Corporates including Johnson & Johnson, LG electronics, Lupin, Ranbaxy are planning to shift to a central warehousing model, courtesy the improvement in the roads network due to the ongoing National Highways Development Project and the possibility of a Value Added Tax regime coming into place.

The trend among most companies so far was to have a large number of regional warehouses, due to problems in accessing their wholesale and retail outlets in time due to the dilapidated roads.

Strategy of warehousing

The trend among most companies so far was to have a large number of regional warehouses, due to problems in accessing their wholesale and retail outlets in time due to the dilapidated roads For companies, the savings in administrative problems and cost overheads by maintaining a consolidated warehousing structure is immense Companies looking forward to improving customer service and timeliness of deliveries while shifting to a central warehousing structure are much more likely to seek the assistance of logistics providers to manage inventory and supply chain links

With the first phase of the NHDP -- the Golden Quadrilateral project -- taking off the ground and the state of national highways improving considerably, manufacturers are planning to consolidate on their warehousing structures, according to industry sources.

For instance, LG Electronics, which has around 41 warehouses at present, plans to bring down the number to 31 by 2005 and then to a total of 28 warehouses feeding the entire country.

"Once VAT comes into place and the Central Sales Tax rate is eliminated, having a consolidated warehousing structure would make a lot of sense," S N Rai head (commercial), LG Electronics, said. LG Electronics has a warehousing arrangement with Central Warehousing Corporation.

With the shift towards consolidated warehousing gaining acceptance among corporates, third-party logistics service providers are seeing an opportunity.

Companies looking forward to improving customer service and timeliness of deliveries while shifting to a central warehousing structure are much more likely to seek the assistance of logistics providers to manage inventory and supply chain links, an executive with a freight forwarding company said.

"The improvement in the condition of the trunk routes and the possibility of implementation of VAT in the near future has prompted several medium and small companies to contemplate having an consolidated warehousing strategy," an executive with the country's largest logistics service provider, Transport Corporation of India said.

Abolishing of Central Sales Tax and the changeover to a simpler tax set-off regime under the proposed VAT dispensation has also prompted companies to contemplate shifting to a central warehousing structure, he said.

For companies, the savings in administrative problems and cost overheads by maintaining a consolidated warehousing structure is immense, logistics services sources said.

Most other medium and small companies are likely to shift more towards the central warehousing strategy over the years, industry sources said.

Only very large companies like Hindustan Lever Ltd, which already have an elaborate warehousing structure in place and their sales volumes justifies such a strategy, are likely to continue with a large warehousing structure.