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PROJECT SUBMISSION PROFORMA
(To be bound in front of the submitted Dissertation)
NAME:
HOME ADDRESS-
.
.
.
I wish the dissertation to be considered for (tickone only)
MSc in e-Business Management
MSc in Engineering Business Management
MSc in Enterprise Integration Management
MSc in Management for Business Excellence
MSc in International Technology Management
MSc in Manufacturing Systems Engineering
MSc in Process Business Management
MSc in Programme & Project Management
MSc in Supply Chain & Logistics Management
I have checked that my modules meet the requirements of the above award
I confirm that I have included in my dissertation:
An abstract of the work completed
A declaration of my contribution to the work and its suitability for the degree
A table of contents
A list of figures
A glossary of terms (where appropriate)
A clear statement of my project objectives
A full reference list and bibliography
I am willing for my marked dissertation to be used for staff training purposes
Signed: Date:.............................................
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THE LOGISTICS INDUSTRY IN INDIA WITH
PARTICULAR EMPHASIS ON 3PL SECTOR
&
THE CURRENT STATE OF AFFAIRS OF
FAMILY-OWNED LOGISTICS COMPANY
AND MULTINATIONAL 3PL PROVIDERS
By
Suyashh Gupta
August, 2011
Presented in partial fulfilment of the requirements for the degree of
Masters of Science (MSc)
In Supply Chain & Logistics Management
Department of Warwick Manufacturing Group
At the University of Warwick
United Kingdom
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ABSTRACT
Third party logistics (3PL) is a business dynamic which has been of growing
importance all over the world for quite some time now. However, it is at a very
nascent stage in India due to the highly fragmented nature of its logistics industry.
The industry is characterized by a large number of small truckers, customs agents,
brokers, etc. in the road freight market that leads to highly unorganized form of
logistics with limited barriers to entry.
Despite all its flaws, there are some domestic and multinational companies that are
trying to bring about a transformation in this sector citing reasons of explosive growth
of the Indian economy, increasing globalization and therefore, increasing drive from
companies towards outsourcing beyond basic road transportation and warehousing.
As a result, the usage of third party logistics services is likely to increase substantially
(40 percent) in the future.
This research study is an attempt to provide a 3PL perspective in India. It focuses on
four major issues current state of affairs logistics services providers in India, factorsdriving 3PL services, 3PL market in India and challenges it poses and the untapped
opportunities it offers and the competitive strategies of the service providers to sustain
and progress in this fiercely competitive and fledgling market.
To assess the current state of affairs of service providers in India and the competitive
strategies being implemented, three case companies were chosen as part of a multiple
case-study approach, which formed the basis of the primary research. These three
companies were specifically chosen on the basis of the influence they hold in terms of
recognition in the industry, their ownership structure, the type of services they
offered, the distribution network they had in India and lastly, the strategies been
applied by them in order to compete with one another.
These companies were carefully studied and their data analysed to finally provide a
rich comparison and contrast by cross-analysing them on the basis of the elements of
diversity they brought with them based on some of these factors as mentioned above.
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ACKNOWLEDGMENT
The writing of this dissertation has been one of the most significant academic
challenges I have ever had to face. Without the support, guidance and patience of the
following people, this study would not have been completed. It is to them that I owe
my deepest gratitude.
Gary Perkins who undertook to act as my supervisor despite his many otheracademic and professional commitments. His wisdom, knowledge and
commitment to the highest standards inspired and motivated me.
My father without whom this effort would have been worth nothing. It wasbecause of his initial recommendation that I decided to do my research on the
family-owned logistics company.
His love and support, wisdom and knowledge, and the patience to hear me out
really encouraged me to dive further deep into the topic. In the process, he
managed to teach me the basic principles of sacrifice, discipline and integrity,
which are going to help me shape my career in future.
All the managers of Best Roadways Limited who participated in this researchproject with interest and enthusiasm.
The Managing Director of Rhenus ProLog (India) Limited for his cooperationat the highest level to share all the information regarding his company without
much hesitation.
The Road Transportation Head of Schenker India Private Limited for beingkind enough to accommodate me in his busy schedules and provide me with as
much information about his company as possible.
My friend and colleague, Arun Shan who inspired my final effort and assistedme with his computer skills in formatting and presenting the thesis in an
organised manner.
This dissertation is dedicated to all my family members.
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DECLARATION
I have read and understood the rules on cheating, plagiarism and appropriatereferencing as outlined in my handbook and I declare that the work contained in this
assignment is my own, unless otherwise acknowledged.No substantial part of the work submitted here has also been submitted by me in otherassessments for this or previous degree courses, and I acknowledge that if this has
been done an appropriate reduction in the mark I might otherwise have received willbe made.
Signed candidate__________________________________________________
PROJECT JUSTIFICATION AS AGAINST DEGREE DEFINITION
Project definition for my degree-
(as copied from www2.warwick.ac.uk/fac/sci/wmg/ftmsc/project/requirement)
The project should relate to a logistics related topic eg. Purchasing/outsourcing,
material/production control, inventory reduction, material flow, warehousing and distribution,supply chain management or transport planning. MSc SCLM
My project relates to this definition in the following way:
I did an exploratory study on the state of the logistics industry in India, with particular emphasis onits 3PL market. I also investigated three logistics service providers in India who provide 3PLservices to their clients. I then compared and contrast between them based on strategies applied by
them in order to compete in the industry. Since the whole research revolved around logisticsoutsourcing from service providers perspective, it is safe to say that my final project did fulfill therequirements of project that need to be done by SCLM students at WMG.
This project can help me gain employment in the 3PL industry in India. I had always thought aboutworking in the service sector upon my graduation from WMG. The amount of information I had tocollect for this research- both from secondary sources and through my own efforts have only mademe much more aware about the whole of business of logistics services in India.
The topic of my project was of particular interest to me because it gave me an opportunity to godeep into understanding the entire operations of my family business, which is into transportationand logistics in India and that too, in a short span of time that otherwise would have not been
possible so soon.
The results that were revealed from this research should help its readers to change their perspectiveon India in general and perhaps gain a better understanding about the current situation of the Indianlogistics industry in particular.
The above shows the relevance of the work to the degree for which it is submitted.
Signed Agree DisagreeSupervisor
Second assessor
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TABLE OF CONTENTS
PROJECT(SUBMISSION(PROFORMA(...............................................................................(i!
ABSTRACT(..........................................................................................................................(iii!
ACKNOWLEDGMENT(........................................................................................................(iv!
DECLARATION(....................................................................................................................(v!
LIST(OF(TABLES(.................................................................................................................(vi!
LIST(OF(FIGURES(.............................................................................................................(vii!
CHAPTER(ONE:(MAIN(INTRODUCTION(.......................................................................(1!
1.1! Chapter Introduction(........................................................................................................(1 !
1.2! LOGISTICS INDUSTRY IN INDIA A BRIEF PERSPECTIVE(........................(1!
1.3! RESEARCH OBJECTIVES AND QUESTIONS(.......................................................(3!
CHAPTER(TWO:(LITERATURE(REVIEW(......................................................................(6!
2.1 Chapter Introduction(............................................................................................................(6 !
2.2 ! LOGISTICS(.......................................................................................................................(7 !
2.2.1! Defining Logistics!......................................................................................................................!7 !
2.2.2! Supply Chain Management!........................................................... ..........................................!9!
2.2.3! Defining Logistics Management!............................................................ ...............................!9!
2.3! LOGISTICS & CUSTOMER SERVICE(..................... .................. ................... .........(10!
2.4! LOGISTICS & COMPETITIVE ADVANTAGES(................ .................. ................(11!
2.5! THIRD PARTY LOGISTICS (3PL)(.................. .................. .................. ................... ...(12!
2.5.1! Defining 3PL!...................................................................................................................... .......!12!
2.5.3! Factors Driving 3PL Services!.................................................................. ............................!22!
2.5.5! Factors against Use of 3PL Services!.................................................................................!30!
2.5.6! Elements for Successful 3PL Relationships!............................................................. .......!31!
2.5.7! Third-Party Logistics in India!.................................................................. ............................!35!
2.5.8! Challenges in Indian logistics Industry!........................................................... ..................!44!
2.5.9! Opportunities in Indian 3PL Industry!.............................................................. ..................!52!
2.6! SUMMARY(.................. .................. ................... .................. .................. .................. ..........(62!
CHAPTER(THREE:(RESEARCH(DESIGN(&(METHOD(..............................................(64!
3.1! Chapter Introduction(................ ................... .................. .................. ................... ............(64!
3.2! RESEARCH PARADIGM(................. .................. .................. .................. ................... ...(64!
3.3! METHODOLOGY(........................ .................. .................. .................. .................. ..........(68!
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3.3.1! Case Study Strategy!.............................................................................................. ..................!71!
3.3.2! Multiple Case Study Selection!........................................................................... .................!73!
3.4! DATA COLLECTION & STORAGE(.................. .................. .................. ................... (77!
3.4.1!
Questionnaire!............................................................... ..............................................................!78!
3.4.2! Interview!................................................................................................................... ..................!79!
3.4.3! Archive Searching For Secondary Data!...........................................................................!81!
3.5! ANALYZING DATA(....................... .................. .................. .................. ................... ......(82!
3.5.1! Within-Case Study & Cross-Case Study Analysis!.......................................................!83!
3.6! RELIABILITY & VALIDITY(................... .................. .................. .................. .............(83!
3.7! ETHICAL ISSUES(................................. .................. .................. .................. ................... (86!
CHAPTER(FOUR:(WITHINCASE(STUDY(ANALYSIS(...............................................(87!
4.1! Chapter Introduction(................ ................... .................. .................. ................... ............(87!
4.2! Rhenus ProLog Logistics (India) Limited Case Study(................. .................. ..........(87!
4.2.1! CURRENT STATE!.............................................................. ...................................................!89!
4.2.2! COMPETITIVE SITUATION!............................................................... .............................!94!
4.2.3! STRATEGY REVIEW!..........................................................................................................!96!
4.3! Best Roadways Limited Case Study(.................. .................. .................. ................... (103!
4.3.1! CURRENT STATE!.............................................................. ................................................!103!
4.5.2!
COMPETITIVE SITUATION!.........................................................................................!110!
4.5.3! STRATEGY REVIEW!.......................................................................................................!117!
CHAPTER(FIVE:(CROSSCASE(DISCUSSION(............................................................(126!
5.1! Chapter Introduction(...................................................................................................(126 !
5.2! CURRENT STATE(......................................................................................................(126 !
5.2.1! Companies Overview!.........................................................................................................!126!
5.2.2! Physical Distribution Networks!......................................................................................!129!
5.2.3 ! Service Provided!..................................................................................................................!131!
5.2.4! Information Technology System!....................................................................................!132!
5.2.5! Business Trend!......................................................................................................................!133!
5.2.6 ! Customer and Contract!......................................................................................................!134!
5.3 ! COMPETITIVE SITUATION(..................................................................................(137 !
5.3.1 Competition!........................................................... .................................................................. ....!137!
5.3.2 Competitors!.................................................................................................................................!138!
5.3.3! SWOT Analysis of Rhenus, Best & Schenker combined!........................................!140!
5.4!
STRATEGY REVIEW(................................................................................................(142!
5.4.1! Information technology development!............................................................................!142!
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5.4.2! Willingness to Establish Partnership!..............................................................................!144!
5.4.3! Developing Compatibility!............................................................. .....................................!146!
5.4.4! Open Communication!.......................................................... ................................................!146!
5.4.5!
Mutual Commitment!............................................................................................................!147!
CHAPTER(SIX:(CONCLUSION(......................................................................................(149!
6.1! Chapter Introduction(...................................................................................................(149 !
6.2! OBJECTIVES OF THE STUDY(...............................................................................(149 !
6.3! CONCLUSION(..............................................................................................................(149 !
6.4 ! LIMITATIONS OF THIS STUDY(..........................................................................(154 !
6.5! FUTURE RESEARCH(................................................................................................(156 !
REFERENCES(...................................................................................................................(158!
APPENDICES(...................................................................................................................(165!
APPENDIX 1(................................................................................................................(165!
APPENDIX 2(................................................................................................................(175!
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LIST OF TABLES
Table 2.1 Cost of logistics as percentage of GDP in India and markets.......................................... 38
Table 2.2 Ease of starting new business in India compared to other BRICs.................................. 50
Table 2.3 Recent Mergers & Acquisitions in the logistics sector......................................................54
Table 3.1 Key features of positivist and phenomenological paradigms............................................64
Table 3.2: Positivistic Approach Advantages & Disadvantages.......................................................65
Table 3.3 Phenomenological Approach Advantages & Disadvantages.........................................66
Table 3.4 Differences between Quantitative & Qualitative methodologies......................................69
Table 3.5 Types of purposeful sampling strategies and their definitions.........................................72
Table 4.1 SWOT Analysis of Rhenus ProLog Logistics (India) Limited.........................................94Table 4.2 SWOT Analysis of Best Roadways Limited.....................................................................110
Table 5.1 SWOT Analysis of Rhenus, Best & Schenker combined together.................................139
Table 6.1 Compiled data of IT solutions in logistics.........................................................................148
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LIST OF FIGURES
Figure 2.1 The logistics implications of different competitive positions...........................................11
Figure 2.2 Composition of truck ownership in Indian market..........................................................15
Figure 2.3 Dissection of 3PL in Indian context...................................................................................16
Figure 2.4 Typical 3PL arrangement...................................................................................................17
Figure 2.5 Typical timeline of transformation from 3PL to 4PL......................................................19
Figure 2.6 Profit margin rise as service segment widens...................................................................26
Figure 2.7 Factors driving 3PL services from provider perspective..............................................27
Figure 2.8 Factors against the use of 3PL services.............................................................................30
Figure 2.9 Evolution of 3PL in India...................................................................................................35
Figure 2.10 Share of 3PL market in overall logistics industry of given countries...........................39
Figure 2.11 3PL Logistics integration model......................................................................................40
Figure 2.12 Total Contract Logistics Value Split By Category 2008 & 2013...................................41
Figure 2.13 Total Contract Logistics Growth in India (2004 2013)...............................................42
Figure 2.14- Comparison of Indias 3PL development to other countries..........................................43
Figure 2.15 Skill gaps in different segments of logistics in India......................................................46
Figure 2.16 Factors driving logistics outsourcing in India................................................................57
Figure 2.17 Reorganization of warehouses before and after GST....................................................59Figure 4.1 TIMELINE OF PRO-LOG GROUP.................................................................................86
Figure 4.2 Rhenus India Distribution Network..................................................................................87
Figure 4.3 List of services provided by The Rhenus Group..............................................................88
Figure 4.4 Sales revenue of Rhenus ProLog Logistics (2008, 2009, and 2010)................................90
Figure 4.5 Offices owned by Best Roadways (Plotted on Map of India)........................................103
Figure 4.6 Project Logistics arm of Best (Example of ODC truck)................................................105
Figure 4.7 Sales revenue of Best Roadways Limited 2008, 2009 and 2010..................................106
Figure 4.8- Future Network Development- Best Roadways Limited.................................................118
Figure 5.1 Distinction between Traditional & Emerging Logistics Companies............................126
Figure 5.2 Features and Objectives of Foreign Logistics Companies.............................................127
Figure 5.3 Turnovers of Rhenus, Best & Schenker (2008, 2009 and 2010)....................................132
Figure 5.4 Proportion of revenues based on nationality of clients..................................................133
Figure 5.5 Expansion strategy of 3PL providers in India................................................................143
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Chapter"One:"Introduction"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""2"
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The average logistics spend to GDP stands at 12% in 2008, which is higher than most
developed markets. Currently, logistics accounts for one fourth of cost of goods in
India compared to one sixth in the developed economies. It is believed that even a
0.5% to 0.75% reduction in logistics costs will result in an additional 2% growth in
trade and increase in the range of products exported.
According to a report by Datamonitor, the Indian logistics industry was valued at
$102 billion in 2008 (Davenport, 2009). The fast growing economy, increase in
foreign direct investment (FDI), introduction of special economic zones (SEZ) and
increasing globalisation are the macro factors driving the growth of the logistics
industry. Additionally, factors such as increase in outsourcing of logistics functions,entry and expansion of international logistics players in India, private equity
investments in logistics players, emergence of lean supply chains in manufacturing
and retail sectors are driving the growth of the logistics industry.
Third party outsourcing (3PL) has become imperative for industries such as
automotive, pharmaceutical, retail and electronics to reduce costs and build efficiency
in their supply chains.
Specialized value added services, catering to the requirements of different industries
are likely to boom as global logistics majors bring best practices to India.
Value added services are gaining ground, as companies seek to attain competitive
advantage. Most importantly, value added services such as tracking technologies,
reverse logistics, ERP systems are gaining ground in the auto components,
aftermarket, pharmaceutical, retail and electronic supply chains. As a result, logistics
service providers are continuously expanding their service portfolio and emerging as
end to end solution providers. Consequently, the industry sees immense potential for
3PL with an expected growth of 21% over the next five years (Datamonitor, 2009).
An important regulatory policy expected to further bolster the growing industry is the
introduction of the goods & service tax (or GST). GST is set to bring the much
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needed uniformity in the prevailing tax structure and has been the most demanded
policy reform by the logistics providers.
This uniform taxation regime is expected to eliminate the hassles of the varying state-
to-state taxation and reduce the time consuming documentation process, hence
bringing about transparency in the system.
The need for centralized warehousing, assembly operations, just-in-time supply to the
manufacturing centres, order management, vendor inventory management are the
main areas of concern for these industries.
The introduction of GST is expected to be the most important factor to step up
contract logistics, centralised warehousing and enable companies to invest in value
added services.
Currently, Indian warehouses are characterized by less usage of advanced
technologies. The absence of modern warehousing practices cause slippages to the
extent of 15-25% of cargo business. Shortage of skilled labour (Datamonitor, 2009) isalso a key concern for both the logistics and warehousing industry.
This untapped potential and more makes the future outlook looks very promising for
the Indian market. The logistics industry in India is becoming more attractive for both
Indian and multinational service providers. The industry provides immense
opportunity for investments and is pushing companies to shift their focus from
developed markets such as USA and Europe to India, and contribute in making it
globally competitive.
1.3 RESEARCH OBJECTIVES AND QUESTIONS
The main motive behind doing this research study was to understand the present-day
situation of the Indian logistics industry in general, and the Indian 3PL market in
particular.
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There have not been many case studies made on any specific India-based logistics
company that was needed to evaluate the different competitive strategies being
pursued by logistics companies to have a sustainable growth in the Indian market.
Hence, the researcher has attempted to present case studies of three logistics
companies that operate in India, focusing upon the providing a background of their
operations and the competitive strategies pursued by these companies to compete in
this market.
All three companies hail from very diverse backgrounds and differ in their
management style, ownership style, scale of operations, type of services offered, andso on.
The two underlying objectives of this research study is summarized as under-
1. To investigate about the current state of the Indian logistics industry as part ofa burgeoning Indian economy
2. To find out about the scope of 3PL growth in India given the infrastructuralbottlenecks in the country
3. To evaluate India-specific operational strategies pursued by service providers
4. To draw comparisons and contrast between the case companies based on theircore competitiveness
5. To evaluate the future direction of the case companies
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The following are the research questions that were designed in order to achieve the
above objectives-
1. What are the different types of logistics services provided by the casecompanies?
2. What is the distribution network of those companies in India?
3. What kinds of Information Technology platforms are the case companiesadopting?
4. What are the challenges and opportunities for 3PL providers in India?
5. What kind of competition does each of the three companies face
6. What are the competitive advantages of the 3 case study companies that givethem an edge over the rest?
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CHAPTER TWO: LITERATURE REVIEW
2.1 Chapter Introduction
It is only in the recent past that businesses have started recognising the vital impact
that logistics management can have in the achievement of competitive advantage-
Martin Christopher
Chapter 2 provides with a review of literature by familiarising the readers of the
fundamental concepts of logistics. It starts off by providing information in brief about
the origin of the word logistics followed by a review of various present-day
definitions of logistics and third party-logistics given by famous logistics and supply
chain experts.
In addition to that, relationship between logistics and customer service and how
logistics and competitive advantages of companies are inter-related have been
discussed.
Based on the correlation that exists between logistics and competitive advantagessuch as providing low cost or bigger basket of services, the researcher has attempted
to discuss the business model of third-party logistics and fourth-party logistics, the
factors driving 3PL services and elements of successful relationships with 3PL
providers.
Eventually, after establishing a general framework of logistics and 3PL in particular,
the final section of this literature review attempts to introduce its readers with theoverview of the logistics industry in India with particular reference to its fledgling
3PL market and the challenges and opportunities prevailing in the Indian logistics
industry alongside the growth of 3PL market.
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2.2 LOGISTICS
The word logistics is of French origin. Originally a military term called logistique,
it is concerned with the art of transportation, supply, and lodging of military troops.
Historically, logistics as part of a military science has been a deciding factor between
success and failure in many military conflicts (Hoda, 2010).
Transportation and logistics not only gave nations the ability to exercise military
power domestically, regionally or even globally, but it also provided them with an
impetus to expand their share in international trade.
2.2.1 Defining Logistics
Logistics means having the right thing, at the right place, at the right time.
Modern definitions of logistics vary from author to author and from varying key
components such as products, companies and systems that differ from one situation to
another.
According to Rushton et al (2010), an appropriate modern definition of logistics
might be that,
The efficient transfer of goods from the source of supply through the place
of manufacture to the point of consumption in a cost-effective way whilst at the
same time providing an acceptable service to the client (Rushton et al, 2010)
Rushton et al (2010) give out a similar clarification as mentioned earlier stating that
there cannot be a single true name or true definition of logistics that could be
applied universally. Logistics is made up of many sub-functions and many sub-
systems- hence, the scope of its definition changes accordingly.
Famous British supply chain and logistics guru Martin Christopher has defined
logistics as:
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the process of strategically managing the procurement, movement and
storage of materials, parts and finished inventory (and the related information
flows) through the organization and its marketing channels in such a way that
current and future profitability are maximized through the cost-effective
fulfilment of orders. (Christopher, 2005)
Peter Drucker, the most influential 20th century American management consultant
observed, in 1962, that physical distribution was for the US a dark continent
affecting negatively impacting its economy due to its primacy and laggardness (Koda,
2010). The murky picture that he drew of the way logistics was being handled in
America at that time essentially marked the beginning of an era, which saw bigadvances in enhancing distribution management, embracing transportation and other
logistics functions including order processing, inventory control, material handling,
and warehousing.
Philip Kotler, a well-known marketing expert defines logistics as,
A business marketing function that involves planning, implementing andcontrolling the physical flow of materials and final goods from points of origin
to points of use to meet customers requirements at a profit. (Kotler, 1997)
According to the Chartered Institute of Logistics & Transport (UK) (2005),
Logistics is the positioning of resource at the right time, in the right place,
at the right cost, at the right quality. (Cited in Rushton, Croucher et al, 2010)
The Council of Logistics Management (CLM), now the Council of Supply Chain
Management Professionals (CSCMP), defines logistics as-
that part of the supply chain management that plans, implements, and
controls the efficient, effective forward and reverse flow and storage of goods,
services and related information between the point of origin and the point of
consumption in order to meet customers requirements (CSCMP, 2010)
There have been other names that are often interchangeably used in the literature and
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in the business world when talking about logistics and distribution. Some of them
include- 1) supply chain management, 2) logistics management, 3) physical
distribution, 4) business logistics, and 5) procurement and supply.
2.2.2 Supply Chain Management
Supply chain management is one step ahead of logistics, in the sense that it covers
broader scope of the business idea, including supply of raw materials and components
and delivery of the final goods to the end-consumer (Rushton et al, 2010).
WhilstLogistics = Materials Management + Distribution,
Supply Chain Management = Suppliers + Logistics + Customers.
It can be seen from above that logistics is a subset of supply chain management as the
latter is considered to be very much a strategic planning process in which both the
suppliers and the end users are included in strategic decision-making.
2.2.3 Defining Logistics Management
According to Stern and El-Ansary (1988),
the term logistics management encompasses total flow of materials, from
acquisition of raw materials to the delivery of final goods to the ultimate
consumer and the counter-flow of information that controls and records the
material movement (Stern et al, 1988).
Hoda (2010) has stated a brief description of logistics management in simplistic
layman terms, as involving the integration of information, transportation, inventory,
warehousing, materials handling, and packaging.
Whereas Bowersox & Closs (1996) provide a defined boundary to the description
above by mentioning the words such as its a business strategy. They say that
logistics management includes design and administration of systems to control the
flow of material, work- in-process, and finished inventory to support business unit
strategy (Bowersox and Closs 1996).
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2.3 LOGISTICS & CUSTOMER SERVICE
New product development and marketing departments of many companies regard
logistics to be the single most critical factor determining the final demand for the
product.
Rushton et al (2010) mention about Paretos 80/20 rule, which in the context of
logistics and customer service means logistics constituting 20% of the final cost of a
product, whereas 80% of the impact that product will have on the end-consumers to
be influenced by how effective its logistics will be handled.
Thus, there is no denying the fact that no matter how attractive the product looks like,
it wont reap full benefits to its manufacturer unless it has been delivered to its end-
user in time.
In other words, customer service to the end-user is very important and logistics plays
a crucial role in providing good customer service (Rushton et al, 2010).
As mentioned in the very first line under 2.2.2 while defining logistics, that logistics
means having the right thing, at the right place, at the right time, Rushton et al
(2010) have expanded that definition and considered right quality, right quantity,right cost and even right condition in order to provide superior customer service.
It is easily to be noted that all of these seven rights of the end-consumer as it were
that are mentioned above will successfully accomplished only if the manufacturer
chooses quality logistics operations in getting the product to the market with all the
seven rights of the consumer intact.
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2.4 LOGISTICS & COMPETITIVE ADVANTAGES
Figure 2.1 illustrated below talks about two strategies that the logistics service
provider can adopt to gain competitive advantage over its competitors.
Figure 2.1 The logistics implications of different competitive positions
Source: The Handbook of Logistics & Distribution Management,
Rushton et al (2010), p26
Rushton et al (2010) explain that the LSP can either compete as a service leader,
where in it will attempt to provide a certain number of key service elements to
differentiate itself from its competitors, OR the LSP has the option to compete in cost
and become a cost leaderin the market.
In this scenario, the service provider will undertake maximum utilization of all the
available resources in order to provide services at the lowest possible price to its
clients and thereby, differentiating itself to have productivity advantage over its
competitors.
As mentioned in the Figure 2.1 above, companies adopting a value advantage
strategy will strive to differentiate their product or service offerings from their
competitors by providing its clients with value adding services to generate high levels
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of customer service- for instance, sharing regular update about the status of their
orders and giving them tailor-made customized solutions so as to ensure the product is
made available at the marketplace through different channels of distribution smoothly
and efficiently.
2.5 THIRD PARTY LOGISTICS (3PL)
2.5.1 Defining 3PL
Aertsen (1993) and Bowersox et al (1990) state that there have been a variety of
different terms that have been used interchangeably when describing about an
organizations practice of contracting out all or part of their logistics activities, which
had been earlier performed in-house (cited in Selviaridis & Spring, 2007). These
terms include logistics alliances, contract logistics, logistics outsourcing, lead
logistics provider, and finally, third party logistics.
According to Martin Christopher, Professor-Emeritus at the Cranfield Universitys
Department of Marketing & Logistics, Services provided by 3PLs are diverse where
in they might operate distribution centres, manage the delivery of the product through
their truck fleets or undertake value-adding services such as re-packing (Christopher,
2010).
Unlike Professor Christopher who remains rather simplistic in his approach when
defining 3PL, Selviaridis & Spring (2007) state that the definition of 3PL could have
a simplistic or broad approach as well as narrow or a specific approach depending
upon different considerations of the aspects of outsourcing arrangements the
customers choose to have with their service providers.These aspects can vary based upon various factors such as,
a) Number and types of services offered by the service provider,
b) Nature and duration of relationships between the 3PL user and 3PL
service provider,
c) Performance outcomes,
d) Extent of third party responsibility over the logistics process and lastly,
e) Position or role of the service providers in the supply chain
(Selviaridis & Spring, 2007).
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Ranjan & Tonui (2004) distinguishes third party logistics from the traditional
outsourcing of logistics functions that is based on per-transaction and regarded as a
one-off commodity. They say it is a partnership involving multiple transactions over a
fixed duration of time bound by a contractual agreement.
Thereby, if we see 3PL as more like a logistics alliance based on fixed contracts than
as a one-off commodity, the definition by Bagchi & Virum (1998) seems narrowed
down as it specifies the need for a long term relationship-,
3PL has a longterm formal or informal relationship between a shipper and
a logistics provider to render all or a considerable number of logistics
activities for the shipper. The shipper and the logistics provider see
themselves as long-term partners in these arrangements. Although these
alliances may start with a narrow range of activities, there is a potential for a
much broader set of value-added services, including simple fabrication,
assemblies, repackaging, and supply chain integration
(Bagchi & Virum, 1998).
Some 3PL providers have expertise in a select few range of services whereas others
are capable to provide end-to-end solutions. These end-to-end solutions may include
services ranging from road transportation, warehousing, outsourced freight
forwarding, order management, distribution, to value added services such as
packaging/ sorting/ labelling/ re-packing, inventory management services such as
inventory optimization and vendor managed inventory (VMI), and information related
services such as tracking and tracing, so on and so forth.
Bowersox (1996) have referred to such extra value adding service while defining 3PL.
He states, 3PL is a new type of service, which emerged from service providers that
formerly offered warehousing and transport services and have extended now by
adding new and unique value-added services.
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A combination of broad and narrow themes on 3PL definitions are well stated by
Berglund et al (1999), Bask (2001) and Coltman et al (2011) focusing more on
European markets, which indicates either a dyadic relationship, vis--vis the 3PL user
and the 3PL provider, or it could be a triadic relationship that involves the user, the
service provider and also the supplier together to form a B2B relationship on either
short-term (lasting 1-3 years) or long-term (more than 3 years) basis.
Hence, their versions of 3PL definitions include-
Activities that are carried out by a logistics service provider on behalf of a
shipper and consisting of at least management and execution of transportation
and warehousing. In addition, other activities can be included, for example
inventory management, information related activities, such as tracking and
tracing, value added activities, such as secondary assembly and installation of
products, or even supply chain management. Also, the contract is required to
contain some management, analytical or design activities, and the length of
the co-operation between shipper and provider to be at least one year, to
distinguish third-party logistics from traditional arms length sourcing of
transportation and/or warehousing(Berglund et al, 1999)
a dyadic or triadic relationships between the buyer and/ or seller of the
goods in the supply chain and the third party logistics provider whose main
business interests lie in logistics, providing anywhere between basic services
(transportation and warehousing) and customized logistics solutions (value
addition), in a shorter or longer term relationship, with the end goal of
achieving effectiveness and efficiency
[Modified from Bask (2001) & Coltman et al (2011)]
Berglund et al (1999) emphasize that in their definition of 3PL they exclude execution
of transportation activities that are not carried in conjunction with warehousing and
value adding services.
They also distinguish 3PL in the sense that the contract between the 3PL user and 3PL
provider should be at least of one year rather than just a one-off transaction involving
an arms length sourcing of transportation and warehousing (Berglund et al, 1999).
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Indian sub-context while defining 3PL
Sahay & Mohan (2006) have an Indian approach when defining 3PL that its logistics
industry largely comprises of fleet owners and transport contractors with limited
offering of warehousing and minimal or lack of capabilities in providing value
addition services.
Second point worth considering under the Indian context is based on the notion that
3PL relationships in India can also be on a one-off transaction basis.
And if they are on contractual basis, they are generally not triadic in nature as they are
limited to either between the seller of the goods and the logistics service provider, or
the buyer of the goods and the service provider.
The Indian logistics sector is still quite unorganized and fragmented with over 74% of
the logistics service providers having less than 5 trucks and limited warehousing
space to be able to accommodate for providing just the basic road transportation and
warehousing services at most. (Nagporewalla & Shrinivasan, 2007).
For this paper based on the Indian logistics market, the 3PL has been defined asprovider of outsourced logistics services, which may include only a single service like
road transportation or warehousing based on short-term or long-term contracts, or as a
one-off commodity, and can also include a complete integration of the supply chain,
also known as one-stop-shop solutions for all the logistical needs.
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Figure 2.2 illustrated as under gives us a clearer idea of the nature of truck ownership
amongst truck operators in India-
Figure 2.2 Composition of truck ownership in Indian market
Source: CRISIL Research- Roadways & Highways Annual Review (2009)
(Adopted from KPMG International Logistics in India Part 2, 2010)
According to Nagporewalla et al (2007) 3PL industry in India can be looked at from
three different elements- 1) Transportation, 2) Warehousing and 3) Value Added
Services (Nagporewalla et al, 2007). Value added services as part of 3PL arises after
leveraging core assets of transportation and warehousing and may differ from
different modes of transportation. This is illustrated as under-
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Figure 2.3 Dissection of 3PL in Indian context
Source: KPMG International, Report on Indian logistics- Part 1
(Bhattacharya et al, 2009)
Hence, based on the above information underpinning the Indian context, the following
definition of 3PL emerges-
Third-party logistics activities that are carried out by a logistics service
provider on behalf of shipper (either the seller of the goods or buyer of the
goods) and consisting of a combination of at least transportation with or
without any binding on any contractual agreement between the shipper and the
service provider. In addition other services can be integrated into the service
offering, for instance-
! Warehousing and/ or inventory management,! Information related activities such as tracking and tracing,! Other value added services as mentioned above
(Modified from Sweeney et al, 2010)
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According to Sweeney et al (2010), there are a number of features of the above
definition that are worthy of taking a note of, originally referred to the Italian logistics
sector but seemingly which are also relevant under the Indian context:
I. Companies that provide purely transportation services are included.II. The role of warehousing and the associated management of inventory, an
integral part of many theoretical definitions, are cited as the first of the non-
compulsory activity elements this implies that for many emerging 3PLs in
India, their first foray apart from transportation services is in warehousing and
for many that includes inventory management of customers as well.III. The non-compulsory activity elements include both information related
activities as well as elements of supply chain functionality which may be
outsourced by customers.
IV. The word integrated is used to indicate the importance, where more than oneservice is offered, of providing a customer with a coordinated logistics support.
(Adopted from Sweeney et al, 2005)
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2.5.2 Business Model of 3PL
Figure 2.4 - Typical 3PL arrangement
3PLs may have their own assets- known as asset-
based 3PLs to fulfil the logistics functions or they
may act as a conduit (as shown in Figure 2.4) to
further subcontract these functions to other
companies. These businesses are non-asset based
and are also known as fourth-party logistics service
providers or 4PLs. It is a term that was originally
coined by consultants at the business consultancy
firm Accenture.
Accenture in 1996 at the time of coining this new term, defined it as-
A 4PL is an integrator that assembles the resources, capabilities, and
technology of its own organization and other organisations to design and run
comprehensive supply chain solutions (cited in Bedeman & Gattorna, 2003)
According to van Hoek and Chong (2001), 4PL has been defined as-a supply chain service provider that participates rather in supply chain co-
ordination than operational services. It is highly information based and co-
ordinates multiple asset-based players on behalf of its clients.
4PLs are a form of lead logistics provider (or LLP) often providing many of the
supply chain operations directly with or without owning assets. They may have
geographic limitations, and to overcome this limitation they re-outsource their
activities to other LLPs such as the 3PL service providers. They focus on providing a
range of services just as 3PL including demand forecasting, inventory management
and so on (Williams, 2006).
Figure 2.5 given below illustrates a typical transformation of 4PL from being a basic
logistics service provider.
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Figure 2.5 Typical timeline of transformation from 3PL to 4PL
Source: Bisham Consulting, Coventry (Williams, 2006)
Non-asset based service providers such as the 4PLs are usually not bound to physical
assets like distribution centres and transportation fleet. They merely act as a conduit
for potential clients by sub-contracting their logistics activities to other 3PLs.
The asset-based 3PLs that own transportation and warehousing assets have the ability
to achieve economies of scale by utilizing their capacities over many clients volumes
and in many cases, to provide better availability of services (Manatayev, 2004).
The line between asset-based and non-asset based service providers is often quite
blurry in the sense that there have been quite a lot of consolidation taking place in
recent times, with asset-based 3PLs merging with non-asset based companies and
vice-versa.
In the case of new non-asset based entrants into this industry, Berglund et al (1999)
note that they excel in IT skills and generally possess a good knowledge of supply
chain concepts. But their challenge is in operations and strong network where thetraditional asset-based service providers have proven track record.
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The end goal of 3PLs is to act as a single-point-of-contact service provider of end-
to-end supply chain solutions.
According to Manatayev (2004), to differentiate their businesses from the rest, 3PLs
have traditionally been focusing upon tangible factors such as the type and variety of
services and performance.
That scenario seems to have changed in the last few years where in many logistics
service providers have started focusing more on intangible factors like brand building,
improving trust and awareness with their clients and also overall customer experience.
Acquiring Asset Base
It is easier to acquire assets, given a strong position in concepts and systems, but it is
not easy to acquire concepts, given a strong position in assets and systems (Berglund
et al, 1999). Hence, the traditional 3PLs with strong financial backing and strong asset
base often tend to tie up with non-asset based new entrant service providers to tap the
knowledge skills and high-value staff they have who possess the right expertise to
play a critical role in supply chain management and supply chain optimization,
coupled with strong IT skills, thereby offsetting their weaknesses.
According to Mitra (2009), from a new 3PL service providers perspective, it is best
to share assets of dedicated asset owners who are big and state-of-the-art, on a
transaction-to-transaction basis (Mitra, 2009).
Decision to outsource
The decision to outsource logistics activities to 3PL is driven on three characteristics
of the 3PL users business profile (Rao & Young, 1994), which influence the
formation of a favourable or unfavourable climate for outsourcing.
These characteristics include- (a) network complexity, taking into account the
differing geographies where the shippers trading partners might be located as well asthe complexity of business transactions with the selected trading partners; (b) process
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complexity, referring to time and task compression (or lack thereof) in the logistics
process; and (c) product complexity, after considering certain special measures that
might have to be taken for certain special products and materials due to the
complexity and uncertainty of external environment (such as the temperature,
humidity in the air and so on). Their transportation, storage and handling will need to
undertaken accordingly.
2.5.3 Factors Driving 3PL Services
Factors from demand side
From the demand point of view, cost reduction or cost savings by focusing on core
competencies have been considered as the primary reasons driving the companies
toward outsourcing 3PL services. In addition to this, there are eleven key factors
identified by Sahay & Mohan (2006) who state that the users are willing to outsource
to 3PL if one or more factors are impacted positively. They are listed as under-
I. Impact on customer satisfaction-Dapiran et al (1996), Lieb et al (1993) and Bhatnagar et al (1999) believe
that the future usage of 3PL service providers depend upon the level of
customer satisfaction they provide at present.
It remains a critical factor in driving 3PL services forward: simply put, the
higher the customer satisfaction the higher the outsourcing by its users in
the future (Sahay & Mohan, 2006).
Ojala (2003) believes that apart from the primary driving forces in the
3PL sector relating to cost reduction and substituting capital allocation for
alternative purposes or to be able to focus on core competencies, the
contemporary driving forces in present global business landscape, which
is affected by increasing competition and complexities have got more to
do with strategic influences- in terms of market coverage, improving the
level of customer service or increasing flexibility in view of the changing
requirements of customers.
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On-time shipment, inventory accuracy, customer complaints and shipping
errors are important gauging tools that the users use to assess the level of
satisfaction (Bhatnagar et al, 1999). Hence, as the 3PL service providers
are able to provide superior customer satisfaction, the there have been
upsurge in the usage of 3PL services.
II. Impact on logistics system performance-Increasing popularity of just-in-time (JIT) and other manufacturing
methods such as computer-aided manufacturing, use of robotics
technology in manufacturing, and revolution in computers andcommunication technology have services to a new level (Morasco, 2008).
III. Reduction in capital investment in facilities-According to Berglund et al (1999), on the demand side of 3PL, there
have been significant reductions of assets seen as the distribution centres
of the producers have gone a restructuring phase, which was in turn
caused by the restructuring of the entire production structure.This is primarily driven the growth of 3PL services as more and more
manufacturers have started focusing on their core competencies while
outsourcing all that is non-core.
IV. Reduction in capital investment in equipmentInstead of buying equipment for materials handling, they can invest on
buying equipment which will assist them in furthering their manufacturing
requirements.
V. Reduction in investment in information technologyCompanies dont need to invest on expensive IT software applications
such as Transport Management Systems when 3PLs already have them.
By being able to provide information processing services such as MIS
reporting, vehicle track and trace, electronic data interchange, freight bill
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auditing and payment, transaction processing and so on and so forth, the
3PL service providers have opened a vast array of opportunities to create
efficient, fast and reliable transportation systems (Sheffi, 1990).
Because of this, the companies do not necessarily have to invest on their
own on facilitating their supply chain anymore. They can simply
outsource their requirements to the 3PL and thereby, save on their
overheads.
VI. Impact on employee moraleA survey done by Dapiran et al (1996) on third party logistics serviceusage by large Australian firms revealed that over 68% of the companies
using services of contract logistics service providers had a positive impact
on employee morale of their own companies. Further it indicated that the
displaced employees from their logistics department would get transfer
within their organizations into other better departments they are good at
thereby improving employee morale.
The use of a 3PL brings logistics managers in contact with colleagues in
finance, marketing, manufacturing and other areas, thereby potentially
expanding the logistics influence throughout their organisation (Dapiran et
al, 1996).
VII. Reduction in manpower cost
Third-party logistics providers dramatically reduce the need for freight audit
and payment personnel.
Since they are specialists in what they do, 3PLs have the necessary systems,
manpower and the know-how in place for them to process thousands of bills
a day at a fraction of the cost compared to shippers.
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They can also audit all of the bills to make sure the carriers are charging the
agreed upon rates. This process can be a real headache with large amount of
LTL bills.
VIII. Improvement on specific logistics function parameters
Certain logistics function parameters such as order processing, inventory
and procurement management, warehouse management can effectively be
improved by experienced 3PL service providers.
IX. Improvement in inventory turnover rates
Companies use 3PL service to better their operational efficiency and
effectiveness. A good 3PL service provider can help companies reduce
their cash-to-cash cycle by significantly helping reduce investments in
inventory (Husdal, 2011), and thereby reduce inventory turnover rate and
improve inventory visibility.
X. Improvement in on-time deliveryBecause 3PL providers bring with them best-in-class service mechanisms,
it is possible for them to ensure on-time delivery of their clients goods. In
measuring their success, they regularly review their KPIs (Key
Performance Indicators), which also include on-time delivery as one of
the measuring benchmarks to ensure they keep up to their desired
performance objectives.
XI. Increasing productivity-Sweeney & Evangelista (2010) cite an example mentioning about 3PLs
having the opportunity to add value to unfinished products by providing
mass customization and final assembly services, thereby acting as a
contributor to the end-manufacturing process and increasing productivity.
Sheffi (1990) believes this has led to the delivery system becoming an
integral part of their product, to the extent that transportation and
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warehousing started to being considered as important as the product itself
(cited in Sweeney et al, 2010).
Bradley, P. (1995), Third parties gain slow, cautious buyer support,
Purchasing, May, pp. 51-2.
Factors driving 3PL services from supply perspective
According to Berglund et al (1999), declining profit margins for the service providers
in freight transport and an intense price war competition together with recent positive
attitude of the industries towards outsourcing and focusing on core competencies must
be regarded as the strongest drivers of 3PL growth.
Figure 2.6 below talks about an entire spectrum of logistics services segregated into
three categories such as traditional services, service packages and integrated
services. It is found that as the service provider progresses towards providing
integrated services, their profit margins increase from less than 2% to more than 10%.
This explains one of the factors why on the supply side many service providers are
expanding into becoming end-to-end integrated solutions providers.
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Figure 2.6 Profit margin rise as service segment widens
Source: Kuehne + Nagel (India) Private Limited, Internal Document
Expansion Strategy (July, 1998)
Figure 2.7 lists some of the other factors why many service providers are progressing
towards becoming end-to-end service providers.
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Figure 2.7 Factors driving 3PL services from provider perspective
Source: KPMG International, White Paper on Indian Logistics Part-2
(Bhattacharya, 2010)
Morasco (2008) indicate several factors that are causing 3PL services to experience
explosive growth across the world and especially in the emerging markets such as
India. He talks about increased global competition, deregulation of the transportation
industry, rising customer expectations on superior logistical service, growing focus of
companies on core competencies.
There is hardly any doubt that the logistics industry in India is going through a
massive transition, in line with the mature markets of the world where in the last fewyears, major changes have been taking place across industries. A key rationale is the
intensifying pace with which globalization is taking place across businesses (Sahay &
Mohan, 2006).
According to Cooper (1993), only within the last two decades, globalization has
emerged as a reckoning force of shaping business strategies, thereby leading firms to
develop products designed for a global client base and source components globally(cited in Sahay & Mohan, 2006).
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This has led to more complex supply chains requiring a higher involvement of
logisticians and 3PL service providers than ever before. Also, firms requiring
expertise of customs, tax structure and regulations, as well as infrastructure available
in the destination countries have them wanting to outsource these activities to a 3PL.
According to Sweeney et al(2010), on the demand side of 3PL, the growing need for
businesses to diversify and delegate as their supply chains become broader and more
complex has validated the role of 3PLs in every aspect of logistics.
After gaining acceptance in logistics operations and growing with notable speed over
the last few years, 3PL providers are now settling into their roles as integral parts oftheir customers' business plans.
This has fuelled the transition from the traditional arms length approach to the
supply of integrated logistics services packages on a one-stop shopping basis and
has further facilitated the migration of companies from asset-based to information and
knowledge-based, value-added logistics service enterprises (Sweeney, 2010).
Increasing use of Information & Communications Technology-
Increase use of IT software solutions have made it easy in information sharing, where
information management is considered to be increasingly important activity compared
to traditional asset management approach (Sweeney et al, 2010).
There is little doubt that use of ICT by many large 3PL companies has driven many
users towards 3PL. Lewis & Talalayevsky (2000) observes that use of information
and communications technology allows both the buyers and the sellers of 3PL
services to communicated directly over data rich and easy-to-use information
channels, which helps in reducing coordination costs and foster strategic partnerships
based on mutually agreed goals.
The emphasis that is being given by both manufacturers as well as suppliers on the
concept of integrated supply chain has given ICT an increasingly important role
within contemporary SCM strategy (Sweeney & Evangelista, 2010).
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Therefore, now the ability of 3PLs to provide superior customer service levels due to
high usage of ICT and increasing scope and characteristics of their service offerings
have driven the use of 3PLs to a new level (Daugherty et al., 1992).
As a consequence, 3PLs now have been entrusted with greater and more important
role than in the past with the responsibility of ensuring physical and information flows
along different levels of the supply chain with greater acceleration and integration
(Cooper et al., 1998).
In the Indian sub-context what it means
Under the Indian context, Sahay & Mohan (2003) lists certain factors that are
especially important for the 3PL growth in India, which are driving their growth.
They highlight opening up of the Indian economy and increasing globalization of
businesses as key factors that are driving companies to align their business strategy
with supply chain management streamline processes for supply chain integration and
forming partnerships for minimizing inventories. In addition to that, Indian
organizations have been quick in implementing supply chain strategies for logistics
improvements to increase sales revenue, enhance profits, reduce order to delivery
cycle time and minimize inventories. (Sahay and Mohan, 2003).
2.5.5 Factors against Use of 3PL Services
According to Manatayev (2004), the inherent problem with the asset-owning 3PLs is
that they are more concerned about utilizing their assets to full capacity than serving
the interests of any one customer in the most effective or efficient way.
It can often lead to sub-optimal solutions to the clients logistical needs as the 3PLs
would want to favour using their capacity and network, which may not be the
cheapest or the most beneficial option in terms of lead time. This can additionally
limit the ability to adapt to the changing supply chain requirement of the end-user.
Outsourcing logistics to a 3PL provider will attract a service tax, which was increased
in the last Government budgetary session from 8% to 10%; thereby increasing theoutlay in service taxes should a firm decide to outsource its logistics operations. In the
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changed scenario, the firm may find it cost-effective to keep logistics operations in-
house.
Figure 2.8 below illustrates some of the factors against the use of 3PL services.
According to a joint survey of 93 big American companies conducted by Cap Gemini,
Ernst & Young, & Accenture in 2001, 60% of them mentioned not renewing their
contract with their 3PL providers. 38% of those companies expressed their
discontentment in dealing with their service providers. And the most commonly cited
reasons for all that have been mentioned below-
Figure 2.8 Factors against the use of 3PL services
Source: Cap Gemini/ Ernst & Young (2001) & Accenture (2001)
2.5.6 Elements for Successful 3PL Relationships
According to Bowersox (1990), a common factor in all the companies who are in a
successful alliance with their 3PL service provider is their ability to recognize
logistics activity as an important part of their marketing strategy. Product, promotion
and price have been the three traditional competitive ingredients in driving companys
growth. Now, it is
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Before discussing the elements for a successful 3PL relationship, it is important to
understand the different relationship building stages that are involved in the build up
to a successful 3PL relationship.
Morasco (2008) has enlisted these different relationship-building stages, each one of
which goes through a number of interactions or activities. These stages are:-
I. Early build-up stage- In this stage, the prospective service providers areselected by companies to negotiate and produce a contract that could base
upon either formal or informal terms and conditions. In addition, the type of
logistics service required is also specified.II. Execution stage- The mutually agreed terms and conditions, and
commitments that were discussed by both the parties in the first stage are
carried into effect in this stage. In addition, the operations are organized,
coordinated, and executed. The level of experience that companies of
respective activities possess is carefully monitored (Morasco, 2008).
III.
Potential long-term stage- This is the stage where the ongoing affiliationbetween the buyer and the seller of 3PL services strengthens even further and
the association of collaborating ways of working with one another becomes
institutionalized.
The close alliance is a result of numerous formal and informal adaptations
between the two parties, which according to Hakansson & Johanson (1990)
lead to sharing of technologies used by the two parties, sharing of personal
knowledge and trust, administrative routines, legal contracts and procedures
(cited in Morasco, 2008).
Key Elements
A successful 3PL relationship can lead to-
I. Information sharing- Bowersox (1990) notes that the glue holding the twoventures together is through open disclosure of information. Advancements in
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technology have made possible the capability of information sharing from
operating details to strategic planning. Partners reluctance to share ideas can
abort the relationship, after they have entered into an alliance, even if they also
have to share information they earlier deemed as to be confidential.
Synchronization of all activities and progress towards shared goals are
realized when the communication gap between the user-company and the
service provider is kept as minimal as possible.
II. Working towards a common goal- Each party must see its task assignmentin terms of its contribution to the alliance and the way in which it can add
value to customers.
III. Understanding each others culture- The 3PL user and the 3PL serviceprovider must understand each others working culture, vis--vis the service
provider must appreciate the value system that drives its clients decision
making process; and the client or the 3PL user must grasp how the service
provider approaches its business. A clash of cultures and working styles may
arise; but the alliance must rise above it (Bowersox, 1990).
IV. Branding and service attractiveness- According to Manatayev (2004),successful branding and delivering promised levels of service quality have a
potential of turning small differences in service offerings into bigger
differences in market share. Many customers would like to do business with
3PLs that are recognized for quality and reliability, as they would not like to
risk having bad experiences with myriad different 3PLs that operate in the
market today.
The level of differentiation in service offering as compared to the competitors
in terms of types and geographic reach can heavily influence customer
relationship. The attractiveness in service offering will increase adoption rate,
accumulate a larger customer base and it will also increase industry demand
(Manatayev, 2004).
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V. Cooperation- An effective way to signal a willingness to work together is byestablishing ground rules at the very outset. These rules should also include
the procedure for conflict resolution so that any friction that later may arise
can be dealt with effectively before it strains the relationship. Negotiating for
roles and positions before the operations start, with compliance to the ground
rules already set can actually help preserve the longevity of an alliance.
VI. Developing trust- By setting unambiguous goals, establishing clear roles,laying down firm rules, and measuring performance rigorously, trust can be
developed. Also, Bowersox (1990) states that by focusing on the relationship
continuum rather than one-off transactions, a higher degree of reliancedevelops, which in turn stimulates further cooperation. Trust builds as both the
parties start focusing on customer satisfaction and loyalty.
Bowersox (1990) cites a wonderful case-study example of cooperation and working
towards a common goal in his paper to Harvard Business Review, which is worth
mentioning in this literature review section. It is about a trucking company called
Robin Transport and General Motors in USA.After studying GMs needs, Robin designed innovative trailers that benefitted all the
parties. The details are elaborated as under-
Robin Transport was one of the carriers for General Motors for their spare
parts distribution in America. The transportation companys close
understanding of GMs parts delivery needs and of their distribution channel
led to an innovation that benefitted both the parties.
What the fleet owning company did was to design their trailers with fabric
walls on the side that made the trailers capable of being loaded and unloaded
from the sides as well as the rear.
The trailers could load and unload in places where the standard trailer could
not go, and they could be unloaded from three sides at once, near points of
assembly. Robin loaded the trailers in the sequential order for ease of
component handling and delivered them at certain specified times when GM
was ready to receive the shipments.
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End Result-
To justify its investment in special handling equipment in the trailers and the
dedication of part of its over-the-road fleet, Robin Transport sought and got
the status of being a preferred carrier of General Motors and that also at a
premium rate. GM set up its production facility to benefit from the different
mode of materials handling. The manufacturer benefitted from Robins
understanding of the distribution channel by realizing productivity
improvement through inventory reduction, JIT delivery and more efficient
materials handling.
2.5.7 Third-Party Logistics in India
According to Hoda (2010), the Indian transportation and logistics industry is in a
transition phase, witnessing transformation and burgeoning growth, in line with the
developments that are happening in other parts of the industrialized world. There were
about 400 3PL or contract logistics providers in the country in 2005, which
experienced a rapid growth after 2000.
But a survey conducted by Mitra (2009) gives out a different story- the Indian 3PL
industry being in its early stages of development lags far behind the American 3PL
industry in terms of global reach and breath of service offerings.
The origins of 3PL in India can be traced back to the mid 1990s when 3PL was the
new buzzword and considered then by many as just a fad (Hoda, 2010).
The phenomenon of globalization and a general increasing awareness regarding the
convenience that an integrated service provider can bring to Indian companies have
catapulted to the rise of 3PL providers in the country.
Industries have started preferring service providers who can offer integrated transport
solutions rather than just individual transportation or warehousing services.
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Figure 2.9 below illustrates the evolution of Indian 3PL industry since its origination
in the 1990s-
Figure 2.9 Evolution of 3PL in India
Source: KPMG International, White Paper on Indian Logistics Part-2
(Bhattacharya, 2010)
According to Papadopoulou et al (1998), there are no clear cut boundaries to define
the evolution of 3PL industry, but in general, the development can be divided into
five different phases from the user-provider perspective, which are enlisted as under-
1. Introductory period- the concept of 3PL was almost non-existent. Thecompanies never really outsourced anything apart from basic logistical need
fulfilment(the bottom of the pyramid ab