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20 January 2009, 21:56   Report Abuse


Sales Head

[ Scorecard : 959]

Introduction and Importance
Third-party logistics (3PL) refers to outsourcing transportation, warehousing and other logistics related activities that were originally performed in-house. More and more corporations across the world are outsourcing their logistics activities due to various reasons, some of which are outlined below.

1. Due to globalisation, corporations across the world are increasingly sourcing, manufacturing and distributing on a global scale making their supply chains very complex for them to manage. Hence they have to outsource their logistics activities to experienced 3PL providers, who have global operations. Today�s 3PL providers with their sophisticated IT capabilities and state of the art transportation and material handling equipment and warehousing facilities offer complete supply chain solutions.
2. Logistics outsourcing is used to complement the logistics activities the corporations do not have competency in, and also to increase the geographic reach. When a company expands business overseas, it may not be conversant with the customs duties, tax structures, rules and regulations, import/export policies of the government, and culture of the foreign country. A 3PL provider, who has long been operating in that country, will be better able to carry out the logistics operation.
3. Logistics may not be one of the core activities of the corporation. So, inefficiency may creep in if it is looked upon as a secondary activity. By outsourcing logistics, corporations may focus on their core competencies.
4. Logistics outsourcing may also reduce costs as the service providers can get the advantage of the economies of scale, which is otherwise not available to the firms.
5. By outsourcing logistics, companies can reduce their asset base, and use the capital released for other productive usage.
6. Logistics outsourcing increase customer satisfaction by improving cycle time and delivery performance.

7. Since the 3PL providers are offering a number of Value-added services such as customs clearance, freight forwarding, import/export management, distribution, after sales support, reverse logistics and so on, corporations can outsource all these activities, and concentrate on their core business operations.

Evolution and growth of 3PL
The concept of logistics outsourcing goes down to the history of mankind. The organised way of logistics outsourcing started in the 50�s. During the period 1950 to 1960 it was limited to transportation and warehousing and they were mostly short term transactions. During 70�s and 80�s importance was given on improved productivity, cost reduction and long term contracts. During this period Value added services such as packaging, labeling, systems support and inventory management were also offered.

After that, outsourcing has picked up momentum and more value added services were offered. Some of them are import / export management, customs clearance, rate negotiation, order processing, distribution, fleet management, freight consolidation , logistics audit etc.

3PL Market in total and the Indian market in particular
The 3PL market across the world is increasing at a rapid rate. The world�s largest 3PL providers are headquartered in Europe. The 3PL market in India is least developed. The market is highly fragmented. There are only few service providers, who generate substantial revenues in India.

Prospects of the 3PL market in India
Despite the problems mentioned above, the 3 PL market in India is growing @ 20% compared to the average world growth rate of 10%. Some of the large Indian corporates such as Reliance, TATA, Mahindra and Mahindra, Essar, TVS have already into the logistics business. Initially these corporates formed divisions to handle internal logistics. Some large express cargo and courier companies like TCI, GATI, Safe Express and Blue Dart have also started offering 3 PL services. Owing to the large asset base and distribution networks that are already put in place, it was just a matter of time for these companies to venture into the logistics business.

Now the Indian firms realised the importance of cost reduction and become competitive in the world market. One of the means of reducing cost is through outsourcing logistics, which also improves the performance and customer satisfaction.
This concept in India is relatively new one and a few large players dominate the entire market. There is no place for the small players. The most important factor hindering the growth of 3 PL in India is the poor and inadequate infrastructure. Slow movements of cargo and congestion at the seaports due to insufficient infrastructure , bureaucracy, red-tapeism, and delay in government clearances coupled with unreliable power supply and slow banking transactions when compared to other countries are the major problems. Another important factor responsible for the slow growth of 3 PL in India so far, is the lack of trust and awareness among the Indian firms. It is a fact that the Indian firms have not been aware of the benefits of 3 PL and they do not trust the 3PL providers and do not want to share with them informations. Another disadvantage of the 3PL business is that it is a high-cost , low-margin business.

Despite the problems narrated above, the Indian 3 PL business is poised to grow at a rapid speed. The Indian companies started to smell the benefits of 3PL. By outsourcing logistics activities they are able to not only reduce costs and focus on core competencies but also receive services from specialists in this field.

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