Acknowledgement

I would like to thank our lecturer Dr Shunmugham G Pandian for guiding and helping us
on this assessment. Also special thanks goes to Mr Manoj Lanerolle ( Country Director
Freight Wings Lanka Pvt Ltd) for allocating his valuable time for an interview with me
even during this pandemic situation. Contribution of the above are gratefully and
sincerely acknowledged.

Abstract
The bellow give analysis is regarding the outsourcing of logistics operations. Through
this report it brings the key drivers of outsourcing, benefits and also the barriers of
outsourcing logistics operations. Finally this is concluded with the analysis of evolution
of logistics outsourcing in Sri Lanka during the last decade.

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Contents
Acknowledgement.......................................................................ii
Abstract........................................................................................ii
Introduction.................................................................................1
The key drivers of logistics outsourcing......................................1
The benefits of logistics outsourcing...........................................2
The barriers to logistics outsourcing...........................................4
Evolution of logistics outsourcing in Sri Lanka............................5
Conclusion....................................................................................7
List of references.........................................................................8

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Introduction
Outsourcing of logistics activities and other non-core business operations developed
into the current status as a result of the globalization and high competition among the
business firms in the market which led them to focus on their main function. (Sohail and
Sohal, 2003) Outsourcing logistics operations are more common in the business world
due to many reasons which are discussed below. Logistics services outsourced are
transportation, warehousing, inventory management, freight forwarding, cross-docking,
etc.( Rushton, Croucher and Baker, 2014)

The key drivers of logistics outsourcing.

There are various reasons which drives organizations to outsource there logistics
operations to third part as discussed bellow.

Reduction of the operating cost as a result of lack of cost relating to logistics

operations such as massive investments in assets and other facilities lead to
outsourcing. One of the main drivers for outsourcing logistics activities is the
capability of the logistics service providers to convert the fixed cost into a variable
cost especially when the demand for the products drops in the market. Due to
this Laughs Gas which is a leader in petroleum-related products outsources their
transporting activities to Navil Enterprises who is currently a leading transport
provider in Sri Lanka.
As a result of globalization, the business activities which were normally bounded
to certain regions or a particular country opens up to the whole world. Due to this
business organizations tend to cater their products and services to the whole
world which made logistics operations a costly function. As a result in the 1900s
logistics service providing firms such as DHL emerged. Therefore globalization is
a core driver for logistics outsourcing.
Another major factor that promotes logistics outsourcing is the increasing
popularity of 'Just In Time' (JIT) principles. Currently, with the usage of the JIT
inventory and logistics functions, it has become more complex for the
manufacturing and distribution operations to carry on their logistics operations
due to the higher cost. (Abdur Razzaque and Chen Sheng, 1998)

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 Ability to gain more flexibility in logistics operations as the logistics service
providers are expertise where they have the knowledge to deal during the
variations in demand successfully due to economies of scale. (Rahman, 2011) To
gain this advantage Nestle Lanka PLC outsources their logistics operations to
EFL who is a leader in providing logistics services in Sri Lanka.
The necessity to relocate the logistics facilities can also be a major driver for
outsourcing logistics activities. This situation arises when research or a study has
suggested that due to some collapse in demand and supply it is needed to
change the locations or closed some distribution centers or warehouses.

Provision of value-added services such as product returns, inbound logistics, packaging

return, etc. also drives the organizations to outsource the logistics activities.

The benefits of logistics outsourcing.

Outsourcing logistics operations creates a strategic alliance where both parties depend
on each other by sharing their goals, information, risks and also rewards. Some benefits
gain through this partnership are discussed bellow.

Can save on capital investment and reduce financial risk through outsourcing
logistics activities. (Batarlienė and Jarašūnienė, 2017) A manufacturing firm
should invest a higher amount in logistics assets such as warehouses,
distribution centers, trucks and other transporting vehicles, IT-related equipment
and software, etc. which involves higher financial risk. (Aktas and Ulengin, 2005)
Therefore when the logistics operations are outsourced the firm can focus more
on its' core function and can save cost on capital investment and reduce financial
risk. Due to this Sri Lankas' Cargills supermarkets run their business process
with minimum logistics related resources by outsourcing their logistics activities
to a 3PL provider named EFL.

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 Outsourcing logistics activities to 3PL providers can lead to access wider
knowledge due to the use of the latest technologies such as (RFID) Radio
Frequency Identification, GIS (geographic information system), tracking
technologies, etc. or by the vast knowledge gain through experience which will
lead to increase the performance of the operations. Logistics innovations can
emerge due to expertism and knowledge. (Lianguang Cui, Shong-Iee Ivan Su
and Susanne Hertz, 2012) This is proved by the introduction of the Hellmann
MAS supply chain in 2018 which led to higher performance in MAS holdings
operations where through the joint venture they were able to access the great
degree of knowledge held by Hellmann logistics.
The existence of economies of scale and economies of scope is a benefit of
outsourcing logistics activities. When logistics activities are outsourced to other
parties who expertise in providing logistics services and own large truck fleets,
warehouses and other infrastructure then it leads to economies of scale.
(Vasiliauskas, 2007) Economies of scope persuade firms to increase the net
value by reducing cost. (marketing based, non-asset based, etc.).
Outsourcing of logistics activities to another party decrease inventory resulting in
development in the inventory due to the coordination of production and shipping
schedules. Which finally results in faster transit times, reduce paperwork and
fewer damages to the inventory. This can be practiced as a result of the
availability of the resources, network within the logistics industry and the
adjustability to the customers' needs of the service provider.
Can provide more focus on the core business. When comes to a manufacturing
firm its core business function is the manufacturing of its product therefore when
the firm performs its logistics operations on its own then the manufacturing
company should dedicate its resources to engage in logistics activities and also
to the manufacturing process which can lead to the breakdown or a reduction in
efficiency and effectiveness in its main business.

Along with the above factors expanding markets, increasing efficiency, time saving,
sharing of risks, etc. are some other benefits gain through outsourcing logistics
operations.

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The barriers to logistics outsourcing.
According to its already proves that there are many favorable reasons for outsourcing
logistics activities but also there are some barriers to logistics outsourcing as given
bellow.

More control to the third-party providers as there is a distance between the

product and the owner appears to be the most common barrier which stands
against logistics outsourcing. Due to this Hayleys which is a leading business
organization in Sri Lanka has its own logistics service providing companies such
as Advantis and Logiwiz.
The cost charged by the logistics service providers always leaves a question
behind organizations to rethink on the decision whether to outsource. Reducing
cost is a reason for outsourcing but when its cost is higher, specially the
organizations who deal with larger quantities of inventories tend to do their
logistics activities on their own due to lack of savings. And also sometimes the
cost has to be beard when switching to outsourcing which also a barrier.
Lack of coordination among the main firm and the logistics service provider is
also creating difficulties in logistics outsourcing. This arises when the required
information which should exchange among the two parties didn't take place.
(Abdur Razzaque and Chen Sheng, 1998) Selecting the most suitable logistics
service provider also cause some barriers to outsource.
Legal aspects relating to reverse logistics policies such as taxes and duties on
rejected goods, return on damages and goods wrongly dispatched, etc. are a
vital barrier to outsource logistics. Lack of preparation for the policy guidelines of
reverse logistics leads to this issue.
Discontinuity of the partnership is a possibility that can happen. Therefore there
is a huge risk on outsourcing logistics as it will have to bear a greater amount of
cost and time to systemize the process again and also especially the customer
loyalty can be disrupted due to this.

If the companies that plan to outsource handle the above issues successfully they can
achieve success by outsourcing their logistics activities to another party.

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Evolution of logistics outsourcing in Sri Lanka.
As an island located in a strategic location Sri Lanka has an advantage to become the
maritime hub in South Asia. (Malkanthie and Jayamanna, 2017) After the opening up of
the economy in the 1970s, Sri Lanka was engaging in many imports and exports
businesses which led to the necessity of outsourcing logistics activities. (Lanerolle,
2021) The last decade is very significant when analyzing the evolution of logistics
outsourcing in Sri Lanka as discussed below;

As the demand and supply for Sri Lankan apparel were increasing during the last
decade those companies tend to outsource logistics activities as they should
focus more on their core operations and also handling air cargo by themselves
was costly. This led to organizations such as MAS holdings and BRANDIX who
are leading in the Sri Lankan apparel sector to outsource their transportation
services to 3PL providers such as EFL, DHL, HELLMANN and 20 CUBES
LOGISTICS, etc.
Outsourcing warehousing services in Sri Lanka was significantly increasing in
recent years. As the prices of lands near to the port of Colombo and suburbs
massively increasing many organizations outsource the warehousing activities to
third parties to save cost incurred in the construction of own warehousing
facilities. As a result even multinational companies such as Nestle and Unilever
outsource their warehousing services to Advantis and EFL who are leading in the
field.
The development and growth of Sri Lankan own logistics providing organizations
show a greater picture of the evolution of logistics outsourcing in Sri Lanka.
During the last decade, the EFL company developed into a leader in global
supply chain solutions by providing air freight, ocean freight, warehousing and
many other logistics services. Currently, EFL is handling logistics services of
MAS holdings, Cargills and many other leading companies of Sri Lanka. (EFL |
3PL, 2021)
Many global and regional logistics service providing companies started their
operations in Sri Lanka in the last decade which shows the demand for
outsourcing logistics activities in the country. The most recent example was the

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 formation of a joint venture between Hong Kong-based Kerry logistics and the
IAS holdings of Sri Lanka as Kerry Logistics Lanka PVT Ltd. APL logistics, APEX
logistics, APS logistics, etc. entered the Sri Lankan industry recently.
Introducing freeports and distribution centers by logistics service providers within
Sri Lanka tends many firms to outsource. Currently, EFL operates a free port in
Sri Lanka while EFL, Advantis and many other 3PL providers provide distribution
center facilities in the country. High-Tec quality inspection center established in
last year by EFL 3PL was developed by the facilities with the latest technology to
increase efficiency which reflects the development of outsourcing logistics
activities in the country.

With these developments, it is important to consider how outsourcing has

complemented the strategic objectives of business organizations.

The contracting party should have a proper understanding of the objectives of the
business organization to achieve success through the partnership. MAS holdings
a leader in apparel manufacturing joined with Hellmann worldwide logistics and
created Hellmann Mas supply chain in 2018 to provide contract logistics and
third-party logistics across the country to do operations with a clear objective.
From 2018 to 2020 until the COVID-19 pandemic hit the business operations
both parties were gaining favorable results due to this.
Supermarket retailing is a competitive industry in Sri Lanka where Keells Super
and Cargills super are dominating the market. Keells Super outsources their
logistics activities to John Keells logistics which is under their mother company.
(John Keells Logistics, 2021) Accordingly, Keells super incur a comparatively
lower cost for outsourcing where the saving is given back to the customers
through reducing the price of the products and discounts which leads to
achieving their objective of increasing sales. As a result of this, they performed
successfully even during the COVID-19 pandemic.
Transport service providers also have a great responsibility as their quality of
service directly influenced the business organization. Navil enterprise Pvt Ltd is a
Sri lankas' leading transport provider for petroleum products which provide

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 transport facilities for Laughs Gas PLC which engage in LPG activities. (LAUGFS
Gas PLC - Sri Lanka, 2021) Owning a large fleet of trucks by Navil enterprise
helps the Laughs Gas PLC to achieve it objectives by providing a quality service.
Many business organizations face difficulties with outsourcing when the
outsourcing party fails to provide air freight facilities when necessary. This
problem was faced by the Sri Lankan apparel sector companies and tea
exporters during the COVID-19 pandemic when the Colombo ports' operations
were disturbed until Sri Lankan airlines join hands with them to provide the
service.
Lack of required facilities to perform the business functions smoothly causes
problems in achieving the objectives. Keells super who are dominating the
supermarket industry in Sri Lanka faces some difficulties due to the lack of
freezing facilities in their warehouses. Currently, John Keells logistics are in the
process of constructing a large warehouse facility in Homagama near Colombo
to cater to the required facilities.

The above argument shows whether or not outsourcing has complemented the strategic
objectives of business organizations.

Conclusion
The above discussion related to outsourcing logistics operations and the evolution of
outsourcing logistics activities in Sri Lanka reflects the key drivers, benefits, barriers in
outsourcing and also analysis of the evolution of outsourcing logistics with an argument
regarding how it complements the objectives of the organizations. Specially the aspects
of the development of logistics outsourcing in Sri Lanka are shown by this report.

Number of words – 2189 ( Excluding References, Table of content, Acknowledgement

and abstract. )

7
List of references
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survey. International Journal of Physical Distribution & Logistics Management, 28(2), pp.89-107.

Aktas, E. and Ulengin, F., 2005. Outsourcing logistics activities in Turkey. Journal of Enterprise
Information Management, 18(3), pp.316-329.

Batarlienė, N. and Jarašūnienė, A., 2017. “3PL” Service Improvement Opportunities in

Transport Companies. Procedia Engineering, 187, pp.67-76.

EFL. 2021. EFL | 3PL. [online] Available at: <https://efl.global/3pl.php> [Accessed 6 March

2021].

John Keells Logisitics. 2021. [online] Available at: <https://www.keellslogistics.com> [Accessed

6 March 2021].

Lanerolle, M., 2021. Evolution of Logistics outsourcing in Sri Lanka.

Laugfsgas.lk. 2021. LAUGFS Gas PLC - Sri Lanka. [online] Available at:

<http://www.laugfsgas.lk> [Accessed 6 March 2021].

Lianguang Cui, Shong-Iee Ivan Su and Susanne Hertz, 2012. Logistics Innovation in
China. Transportation Journal, 51(1), p.98.

Malkanthie, A. and Jayamanna, J., 2017. Existing Obstacles of the Third Party Logistics (3PL)
Market in Sri Lanka. Global Business Research Across Emerging Countries,.

Rahman, S., 2011. An exploratory study of outsourcing 3PL services: an Australian

perspective. Benchmarking: An International Journal, 18(3), pp.342-358.

Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution
management. 5th ed.

Sohail, M. and Sohal, A., 2003. The use of third party logistics services: a Malaysian
perspective. Technovation, 23(5), pp.401-408.

Vasiliauskas, A., 2007. PRINCIPLE AND BENEFITS OF THIRD PARTY LOGISTICS

APPROACH WHEN MANAGING LOGISTICS SUPPLY CHAIN. TRANSPORT, 22(2), pp.68-72.