growing. A combination of customer demand for personalizationthe right product for their specific use at the right timeand manufacturers conquering new customer segments is causing automakers to grow their product offerings. The environmental or green movement is encouraging fragmentation even further, by shifting demand away from large and/or high-consumption vehicles to smaller and/or more fuel-efficient cars, giving birth to even newer segments, such as city or microcars2, and new propulsion technologies, such as hybrids, clean diesels, and diesel hybrids. Despite measures to control incremental costs resulting from fragmentationsuch as platform, module, and component sharing across models and brand, segmentation results in a more complex supply chain that needs to

be managed. Hence, the supply chain requires integrated capabilities and flexible tools based on real-time information to address this increasing complexity. For example, using an identical gearbox in two different car models does not prevent the manufacturer and its supplier from having to manage the supply chain process on a transparent basis to ensure on-time delivery of the specific gearbox to the specific assembly line in the specific location. Accelerated Volatility - In the past, forecasting new product demand was easy. Today, new cars that initially sell well may lose ground within as little as two years. Shifts in customer demandfrom product to product, from brand to brand, and from segment to segmentare accelerating. Customers have more choices than before, want more personalization, and, in general, enter the showroom better informed. As a consequence, customer loyalty is decreasingacross all segments and across all manufacturers. The supply chain, therefore, must cater to these shifts through quicker responsiveness and overall flexibility. Today, a higher degree of flexibility and responsiveness must be built in up front so that suppliers can react quickly when overall product volumes are not in line with plan, or when the mix within the product differs from original forecasts. Importance of Aftermarket - The aftermarket business is often a somewhat neglected area, even though it typically generates the largest share of OEM and dealer profits. Managing this business depends on processes and IT systems that let manufacturers track product in the following areas: Saleswhich product is selling, and at which price? Channelsthrough which channels is product being sold? Replenishmentwhat are the products replenishment cycles? Customerswhich kinds of customers are buying which kinds of products? Creating transparency in the aftermarket business both in sales and in operations of the business and value chain is an important way for automakers to defend this source of revenue and profit against independent parts and service suppliers.
Supply side trends

Differentiated Outsourcing - Differences in labor costs and disadvantages in scale and scope are influencing outsourcing to continue. Outsourcing will create opportunities for both automotive suppliers and supply chain management providers (such as logistics companies and IT firms) to expand their businesses into adjacent areasfor example, preassembly or management and quality control. To benefit from continued outsourcing, supply chain management providers must offer flexible, modular solutions because not every manufacturer will concentrate on the same core capabilities and functions. Low-Cost-Country Sourcing - The auto industry will continue to source from low-cost countries as manufacturers and suppliers continue to complement their commodities with more complex products and

services. The lowest price, however, isnt everythingautomakers and suppliers must look at the total cost of sourcing, including logistics, quality of work, and management. This approach is referred to as best-costcountry sourcing, and for supply chain management providers represents another opportunity to encourage, enable, manage, and optimize sourcing. Risk Management - Most manufacturers agree that their supply chain risk has increased in recent years. Natural disasters, terrorism, workforce issues, and level of dependence on partners and suppliers are just some areas that require strong capabilities in risk management. Manufacturers and their suppliers must account for supply chain alternatives in their overall supply chain strategy. Increased transparency based on real-time information (see Transparency and Accountability section) allows them to identify risks early on and, ultimately, to manage them. This represents an opportunity for supply chain management providers to expand their value-added services. They have the opportunity to become risk-mitigation agents by ensuring the required transparency and by offering, for example, fall-back solutions or performance guarantees. Transparency/Accountability - Business operations are becoming more complex and global. Supply chains are turning into complex supply networks. As a consequence, auto manufacturers and suppliers need transparency and accountability across the entire supply network. For example, near-real-time information flow based on a sensor-driven supply chain across the extended enterprise is in high demand. Information should, ideally, flow in two directions to help ensure better and faster interactions within enterprises and among OEMs, suppliers, and supply chain management providers. At the same time, there is a focus on security across these complex information networks, led by the need to manage risks. The supply network has become very complex globally and is optimized to the penny. Because of this, automakers and suppliers cannot afford to go after breakdowns in the supply chain. Providers must deliver performance and output in a transparent mannerthey are now held accountable much more stringently than in the past, and are at risk when it comes to paying high penalties in case of nonperformance.

Impact of GST on Auto Sector

While there is a lot of uncertainty on when the goods and services tax (GST) will be implemented, the new tax structure is expected to bring in better pricing and margins to the automobile industry. GST is expected to bring down cost for the industry, which is currently marred by endless taxes charged at different state levels. The cost savings will run into double-digits for the sector. GST will play a vital role in eradicating the small tax windows and lead to seamless travel of products from one state to the other. It would remove multiple taxes and bring forth the right value of the products. The government is also expected to come up with a separate duty structure for small and electric vehicles due to the

rising pressure to keep carbon dioxide emissions under check. However, there is no clarity on what happens to the customs duty. The expected GST is around 18% to 20% (taking CGST and SGST together). The better pricing of vehicles, which at present are victim to the complex taxation structure, is good news for all the potential buyers. On the flip side, GST also throws open the opportunity to original equipment manufacturers (OEMs) to improve margins through better supply chain management as they look at more real time deliveries. Presently, the OEMs look at stocking the vehicles in warehouses set up at various regions to avoid taxes every time the vehicle travels through states. The setting up and maintaining of the warehouse adds up to the cost to the OEM. Further, the cumbersome process at every state border delays the delivery of vehicles and adds up to the cost. GST will ease out the cumbersome process and make movement of vehicles quicker and simpler. The introduction of unified GST would bring VAT in its true sense. Presently the VAT system, basically can be called un-integrated GST, in the sense that at present goods and services are taxed separately. The taxable event under GST system will be the supply of goods and the supply of services. The current taxable event such as manufacture, sale of goods render of services will not be relevant under GST system. The prices of commodities are expected to come down in the long run as dealers pass on the benefits of reduced tax incidence to consumers by slashing the prices of goods. Being consumption based tax; dual GST will result in better revenue collection for states with higher consumption of goods and services. This is been explained with an example. (Assuming CSGT at 12% and SGST at 8%)

(A) Goods-Producer to Whole-Seller Cost of Production Add: Producers margin of profit Producers basic price Add: Central Excise duty @ 8% Add: Service Tax @ 10% on Transportation & Job work paid

Under VAT (Rs.) 100000/20000/120000/8000/4000/-

Under GST (Rs.) 100000/20000/120000/NIL NIL (Included in GST)

Add: Value Added Tax @ 12.5% Add: Central GST @ 12%

16500/NIL

NIL 14400/-

Add: State GST @ 8% Total Price (B) Goods Whole-Seller to Retailer Cost of goods to the Whole-seller Add: Profit margin @ 10% Total Add: Value Added Tax @ 12.5% Add: Central GST @ 12% Add: State GST @ 8% (C) Goods-Retailer to Final Consumer Cost of goods to the Retailer Add: Profit margin @ 20% Total Add: Value Added Tax @ 12.5% Add: Central GST @ 12% Add: State GST @ 8% Total Price to the final Consumer

NIL 148500/-

9600/144000/-

132000/13200/145200/1650/NIL NIL

120000/12000/132000/NIL 1440/960/-

145200/29040/174240/3630/NIL NIL 177870/-

132000/26400/158400/NIL 3120/2112/163632/-

Impact of GST on used-car market

Close to 2 million used-cars change hands each year, about the same number as new cars sold in the country. Since Rs 3.5 lakh a car is a fair value assumption, it is a Rs. 70,000-crore market. Today, when one sell a car, the sales tax is not paid and hence when the used-car company that buys the car sells it to another customer, it does not get any tax credit. So the entire revenue gets exposed to tax. Most State governments have, therefore, kept the VAT rate low (mostly, 4 per cent). So the question is what will happen when the VAT is replaced with the Goods and Services Tax? First, the GST itself is a nebulous area. Initially, people thought it would be a single rate for all goods and services across the country. Then, it looked like there would be one central GST and one state GST for each State. Now, State governments are clamoring for multiple GST rates, and there are indicators that the Central Government is not in favor of this. However, it is clear that there will be a central GST and a state GST and the sum of these could be quite high (even around 24 %) and whether or not there will be a mechanism for offsetting credit, is yet another grey area. The prospect of a sharp rise in used-car prices has engaged the attention of organized players in the business. The organized sector accounts for 10 per cent of the used-car market.

There was a SIAM (Society of Indian Manufacturers) panel set up for this in 2010 to come out with recommendation as to what should be the GST rate so that the used-car market is not adversely affected.

Impact of GST on Supply Chain

GST is the biggest indirect tax reform undertaken in India since independence. Indirect taxes in India can be classified into 3 categories based on the entities that collect it - Central Taxes, State Taxes & Local Taxes. It is important to note that while Central State Tax (CST) falls under the purview of the central government, the tax goes into the kitty of the state government where the sale originates. In the pre-reforms era of taxation, indirect taxes were largely charged at different stages of the goods and services value chain with no regard to taxes paid earlier or later in the chain. Thus, the taxes were cascading in nature resulting in several disadvantages which were addressed by the introduction of a Value Added Taxation (VAT) system. 1. Extended Central GST Chain At present, service tax on logistics services consumed during distribution and retail are not off-settable against CENVAT. Extended Central GST chain will allow the offset in post manufacturing networks. This will lower the cost of logistics outsourcing as the 10.3% service tax charged by logistics companies can be largely offset against the Central GST liability. This will boost outsourcing in supply chains and provide greater impetus to 3PLs 2. Affected Inventory Post GST, inventory will also carry Central GST & inter-state GST input credit, the tax rates may also get changed for many products. Unless the GST rates go up for its products, the firms would be encouraged to minimize pre-GST inventory which has less input credits. As the GST implementation date approaches closer, one could expect uncertainty and panic regarding pre-GST inventory as was seen during VAT introduction. Organizations need to study GSTs final mechanisms and plan inventory transition very carefully for themselves, suppliers and customers 3. Subsuming Octroi & Entry Tax Octroi and entry tax are not in line with the spirit of GST although in some cases entry taxes are included in VAT. Once these taxes are paid reverse flow of goods becomes difficult, hence companies prefer postponed and uni-directional flow of goods across entry tax and Octroi borders. Organizations will be encouraged to locate warehouses and hubs in entry tax and Octroi zones and stock more inventories there. 4. Locating warehouses and hubs in entry tax and Octroi zones and stock more inventory there

There are two possible scenarios through which tax barriers would be removed: i. Scenario 1: CST rates would reduce to zero with no carry-over of input credit across states ii. Scenario 2: Stock-transfers are disallowed/taxed and inter-state sales are taxed with carryover allowed In both cases, companies would no longer be required to have a warehouse in every state just to facilitate stock transfers and avoid CST.

Impact of Removed Tax Barriers on Cross-border Sales

Previously we mentioned that whether CST is reduced to zero or cross-border sales are taxed with offset allowed, the implication remains the same. When tax barriers on cross-border sales are removed it becomes unnecessary to have a depot in the destination state. The supply chain can then be designed not on tax considerations but purely on logistics cost and customer service considerations. A key feature of post GST supply chain networks would be fewer warehouses or distribution centers than before. This means simpler and leaner networks which could incur lower costs of operation as explained below. The specific business realities of the company will also have a great bearing on the actual number of warehouses required.

Network Re-engineering
As discussed before an optimum network design post GST would be different from an optimum network design in todays taxation scenario. The re-organized network will in fact be significantly different. The move towards fewer warehouses would require many warehouses to combine, close and re-locate Required capacity of many warehouses will undergo changes. With fewer warehouses, the average size of the warehouse will go up Hubs are not directly impacted by CST considerations. However, fewer & larger warehouses may make it feasible to route plant production directly to warehouses rather than through hubs, due to larger throughputs. Thus, the size and number of hubs could get affected The linkages between factories-hubs-warehouses-customers for various products will get re-aligned

Following figure lists all the pros and cons of doing a network re-engineering exercise for GST. Clearly, the benefits outweigh the disadvantages. Besides providing a simpler and more manageable network fewer warehouses would mean a straight saving on warehousing costs.

The safety stock requirement would also go down. Prima-facie, it would appear that some of these savings would be offset by the increased cost of freight. With fewer intermediate stocking points (warehouses) between sources and customers, the average freight legs should get longer. However, thismight not necessarily always be true as the network linkages of source-warehouse-customer could actually get shorter by removal of inter-state sale barriers. Freight distance saving translates directly into freight cost saving.

Impact on Warehousing
New or enlarged warehouses will have to be designed/re-designed. Thus, modernization of key warehouses is strongly recommended on account of: Large sizes, high throughputs and more complex operations Increasing level and variety of service required by customers, especially organized retailers Increasing scarcity of skilled labor and real estate requiring vertical and mechanized warehouses

Impact on Service Level

The key fallout of GST aligned networks is fewer warehouses but this also has two implications on customer service: Longer Lead-times to Customers: This would not be an issue as long as the network redesign exercise puts a minimum lead time/distance constraint while serving customers in the new network Improved Assortment: Often SKUs needed by customers are not available at the warehouse meant to serve them although they may be idling at another warehouse. This is especially true for slow moving

items. With stock aggregated at fewer warehouses, the planning and assortment availability improves for slow moving SKUs. Thus, service to customers could be maintained or even improved in a network re-engineering exercise. The key here is to undertake a professional scientific exercise as opposed to manual experience based methods that many firms have used for designing their legacy networks.

Recommendations to firms
Firms should concentrate of re-organization of networks as the optimum network design post-GST would differ from the design in todays taxation scenario. Rather than small and many, firms should go for fewer and enlarged warehouses, redesigned for more complex operations and variety of service required by customers. Supply chain should now be designed not on tax considerations but purely on logistics cost and customer service considerations.

Recommendations to policy makers

Stock transfer with Form F under the CST Act has been a contentious issue ever since Section 6A was introduced in the CST Act in 1972. While a dealer would claim that the movement from one State to another is on account of stock transfer, the revenue department would demand CST on the contention that it was an identified sale. It has been a contentious issue ever since on account of lack of clarity. The proposed GST should clarify issues relating to interstate and intra state stock transfers, as there still is lack of clarity on these counts. The implementation of GST has a positive impact both on the industry. However, the implementation has been delayed by over two years, on account of the States and the Centre not reaching a consensus on the revenue sharing model to be adopted.

References
http://www.thehindubusinessline.in/2010/03/26/stories/2010032653980700.htm http://www.technopak.com/ http://www.siamindia.com http://www.cisco.com/