a quarterly report by - Technopak

perspective
a quar terly repor t by
Volume 02 / 2009
| Volume 02
• Table 1: Suppose a firm currently does a stock transfer from State A to State B, before selling in State
B to avoid paying CST. It thus gets a margin of US$ 0.50 per unit and incurs local VAT only when it sells
in State B to its distributor through its depot. The distributor charges a margin of US$ 0.14 per unit and
charges the final price by adjusting the input credit (which is available since the sale from depot was
intra-state). In this case,
Price to Retailer = (Distributor Landed Cost + Distributor Margin – Distributor Input Credit) * (1 + VAT
Rate).
Similarly the MRP comes out to US$ 3.13/unit after accounting for input credit at retail level as well as
retailers’ US$ 0.28 /unit margin.
• Table 2: In today’s 2% CST scenario, the firm incurs US$ 0.08/unit loss in margin if it were to do a crossborder
sale to the distributor, without going through a stock transfer at the depot. The calculations are
based on the premise that the US$/unit retailer margin, distributor margin and MRP are maintained at the
same level.
•Table 3: If CST rates were to become zero then the firm can do cross-border sale (at 0% rate) directly to
the distributor without any loss of margin to itself, the distributor or the retailer and yet charge the same
MRP to the consumer.
•Table 4: If CST is abolished and inter-state sales or stock transfers are taxed with input credit allowed at
the destination, then also the margins and MRP remain intact for everyone.
Thus, we see that when tax barriers on cross-border
sales are removed whether through the route shown
in Table 3 or 4, it becomes unnecessary to have
a depot in the destination state. The supply chain
can then be designed not on tax considerations
but purely on logistics cost and customer service
considerations.
Exhibit 5
Approximate Number of Warehouses Needed
in the GST Scenario
Delivery Lead Time for 80% Urban
Customers
Annual Turnover (US$ Mn ) 24 Hrs 48 Hrs
< 600 24 - 28 20 - 24
600 - 1500 22 - 26 18 - 22
Hence, a key feature of post GST supply chain
networks would be fewer warehouses or distribution > 1500 20 - 24 16 - 20
centres than before. This means simpler and leaner
Source: Technopak analysis
networks which could incur lower costs of operation as explained below. Exhibit 5 provides an approximate
guide on the number of warehouses for a distribution company dealing in fast moving goods can have in
a GST scenario. The specific business realities of the company will also have a great bearing on the actual
number of warehouses required.
Network Re-engineering for GST
We have already established that an optimum network design post GST would be different from an optimum
network design in today’s taxation scenario. The re-organised 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.
GST : Impact on the Supply Chain |
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