Saturday, September 22, 2007

Greater outsourcing in Logistics

It's now the turn of the logistics industry to promote outsourcing as the only way for manufacturers to reduce the escalating supply chain management cost. And the fast growing organised sector of third party logistics solution providers - 3PL companies - are proving to be good at it. Growing at 25 per cent, per annum, India's 3PL industry is poised to expand its market manifold.

Leading 3PL players, who are participating at Logistics 2007, a three-day exhibition being organised by Confederation of Indian Industry (CII) in Chennai, said the logistics industry is getting restructured, focusing more on enhancing its knowledge offerings which promise huge cost savings in supply chain operations, reduced lead time and safe transportation of high value goods.

"Logistics is not a new name of transportation business. It is about offering total supply chain solutions, from ensuring delivery of components 'just in time' to manufacturers, to door deliver finished products 'on demand' to end customers, it encompasses the entire movement of goods, within and without an organisation," said G Ragunath, deputy general manager - Marketing, TVS Logistics Services Limited.

He said 3PL companies help original equipment manufacturers (OEMs) and their tier-I, tier-II suppliers effectively implement manufacturing best practices such as lean management and vendor managed inventory. Logistics takes off the anxiety from manufacturers on the timely availability of components and drastically reduce the inventory cost.

"With the entry of 3PL companies, there's a lot of clarity on what constitutes core business of stakeholders across the supply chain - in a typical production scenario, manufacturers manufacture and suppliers supply, while logistics companies take over everything that take place in-between - from handling of materials to packaging to documentation to transportation," he said.

He said OEMs can achieve a direct cost saving of over 15 per cent by partnering with 3PL companies. "As 3PL companies have dedicated fleets that do not depend on daily orders, adopt scientific practices for route optimisation and employ trained manpower, they can effect a reduction of transit time by over 30 per cent. Realising the benefits, practically all automobile manufacturers have made 3PL operations integral to business. The size of the organised 3PL market in automobile could be conservatively estimated at about 5 per cent of the turnover of the automobile industry in India," he said.

TVS Logistics has registered a turnover of Rs 250 crore in the last financial year.

A spokesperson of AFL Pvt Ltd, one of the leading 3PL companies which currently caters to the needs of electronics and IT hardware industry, said 3PL operators essentially consolidate warehousing operations and transportation, based on a resource sharing model.

"Many 3PL companies partnering with electronics players focus on door-to-door distribution - delivering laptops and desktops directly to the end customers, following 'hub and spoke' model of distribution. They provide reverse logistics solutions - carrying old products received from customers on exchange offers back to manufacturers; defective management solutions - replacing un-repairable products with fresh electronic goods. Earlier, it used to take 10-15 days before a customer got his defective mobile instrument replaced. However, after the advent of 3PL solutions, a mobile company can assure replacement within a maximum of three days anywhere in the country," he said.

On the changing business dynamics in the logistics industry, Sanil Kumar, sales manager, GATI, Chennai, said logistics services are increasingly sold based on pallet locations, rather than on floor space. GATI operates 'mechantronic warehouses' - fully automated warehouses - of about a million square feet across the country.

"We offer customised logistics solutions for customers of different sectors as billing, documentation, and statutory requirements differ from sector to sector. Once we acquire an account, we spend a couple of months to understand our customer's business and hire, train human resource and streamline our operations and establish physical infrastructure, such as warehousing, to suit the particular needs," he said.