Air cargo supply chain faces tough test as screening deadline nears

http://www.dcvelocity.com/articles/20100527air_cargo_screening/?referrer=rss

GST will turn supply chain tax-neutral - Business Standard

Knowing GST V: GST will turn supply chain tax-neutral

Currently, distortions in supply chain are synonymous with complexities The Goods and Services Tax (GST) would call for a fundamental redesign of the supply chain structures to make these simpler and more efficient. At present, the distortions in supply chain are synonymous with complexities such as area-based exemptions, factory-gate price for the levy of Cenvat, tax barriers to inter-state trade and multiple levies at various levels, including the central sales tax, octroi, purchase tax and stamp duty. No credit is allowed for many of these levies, which leads to significant cascading of taxes. As a result, the decisions of the organisations about inventory and distribution management are guided more by tax considerations than operational efficiency. Here are a few examples: Currently, supply chains are invariably designed to minimise the burden of the Central Sales Tax (CST) on inter-state sales. Since no credit is allowed for CST, manufacturers set up distribution centres in individual states where the consumers are located and make local sales from these centres. To avoid the non-creditable VAT on their inputs, service providers such as hotels, tour operators and transportation companies prefer to import their machinery and equipment and other inputs directly from abroad, without incurring the state VAT at the time of import. Octroi in Maharashtra discourages setting up of manufacturing and distribution centres within the municipal boundaries where the tax applies. Manufacturers will create business structures so that marketing and distribution costs are incurred beyond the factory gate where Cenvat applies. Application of Cenvat on the basis of the Maximum Retail Price (MRP) can have the opposite effect of encouraging manufacturers to incur costs prior to the factory gate. Companies that have set up manufacturing units in excise-free zones like Baddi in Himachal Pradesh look for ways to minimise Cenvat on their inputs, for which no credit is allowed. One way to minimise the input tax is to source the inputs internally, rather than procuring these from third parties. Area-based exemption creates incentives for vertical integration and discourages outsourcing of inputs. GST aims to rationalise and simplify the consumption tax structure at both Centre and state levels. It is expected to replace almost all indirect taxes, eliminate exemptions, do away with the current multiple layers of taxation and follow the principle of destination, instead of origin. The greatest virtue of GST is that it would make the supply chain tax-neutral. The final tax on a product would be the same, irrespective of the structure or location of its production, procurement of inputs, and the nature and complexity of the distribution chain. GST is charged on each transaction in the supply chain, with registered businesses receiving a credit for GST paid on purchases. The smooth flow of input tax credit provides the element of tax neutrality. For maintaining this neutrality, it would be important that no exemptions are provided (especially for business-to-business transactions) and full credit is made available for the tax paid on inputs in B2B transactions without any blockages to avoid cascading of tax.

Curbs on cash and carry operations may be eased

http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/Curbs-on-cash-and-carry-operations-may-be-eased/articleshow/5966684.cms

Retailers See Supply Chain Challenges in India

Global retailers like Wal-Mart, Tesco, and Carrefour see supply chain challenges in India, but say the market is too big to ignore. To read more, http://abcnews.go.com/Business/wirestory?id=10707135&page=1

Staying Green in Tough Economic Times

Companies are aware of the issue, but many still lack detailed programs for tracing and calculating their carbon footprints over the extended supply chain, according to Luka Powanga, executive director of the Global Commerce Forum.

http://www.supplychainbrain.com/content/nc/home/single-article-page/article/staying-green-in-tough-economic-times-1/

WalMart takes Control of Inbound Transportation

WalMart takes Control of Inbound Transportation – and its Vendors are Wary; Really a Pre-emptive Move over Fuel Surcharges? (Source:SCDigest) Beyond Dynamic Inbound Routing, WalMart will bring its Trucks to Vendor Docks; How much Leverage will be Lost? SCDigest Says: According to the direct director of transportation for another WalMart supplier, WalMart’s challenges with fuel surcharges under the current program are key to this change in transportation strategy. WalMart has created quite a stir in its vendor community as it moves forwards with plans to take over inbound transportation management for most vendor shipments to its distribution centers and stores. Currently, nearly all vendor shipments to WalMart are managed by the vendor, in some cases as part of a “total delivered price,” in other cases under a “Collect” arrangement where WalMart selects the carrier and pays for the freight, but the vendor works with the designated carrier to execute the shipment. In other cases, Wal-Mart does arrange backhaul pick-ups at vendors after one of its trucks makes a delivery to its DCs or stores, but these are thought to represent a small portion of the total inbound moves. A growing number of retailers manage inbound freight dynamically, requiring suppliers to submit planned shipments receiving routing instructions back from the retailer – but usually using common carriers for the freight movements to the retail DC. Under its program, WalMart will largely use its fleet of some 6500 trucks to plan and execute the inbound vendor moves. While details are not completely clear, it is assumed many current Collect freight vendors will increasingly have their pick-ups scheduled by WalMart, and many Prepaid customers will now have WalMart completely control their outbound transportation. Of course, this brings up the question of how the transition will be made for those customers currently selling to WalMart on a total delivered price that includes transportation to WalMart DCs. In that case, WalMart will ask for “allowances,” as it does currently when it arranges a backhaul, to offset the transportation cost of the total delivered price. Those allowances become deductions against the invoice for that shipment. According to BusinessWeek, in some cases WalMart has been asking for allowances in the range of 6% of the invoice – as much as twice as large as the actual cost for transportation, meaning the vendor’s current profit margin would be reduced by 3 percentage points – quite a financial beating. “There may be a disconnect when we walk into the room on what that cost might be,” Kelly Abney, WalMart’s vice president of corporate transportation, recently told BusinessWeek magazine. “But we work collaboratively. As soon as a supplier shares the data, almost always those differences are quickly resolved.” A former logistics executive at a major food company said that for large companies, transportation costs for WalMart shipments were under its overall average of 3%. “The truckload costs for the larger accounts, certainly including WalMart, was more effective than our average,” he said. “6% cost allowance requests, if this is accurate, is dreaming.” Impact on Current Volumes For WalMart vendors that use total delivered pricing, one potential impact will be that they will lose some current transportation advantages. With WalMart representing 20-30% of many vendors’ total sales volumes, losing the ability to leverage those volumes if they move from prepaid and add to WalMart pick-up could result in higher rates on its other shipments due to a loss in total freight they can offer to truckers. In other cases, vendors may lose the some optimization capability, such as multi-stop truckload optimization, or continuous moves, that are no longer viable with Wal-Mart controlling those shipments. “It’s the large consumer packaged goods manufacturers that tend to ship Walmart Prepaid and who are the ones at risk to lose leverage with this change,” one vice president of logistics for a WalMart vendor told SCDigest. He, like virtually everyone we spoke with for this article, spoke only on the condition of anonymity. In the end, WalMart is saying it is simply better in logistics than its suppliers – which may be true given its huge number of trucks and total network density, providing opportunities to reduce empty miles that are simply not available to most companies. The new program has “allowed our suppliers to focus on what they do best, manufacturing products for us,” Abney said last week. “With lower costs usually comes increased sales.” Abney said Wal-Mart has had such discussions with more than 100 of its thousands of vendors thus far, and some few dozen have already had their shipment approaches change to WalMart control. Another factor of concern to vendors is the potential for greater distribution center costs. “Customer pick-ups [CPUs] are the no good for our DC because they are frequently late, not willing to drop trailers, which causes live loading, cause OS&D issues, etc.,” one logistics executive told us. “Remember that most of the customer pick-ups will be carriers they secure to do the pick-up rather than their own fleet. We do everything possible to limit CPUs and live loading as it added significant cost to our supply chain.” Role of Fuel Surcharges Do fuel surcharges play a role in WalMart’s new strategy? According to the direct director of transportation for another WalMart supplier, WalMart’s challenges with fuel surcharges under the current program are key to this change in transportation strategy. “What is interesting - and distressing at the same time- is that WalMart is considering changing our terms to Prepaid but force us to use only their fleet. Why would they do that? A Collect item has no transportation cost in the price of the goods,” our source said. “What they want us to do is to agree upon a transportation cost and add it to the cost of the goods but provide a freight allowance at the same amount for freight. You would think this would have a net effect of zero.” But it doesn’t, he said. “What they are truly trying to get at is to recover fuel surcharges more accurately. The problem WalMart was having is that Collect pricing is very slow to change, maybe once a year, and so often they were left holding the bag on increased fuel prices with no mechanism to recover,” the executive said. “But with this approach, they can simply enact a fuel surcharge program with their freight allowance and now they are whole – closing a loophole of the benefits of Collect freight terms.” It seems clear to us that the move is of far more benefit to WalMart than its suppliers – but when you are the customer, especially one the size of WalMart, you get to call the shots. An interesting question is whether the changes will have enough of an impact on consumer goods manufacturer profits to get the attention of Wall Street analysts. What is your reaction to the new WalMart program to take control of almost all its inbound transportation? What do you see as the impact on its suppliers’ supply chain costs? Is there a better way?

State of the Supply Chain Software Union

http://www.scdigest.com/ASSETS/FirstThoughts/10-05-21.php?cid=3481