The Goods and Services Tax, also known as the GST, has had a significant impact on the way supply chains are managed. The introduction of the Goods and Services Tax (GST) in India has led to the unification of multiple levies into one, which has eradicated the cascading effects that were previously there. The GST Impacting the Supply Chain is vast. Continue reading this article as we will go into more detailed information regarding supply chain and the impact of GST on supply chain.
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Meaning of Supply Chain & Supply Chain management
A supply chain is a network of people, organizations, resources, activities, and technology that are involved in the production and sale of a product. It includes everything from the supply of raw materials from a supplier to a producer through the final distribution to the end user.
The distribution channel is the supply chain segment responsible for getting the finished product from the manufacturer to the consumer. The primary activities of a supply chain are sourcing, procurement, conversion, and logistics management.
The goal of supply chains is to meet customer needs, but the goal of value chains is to add value to a product beyond its intrinsic value. The administration of supplies, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer is known as supply chain management. The supply chain works in three main flows. The three main flows of the supply chain are:
- Product flow.
- Information flow.
- Finances flow.
How Supply Chain works?
A company’s manufacturing process has material input components, each of which has a cost that is recovered in the price of the finished product. Much of market competitiveness is predicated on keeping finished product prices as low as feasible while maintaining quality.
As a result, supply chain management (SCM) seeks to efficiently bridge this gap by closely monitoring the cost a company spends for supplies and from whom the materials are acquired. Furthermore, Supply Chain management analyses operational procedures from beginning to end to detect costly and needless procedural stages.
Supply Chain before GST implementation
Prior to the implementation of GST, if we define supply chain management in India then supply chain management was complex and inefficient. The time required to carry commodities from one state to another would be frighteningly long. The distribution model was intended to ensure efficient tax administration, i.e., to reduce the incidence of tax in the distribution.
As a result, in some circumstances, consignment agents or CNF agents were appointed, or products were stock transferred to branches. The implementation of GST has resulted in a transformation in the way business is done.
GST impact on supply chain in India
The GST Impacting the Supply Chain is significant. Here are some of the key effects that GST has had on the supply chain:
- The Goods and Services Tax (GST) eliminated the cascading effect and reduced the overall tax burden on businesses.
- It decreased transportation time and logistics costs, resulting in greater operational efficiency and quicker deliveries in the industry.
- After the implementation of the GST, businesses are no longer required to maintain multiple warehouses, which has reduced logistics costs.
- E-Way bill under the GST reduces the amount of time wasted at interstate borders, thereby reducing transit and lead times.
- The impact of the Goods and Services Tax (GST) on supply chain management has streamlined logistics operations, resulting in shorter transit periods and reduced costs. Implementing GST has reduced transportation costs by 15.4%.
- Utilizing a central warehouse or warehouses in strategic locations (regional logistics parks) or the hub and spoke model enhances demand planning and inventory management for logistics companies.
- The consolidation of warehouse stocks improves demand planning and inventory management, while the construction of larger regional logistics parks equipped with cutting-edge technology reduces holding costs and enables product collaboration with other actors.
- With larger warehouses, it is prudent to invest in ERP and automation systems for shelving products.
- The number of direct deliveries rises when the stock transfer is subject to GST.
- Providers of third-party logistics services can now manage larger transportation routes that span the entire nation.
- Modified Models of After-Sales Distribution
GST Supply Chain illustration
Let’s take a manufacturing company for GST supply chain example. Under the previous tax regime, a manufacturing company faced complex compliance procedures and higher costs in its supply chain. After the implementation of GST, the company streamlined its procurement, inventory management, and inter-state sales processes. It could procure inputs from anywhere in the country without worrying about state-level taxes, consolidate warehouses, and optimize stock levels. The company also adopted technology solutions to generate and manage e-way bills efficiently, improving compliance and operational efficiency. Overall, GST Impacting the Supply Chain on Indian economy for all sectors is positive and it simplified the supply chain, reduced costs, and enhanced customer service.
Operations and Supply Chain management
Operations and supply chain management (OSCM) involves developing, planning, executing, and regulating production and delivery processes. To assure material, information, and resource flow, it involves coordinating internal processes and managing supplier and customer connections.
Key Components of Operations and Supply Chain Management:
- Demand Planning and Forecasting: OSCM forecasts demand using historical data, market trends, and consumer demand patterns. This determines production, inventory, and resource allocation.
- Procurement and Supplier Management: OSCM requires finding and managing suppliers to guarantee supplies and services. Supplier selection, negotiation, contract management, and performance review are included.
- Production Planning and Control: OSCM plans and schedules production to fulfil client demand efficiently. Optimizing production processes, managing work orders, allocating resources, and monitoring production progress ensures timely delivery of products or services.
- Inventory management: OSCM requires efficient inventory management to balance supply and demand. It reduces costs and improves customer service by calculating ideal inventory levels, controlling inventory, and minimizing stockouts.
- Logistics and Distribution: OSCM manages supplier-to-customer shipping. Transportation, warehouse, order fulfilment, and distribution network optimization provide timely and cost-effective delivery.
- OSCM ensures supply chain quality: Quality control, supplier quality management, continuous improvement, and regulatory compliance are included.
- Information Systems and Technology: OSCM uses efficient information systems and technology tools for communication, data analysis, and decision-making. ERP, supply chain management, and data analytics are used to optimize operations.
Operations and supply chain management strives to boost efficiency, lower costs, and boost customer satisfaction. Organizations can gain a competitive edge, boost profits, and respond to market changes by controlling the full value chain.
ITC flow throughout the Supply Chain
The Input Tax Credit (ITC) mechanism of the Goods and Services Tax (GST) enables businesses to claim a credit for taxes paid on inputs used in the production of goods or provision of services. In the following ways, ITC flow in the supply chain has been affected by the GST norms:
- Can only claim ITC if suppliers file timely and accurate returns. For example, a wholesaler can only claim ITC if the manufacturer submits it in GSTR-2B return. Otherwise, the credit of the wholesaler is delayed or unreported, and working capital is impeded.
- Any inconsistency or delay in filing GST returns can influence the flow of ITCs, resulting in increased working capital needs and financial strain for businesses.
Takeaway
GST Impacting the Supply Chain enhances supply-demand matching and supply chain network architecture based on logistics cost and customer service. This would combine multiple small warehouses into larger and more efficient ones. Unorganized warehousing would end. Disorganized companies must improve service to grow in the likely shape-up or shape-out competitive scenario. After GST, unorganized enterprises may have more unexpected partnerships with established companies. The industry and parties may benefit. GST streamlines travel, cutting state border crossing delivery times.
