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Challenges in Indian supply chain and its impact on food services industry | Elior India

Challenges in Indian supply chain and its impact on food services industry | Elior India

In the last 40 years, India’s agricultural productivity has increased by 40% to 500%. Availability of food, however, still remains a major concern because of poor packaging, inefficient traders, absence of sheltered storage and many more factors. Among the many frequently faced challenges in the Indian food supply chain, the high volatility in the wholesale market ranks number one. Owing to the massive size of the supply chain, quality control is another big hurdle. Seasonality and availability are also handicaps, although relatively smaller. There are limited consolidators available who work with contractual rates; this poses another threat to the fluency of the chain. There is no differentiation between the product cost and logistics cost, which results in an increase in the total cost of the produces.

There are other major issues that impact the supply chain and food quality. The fragmented nature of the food industry is a major obstacle in the entire supply chain as it consists of organised players like hotel chains and catering businesses, and unorganised players such as small food joints and restaurants. This results in an uneven volume demand and supply pattern. Also, the involvement of third-party vendors in the supply chain creates a disruption in the flow, resulting in a price increase. Sharp fluctuations in food price inflation have raised questions about the functioning of the Indian food supply chain itself. There is no standard tool or method to assess the fluctuation rate and predict future patterns. Hence the practice of forward-buying is not popular in India.

The supply chain’s lead time in India is impacted to a large extent by the absence of technology. The manual labour system in the country increases the cost of importing goods, e.g., the cost of importing a container in India is $500 as opposed to the $300 in foreign ports. Only 6% of the entire logistics network falls under the organised category in India. The lack of organised logistics acts as a barrier in the transportation of produce from the farms to the consumers. Though the government has introduced 100% FDI in the logistics sector and many organised players like DHL and TNT, among others, are coming in the market, the reach is limited only to the commercial areas. This is due to the poor infrastructure in the remote areas of the country. In India, the cold chain has not matured enough to procure products directly from the farmers; it is instead supplied by the wholesalers. This results in many perishable products like exotic vegetables/fruits or dairy products losing their quality because of the time it takes to reach the consumers. In turn, it impacts the farmers and the pricing of the product. The absence of private players has become one of the root causes of this poor structure.

One of the ways to curb the problem is to introduce supply chain partners into the system to address end-to-end delivery. The concept of having a single vendor is at a nascent stage and the government must encourage this concept and make way for the players by easing norms.

In India, some compliance is lost in the traditional route of buying from traders and wholesalers. Besides, there are many big players such as Big Basket, HyperPure by Zomato etc, who are present in the retail industry and are gradually foraying into the B2B space. Here’s how they help solve some of the challenges. The sustainability of their business model is hinged on direct national sourcing capability and Farm to Fork models for fruit and vegetable chains and backward integration to mills and manufacturers for staples, therefore, eliminating middlemen and distributors. 

The best infrastructure for storage, sorting and grading is needed. It is important to leverage technology-enabled end-to-end supply chain capabilities to optimise logistics, track fulfilment rates and share live dashboards. The ability to forecast market fluctuations is a must. All these challenges result in higher cost and poor quality. Incorporating the aforementioned solutions can help smoothen the process and make things beneficial for both the stakeholders and the customers. 

The article was published on dnaindia.