Supply Chain Management

Term Project “Analysis of 3PL Industry in India”
Post Graduate Programme in Management

Monika Sharma 102029

Submitted to:

Prof. Arindam Lahiri

Indus World School of Business
Greater Noida
Date: 4th, September, 2011

....... Why 3PL? .Page #3 3............... ………………Page #14 11.Content 1.........Page #6 6........... Third Party Logistics……………………………………………………….....…..... Key Players……………………………………………………………….......... Future Prospects…………………………………………………………….Page #3 2....Page #15 2|Page ... Challenges for 3Pl Industry…………………………………………………. Some Factors that are Driving Indian Logistics towards 3PL.... Services offered by 3 PL Providers………………………………………….......... Conclusion …………………………………………………………………..Page #13 9...... Benefits of using 3PL services Page…………………………………………...Page #14 10.. Market Structure……………………………………………………………...Page #5 5......Page #10 7......Page #12 8.....Page #4 4.... Logistics Management: ……………………………………………………..

1 2 Designing and Managing the Supply Chain by David Simchi. Ravi Shanker 3|Page . Ravi Shanker Designing and Managing the Supply Chain by David Simchi. warehousing. they can use to do something they have high competency.Logistics Management1: Logistics is a channel of the supply chain which includes planning. Philip Kaminsky. inventory. Philip Kaminsky. Relationships in 3PL are said to be more complex than traditional logistics supplier relationships. Edith Simchi. material handling. Third Party Logistics2: Third-party logistics is the use of an outside company to perform all or part of the firm’s material management and product distribution functions. Logistics involves the integration of information. implementing and controlling the efficient cost effective flow of material. In other words logistics is the management of the flow of goods and services between the point of origin and the point of use in order to meet the requirements of customers or corporations. Distinction between 3PL and freight forwarders is that 3PL tends to perform more value added activities while freight forwarders focus on transportation (air/sea/land transportation) and warehousing aspect of logistics management. No investment in warehouse and transportation fleet is required by customers and although it incurs additional cost to hire a company but it is proved to be very less as compared to a 3PL provider. It is a process which adds the value of time and place utility. and often security. Then money they are left with. The benefit of using 3PL companies is very clear. people many confuse the concept of 3 PL with freight forwarding. After knowing the definition of 3PL industry. Edith Simchi. and packaging. transportation.

Services Offered by 3 PL Providers: Basic Services:  Warehousing management  Order processing  Order fulfillment  Transportation Value Added Service Providers:  Shipment/order consolidation  Import/export customs  Logistics information system  Fleet management/ cross docking  Product assembly installation Logistics Integrator:  Full responsibility of key supply chain operations  Rate negotiation 4|Page .

and today’s 3PLs have invested in the technology that can reduce overall costs while providing visibility and other valueadded services. Hence this is the most basic factor that is needed to be considered in selecting a particular provider. Awareness of current scenario of the industry: By hiring a 3PL. 3PL results in reduced cost of capital. customers get the latest industry information and trends. it is often difficult to be an expert of the every face of the business. Roadway Logistics. leaving the logistics expertise to the logistics company. Technology: The investment in technology is quite discouraging. With resources becoming increasingly limited. Specialization of the 3PL: When 3PL providers are chosen. the company can focus on the company’s particular area of expertise.      3 Designing and Managing the Supply Chain by David Simchi. Core Competency: By selecting a 3PL. Edith Simchi. Customers today would need tremendous outlays of cash to support this initiative while securing internal IT 4 5|Page . Ravi Shanker http://www. Decreased Cycle Times: 3PLs deliver the shipping community visibility into all modes of transportation. That is listed below:  Cost Savings: 3PL providers provide savings to the shipper/customer. Philip Kaminsky. majorly companies roots lies in the particular area of logistics that is most relevant to the logistics requirement in question.logisticsmgmt. Blue dart and Yellow Logistics evolved from major LTL carriers. For example. The 3PL provides feedback on “best-of-breed” practices based upon its experiences in multiple vertical markets. Hence by logistics outsourcing. Menlo Logistics.Why 3PL?3 There are several reasons for using 3PL over home-manufacturing. 3PLs have turnkey solutions at their disposal to support complex supply-chain challenges4. This will reduce overall supply-chain cycle times and allow for superior customer service. the shipper’s company can focus on their core competency versus the distraction of building a supply chain. improved cash flow and reduced capital investment.

Though it was proved to be insignificant in the first few years. the customer receives constant feedback on how to improve the overall supply chain. 3PLs deliver technology and resources to support vendor compliance and low-cost carrier utilization. Indian subsidiaries of multinational companies in these sectors took evidence from their parent companies and began to outsource a share of their logistics functions to these specialist service providers.about. Indian 3PL industry is experiencing a rapid growth after year 2000. estimated at about US$890. 3PL technology allows for collaboration and consolidation to further leverage the purchasing of transportation services    Market Structure5 3PL industry’s origin in India can be traced back to mid 1990s.htm 6|Page . 5 http://logistics. Compliance: Across the supply chain. Sahay. We can analyze that by a survey under taken by Dr. Leverage: 3PLs leverage the collective spending of their clients. By the help of pie chart we can analyze the reach of 3Pl industry in India. from inventory management to carrier management to customer delivery management. This process ensures cost and service optimization. According to the research companies earning revenues between Rs 1 bn to Rs 5 bn approaches 3 PL providers most and Engineering and automotive are top revenue earners. Indian 3PL market. increasing the buying power of an individual shipper.3 million in 2005. The 3PL industry is focused on delivery value and savings across all modes of transportation and distribution. Continuous Improvement: By selecting a Professor of supply chain management. Management and Reporting: The 3PL community provides leading industry expertise across the supply chain. B. This is accomplished through a formal review process that has established benchmarks for improvement.

S. 7|Page .Rs10 bn Rs1bn.Rs5 bn 22% 27% The number of participants in this industry had grown to be more than 400 by year 2005. Current Market Performance:6 Market Share of 3PL industry in overall industry: 6 www.Distribution of the 3 PL industry sector wise: Following data are taken from a survey held by Dr. Professor of supply chain management.iactglobal. Sahay. Distribution of 3PL industry By Turnover Distribution of 3PL industry By Industry Automotive Engineering Others 2% 4%3% 4% 5% 4% 7% FMCG 21% 23% Textiles/Apparel Services Telecommunicati ons Transportation Chemicals/Fertiliz ers Metals >Rs10 bn 18% 11% 13% Rs500 mRs1bn 36% <500m Rs5bn.

tax regime etc.00% India Europe U.e.00% 0. Logistics Performance Index: 8|Page .00% 5.00% 0. In order to gain market share significant cost reductions and other service benefits are provided by these companies.00% India Europe U.e.S Japan Analysis: We can infer from the graph that. 13 % and the reasons behind is lack of good infrastructure. This is one of the reason for high cost in India.00% 50.00% 10. In MNCs in all over world have been prominent users of 3PL services but Indian companies are not. industry fragmentation.100. being a developing country the logistics cost in India is most i.S Japan Analysis: We can analyze through graph that share of 3PL in Japan is highest among developing countries i. 80 % and In India 3Pl providers are very less (10%). Cost: 15.

00% 2.00% 1. As managerial and physical effectiveness of Indian logistics is not so good hence the industry is not capable of attracting the 3Pl providers in a high level.00% 3.slideshare.50% 2. Key Players:7 7 http://www.50% 4.00% 9|Page .00% High Income Countries Low Income Countries Analysis: Graph indicates that the performance of logistics is high in developed countries in developed countries as compared to developing nations.50% 3.Chart Title 4.50% 1. while India occupying the middle position.50% 0.

Whatever industry sector people operate in. like increase in manufacturing sector in India as well as increase in out sourcing trend 3PL industry is estimated to grow by 30 % year by year. road or rail. but capable of giving its customers the personal attention they need. labeling and tracking of shipments etc. Currently there are only few 3PL players with national network and majority of them are providing disintegrated services. Warehousing and Distribution: By understanding customer’s issues and anticipating their business and logistics needs. Other than that many companies are providing value added services like inventory management. warehousing packaging. Customs. Some of the companies started with basic 3PL facilities like Federal Express (FedEx) and DHL have contributed to the transformation of services and the business practices across the entire sector but transformed to the provide value added services. Security & Insurance:   8 www. Inc DHL8: Nowadays DHL provides the following services to its customers:  Freight Transportation: DHL is a logistics partner which delivers freight of any kind. ocean. but if we can talk in reference to the present growth rate.. DHL experts provide robust solutions that will drive value for their customer’s business. Welcome to DHL. to any place via air. DHL provides dedicated and shared warehousing and distribution operations to ensure that they can deliver their service promise to their customers worldwide. Some of them are listed below:        DHL Menlo Worldwide UPS NEXUS BAX Global FedEx TRINITY 10 | P a g e .All though the 3PL industry in India is in nascent stage.

clearance and compliance service is designed to take the complexity out of the customs process. as well as keep up with the latest information in white papers and guides. From the initial consultancy and design. to final mile delivery and reverse logistics. They provide leading solutions to their customers with real competitive advantage. they are able to solve the difficulties of cross border trade. This is also the place to get in touch with DHL. As well as moving goods seamlessly across international borders.  Supply Chain Solutions: They offer a comprehensive suite of services drawing on the global scale and local insight to deliver value across all supply chain.   11 | P a g e . they provide customized supply chain solutions across all industry sectors. with alerts and the latest tracking information. they ensure complete security in challenging environments and provide insurance against unforeseen events. Their people work with a huge variety of customers to solve practical problems – from achieving shorter lead times to delivering temperature-controlled freight – in the following industry sectors: Customer Resource Area: They also keep track of freight. Their efficient customs brokerage. but also in their particular marketplace.With their network of customs brokerage offices. Industry Sector Solutions: DHL's focus on selected industry sectors means customers benefit from working with specialists – not just in logistics.

Hence freight cost becomes major component of cost in India. making it very difficult for adopting a uniform logistics model. Low Margin: Being High Cost and Low Margin Business. MNCs because of their large sizes and extended operations in many countries are able to provide low costs and extended credit period. Philip Kaminsky. Geographic diversity of India needing varied logistics expertise for each region is a major challenge to be addressed by 3PL service providers. Ravi Shanker http://www. Indian 3PL industry is facing stiff completion from multinational 3Pl providers.html 10 12 | P a g e . There is lack of awareness about possible benefits. Slow movement of cargo due to bad road conditions. India has a diverse geographic scenario coupled with a diverse consumer habit scenario in each of its 25 states. volume and weight restrictions etc. couples with unreliable power supply and slow banking customers. There is lack of trust among Indian 3PL providers and their customers due to awareness. Logistics operation in each state requires a suitable model that facilitates the effective storage and transportation of goods mostly sold in that state. Organized players are not able to withstand unfair completion with unorganized players. who can get away without paying taxes and following operating norms stipulated in the Motors Vehicles act such as quality of drivers and vehicles. Poor infrastructure is another huddle in attracting the 3PL sectors. delay in government clearances. This all makes difficult to meet the deadlines for their international customers. Complicated varying documentation process requirements of different states make the business unattractive like documentation process changes with high cost and delays involved in compliance. Edith Simchi. perceived risk and losing control of sensitive information among customers and which raise the willingness in keeping activities in-house. 3PL service companies interested in serving a particular company would have to offer multiple solutions to fulfill the nationwide logistics needs of that company. To expedite shipments they have to book airfreight rather sea freight. which adds to the costs making them uncompetitive in international market. Lack of Economies of scale in the 3PL industries. On an average an Indian vehicle loose 24-48 hours in paper work and formalities while traveling on road and the cost associated with that is 25% in the form of various taxes including fuel duty.managementparadise. Failure in implementation of value added tax structure across different states has created a major problem for 3PL industry.       9 Designing and Managing the Supply Chain by David Simchi. multiple check posts and documentation Value of outsourcing is very low in India (10%) if we compare it to developed countries which are having outsourcing share in the range of 50%-80%.Challenges for 3PL industry in India9:10  In India LSPs have to pay numerous other taxes and face multiple check posts and police harassment.

Realizing the significant cost reductions and several other benefits gained by these companies. To expand this industry companies have to look beyond the level of brokers and transportations to attract and retain talent.00% 10.30% 9. domestic major companies in leading industry sectors have also begun to follow the footsteps of their multinational counterparts.50% 10. Financial Improvements11 Financial Indicator Improvements in Sales revenue Working Capital Improvement Capital Asset Reduction Production Cost Reduction Labor Cost Reduction ROA Improvement Logistics Cost Reduction 13. Benefits of using 3PL services: However.skilled manpower in the logistic sector.00% 10.00% 15. resulting in a tremendous potential market for the 3PL market in India. Other than all the above mentioned points there is also lack of knowledgeable .50% 12.docstoc.00% 11 http://www. the large numbers of small to medium companies in all the industries are gearing up to use 3PL services in their logistic functions.20% 10. starting with outsourcing their basic logistics 13 | P a g e . This de motivates the Indian customers to go for 3PL.  There is also inability for Indian 3PL service providers to offer more value added services.

7 million in 2012.Future Prospects12: Despite all this challenges Indian logistic industry is growing at 30 % vis a via annual growth rate which is 10 %. 12 13 http://www. The Indian 3PL market. a high level of growth is estimated for the Indian 3PL market in the next 5-7 years.rncos. and retail sectors. with the implementation of two major projects. Others are expected to follow them soon.556. considering that the most important logistics functions for Indian industries still are transportation and warehousing. This is expected to enable 3PL service providers in offering more costeffective services to clients. . The government has invested US $17 billion to upgrade highway networks. creating immense potential market for 3PL service providers. namely the Golden Quadrilateral network and the North-South-East-West (NSEW) 14 | P a g e . Other sectors that have shown substantial contribution to 3PL market and significant growth potential include the information technology (IT) hardware and electronics. Frost & Sullivan’s research identified that the largest end-user industry for 3PL services as of 2005.slideshare. Expansion of manufacturing facilities by most of these companies indicates huge potential for 3PL services in this industry. A lot of multinational automobile makers. Since building such large warehouses requires huge investments. and have been major users of 3PL services. In 2005 Government of India introduced value Added Tax (VAT) that will drive Indians towards using more 3PL services. as trains are faster and have lower costs per unit distance traveled. The focus of government of India is increased on improving logistics infrastructure is expected to have a huge positive impact on 3PL market. is expected to grow at a compound annual growth rate of 21. thereby increasing the 3PL usage by all industries. and Ford. is the auto industry. estimated at about US$890. Apart from this. Fast Moving Consumer Goods (FMCG). Nevertheless. to achieve best efficiency in logistics. which are likely to be outsourced to 3PL in increasing share. Leading companies in major industries have already started planning for the new scenario and the required warehousing capacity to be outsourced. Transportation by rail is definitely cheaper than by road.3 million in 2005. have set up manufacturing bases in India. the government has opened up rail freight operations to private players.9 percent to reach US$ Honda.htm http://www. A full implementation of this regime is having centralized large warehouses in regional hub cities. most Indian companies are likely to outsource the warehousing function. Some Factors that are Driving Indian Logistics towards 3PL13 There are various policies implemented by government which will help in the boom of the industry. in a remarkable infrastructure related decision. thereby creating opportunities for cheaper and faster movement of goods. like Suzuki.

now the focus is on 3PL service companies to offer quality services at affordable pricing. The opening up of the Indian economy to foreign investments is expected to attract more companies into the country.Apart from these factors. Warehouse Management Systems. the general trend is highly positive. Flextronics. The need of the hour is consistent added facilities to maintain the momentum. and delivering Even most of the established logistics companies are moving towards 4 PL. For now. There are several factors including government’s support are instrumental in this growth and the new regulations set by the government will surely support the 3PL industry in India. 15 | P a g e . Entry of giants like BMW. the increasing list of multinational companies starting operations in India is expected to fuel the growth of 3PL market. With scenario highly favorable for them. surely 3PL is the way forward for Indian Logistics Market. thereby adding momentum to 3PL market growth. Though certain challenges remain to be addressed. leading the growth of logistics market. and Wal-Mart are expected to contribute to considerable growth of 3PL usage in their respective industry sectors. and integrated Supply Chain Management systems. Conclusion By analyzing all the factors we can surely say that the Indian 3PL industry is set to grow tremendously in the next 5-7 years. The wide-spread information technology awareness and expertise in India is also expected to help 3PL companies in offering several value added services using IT such as Fleet Management Systems.