Interactive conference on 3PL perspective
Establishing successful 3PL contracts and partnerships

Explaining the importance, Mr. Balamurugan said logistics is an important sector for a country like India, for overall supply chain of an enterprise which can make a difference between the black and red points on the balance sheet.

Touching upon the theme of the subject, he said, outsourcing is an important component of any competitive business. It demands isolating non core business function from value driven growth initiatives so that the market place begins to reap benefits.

Mr. Balamurugan said business is outsourced to utilize the variables, reallocate capital and resources to more productive areas. 3PL, by virtue of their specialized capabilities and operational bred , provide to companies the scale and scope , to better visualize and execute their supply chains. From tactical style of optimization to strategically end to end business process change, outsourcing turn to 3PL to break new ground and unearth better ways to match supply chain management efficiency.

Mr. Juzar Mustan , talking on the theme of the session - ” Interactive third party perspective in Logistics” said, logistics is very important for the growth of manufacturing in a country. India is expected to achieve 10% of share in Global Trade by the year 2020 - currently it is at 1.5%. This clearly shows the tremendous growth opportunity in manufacturing.

The market share of Logistics in India by 2014 is expected at Rs. 4642 Billion and since3PLgrowing faster, the revenue from 3PL is expected to touch Rs. 185 Billion by 2014. If the logistics grows by 8% the 3PL will grow by 3 times ( i.e., @ 24% ), year on year, making tremendous growth and opportunity.

He listed out the factors that impacts logistics in the country, like growth in manufacturing, domestic consumption, new retailers from outside setting up shops , growing export industry, government initiatives like setting up FTWZ AND FUZs, opening of new ports, National Transport policy being spearheaded by the planning commission, improvement of infrastructure like expressways, airports and ports, multi nodal hubs facilities, the government’s announcement of “ investment linked tax benefits”.

He further added that there will be a change in the role of service providers - from delivering basic services like moving goods from point to point, 3PL companies will be called upon to contribute in order to reduce damages, reduce inventories, increase in information - availability of information and statistics - data to manufacturers and companies so that they can have better forecast in demand and supply.

He said that 3PL companies do not necessarily own all the assets, They will work with transport companies to provide single window seamless services to their clients. He also warns, as 3PL grows larger and larger, the small players’ share in the market will reduce drastically.

Talking on the necessity of outsourcing, Mr Mustan mentioned that outsourcing is not required at all if it cannot bring the required efficiency. One such example is the outsourcing failing in those hyper cities where their logistics partners are not able to deliver resulting in high risk of either losing or affecting business.

Outsourcing is a strategy and the decision to outsource should be taken at a higher level and the person taking such decision should be a champion in outsourcing.

Currently the 3PL companies are not entirely ready to take up the challenge; hence a change in the mindset is very essential to take up the challenge.

He listed out the reasons for the failures in outsourcing:

a. Outsourcing is done for wrong reasons.
b. Outsourcing does not treat an already ill-efficient process in the company, thus leading to failure.
c. Incorrect pricing.
d. Choice of wrong vendors based on cost competition. Low cost vendors do not have the resources, capability and infrastructure to render service to the industry.
e. Absence of clear service level parameter from the service provider. He asserted - “A poor contract is a guaranteed recipe for failure”.

He concluded by listing out the essentials in a good outsourcing contract, as it is the starting point for a successful logistics relationship.

The good outsourcing contract should consist of:

a. Performance matrix, clearly specifying the services and the targets to be achieved by the service provider.
b. Clear penalty and incentive clauses to ensure that the targets are met promptly.
c. There should also be specific capacity agreements mentioning clearly the responsibility of the service provider in the event of sudden surge in demand and the minimum time the service provider would take to provide the increased capacity.
d. Finally , setting the ground rules to deal with contingency which is otherwise called as “contingency plan” .

Mr. Ganesh Ram started his presentation with the evolution of logistics in India. Earlier, only warehouse and transportation were considered to be logistics, slowly it evolved into improved productivity, cost consciousness, and later on to packaging, labeling and now to freight forwarding.

The main reason why 3PL is required is to focus on core activities, reduce cost, customer satisfaction, and better reach to the customer than the competitor. But the hidden reasons or the unknown factors are by outsourcing, the user company’s capital can be deployed elsewhere, the economic scale of the 3PL company can be better than your company, thus is an add-on.

He also summed up the reasons why third party logistics should not be engaged namely, service provider not responding to changing needs, leaking out information, poor infrastructure, fear of loss on retrenchment, non compatibility of IT.

There are 4 types of services for third party logistics:-
transport, customs clearing & forwarding and warehousing.

He enlisted the general features that any user company looks for in a 3PL company like core competency, cost effective, compatibility with the company and industry, past experience with the company and industry, technological competency and flexibility or adaptability.

Mr. Ganesh Ram , as a 3PL player , advised that any user company should look beyond this and should consider the following key points in choosing a 3PL company:

1. The management at the top level of the 3PL company.
2. Resource optimization initiatives taken by the 3PL company.
3. Flexibility in scaling and adapting to changes by the 3PL company.
4. Standardized services and processes offered by the 3PL players.
5. Change management capabilities of a 3PL player.
6. The availability and adequacy of trained and skilled manpower.
7. Strict adherences to KPIs and SLAs.

He further added that a contract between the user company and the 3PL company should be more of a relationship building measure rather than a mere instrument to avoid risk. He mentioned that with his 22 years of experience in the industry, this industry is more of a people driven industry and longevity is the key. He quoted that a minimum period of 6 months to 1year is needed for any 3PL player to understand the company, which is an important criteria to deliver the desired results.

He concluded by reiterating the measures to be taken from a 3PL perspective, as follows:

a. The top management of the 3PL player should involve themselves in understanding the contract, deploy a core team to understand thread bare the contract to deliver effectively.
b. The 3PL company should have a strong performance review, attach a key Accounts Manger to the project and also should ,as far as possible, make the internal process more user oriented.
c. Last but not the least, deployment of trained and skilled manpower is required, unlike in the past where both user and the 3PL did not have qualified people in giving and taking work. This trend has changed at present and there are more professional people in the current logistics industry.

The chief guest of the occasion, Mr. Rajendiran speaking from the government’s perspective on 3 PL, spoke on the various initiatives taken by the government. He mentioned that Customs Department is now automated. Indian customs is one of the best Customs in the world. He shared his experiences during an interesting meeting with one of the representative from HP logistics, who was overwhelmed by the efficiency and expertise of Indian Customs Dept. He appreciated the speedy documentation processes , namely, documents can be filed online one month in advance, 80% of the information can be uploaded into the system with almost no charges – or with only the minimal documentation charges. He also quoted an example where the moment a ship loaded with HP consignment leaves Europe, 20% of the data is entered into our system servers immediately. 80% of the documentation is cleared online, which is a tremendous achievement
.
Talking about the Central Excise, he mentioned that Central Excise has also liberated control over the period of time. He mentioned about the new initiative, where, Wipro, BSNL, TCS are a few companies who have partnered with Central Excise for the total automation of workflow on the Excise end. With reference to Service Tax, filing of returns, uploading and export all these can be done online and available 24x7. There is a seamless movement of data from system to system without any human intervention.

He concluded by saying that India should think big, should try to conquer the market outside. He also mentioned that the Public in general, also have a great responsibility be tax - compliant, and focus on the objectives. Further, in 3PL every link in the chain is equally critical and it can be successful only with a holistic approach.

Mr. C.V. Ramnath, from the Adani group of concerns, spoke about the company and its facilities at the Mundra port. The Adani groups are engaged in Ports and logistics, Oil and gas and entered recently into Power Generation. They have a largest power plant facility near Mundra which generates 12000 MW power.

He said that Adani group has a strong presence in infrastructure and global trading - it is the largest Private Sector participant in commodity trading in India. They have a port, Multi Product Economic Zone. From the perspective of a 3PL company, they operate 4 branches namely Port, Value Added Services in the Port, Integrated logistics and Single Window service. Logistics by Adani and Mudra provide end to end solutions which includes automobile cargo, container cargo, and bulk commodities. They also have double stack train that connects south and north India.

Mr. Srinivasan shared his 3PL experience in Pricol. In order to focus on the core business activities, the company decided to outsource distribution and dispatch to TVS Logistics (a 3PL company). They joined hands and it took nearly 6-8 months to establish lots of micro level issues and jointly framed nitty-gritty’s before entering into an agreement between the two companies. As a learning curve, considerable amount of time was spent in understanding the company as the company was producing the non-current products of 1500 varieties and the regular customer needs of about 2000 varieties of products.

It is important that they interface between the customers and the internal processes. The internal processes is further bifurcated to Customer development, where the customers and products are developed and are then sent to the delivery management for mass production and supply and then the commercials like documentation, bills receivables and logistics who support TVS logistics in that area by giving packaging and labeling materials. All facilities are provided by Pricol and use the expertise of TVS logistics.

Once in a quarter, along with the Head from TVS , all non- conformities are recorded and registered, discussed in length , and measures are taken to avoid such mistakes in future.

The objective is to use their expertise, make standards to meet global requirements.

He enlisted the Key deliverables:

a. Delivery adherence, where the TVS logistics has to interface with delivery management right from the moment it is generated in the system, picking, packing and till final stage of delivering to the customer.
b. To maintain inventory management in Pricol and highlight the surplus inventory held and to alert in advance so that necessary action is taken.
c. Age wise analysis of stock, quarantine all non moving goods once in a month with the review with Production, CFT, R &D and Business Development to convert these products and arrange for their disposal.
d. Carryout the Value Addition jointly by knowing the needs of the company and its customers
e. Adherence to documentation requirement like ensuring that invoice will not be generated .unless road permits and inspection report are made available.
f. Advance ship notice and warehouse ship notice
g. The 3PL player participates in cost saving and give suggestions like improvement in packaging and reduction in manpower.
h. Review on control, the provider participates in a daily-coffee meeting with Pricol to share their views to address and resolve grey areas.
i. Contract is renewed based on the past performance.

Mr. Srinivasan concluded by summing up the advantages of 3PL as availability of trained manpower at a short notice to handle fluctuations of seasonal demand from the customer without any additional cost, expertise gained are horizontally deployed in other process, specialized training by 3PL provider to their operators helps in developing multi skills to eliminate mistakes.

Mr. Swayambhu, speaking on the need for 3PL provider in the manufacturing sector, compared the role played by 3PL (in the current scenario ) with the conventional method when manufacturers were also responsible for supply. He further adds that in the conventional method, the smooth flow of materials were blocked because of holding huge inventories, follow up of inventories were cumbersome - all this resulting in loss of focus on core activities by the manufacturers. In the conventional method, the cost of logistics were calculated on trip basis, while in 3PL model the calculation is on piece rate basis, where the load can be accumulated for 2 or 3 days and can be sent in one viable consignment, thus saving on the freight element .

3PL providers have to be extremely agile, they should possess complete knowledge about the customers’ products, should know the quantum and timing of manufacturing products. This dynamic monitoring of any customer line is the responsibility of the suppliers today. The supplier has to be fully responsible and has to own up for any line stoppages. Customers hold suppliers responsible for any line stoppage. Penalties, levied on a supplier, are heavy and increasing as the increase in demands of OEM customers is going up. This is called window time adherence, which is a key factor in determining the penalty or reward being passed on to any supplier by the manufacturer.

It has been proven that the customers are delighted when manufacturers offer them value added services with the help of 3PL providers like kitting, handling of recyclable containers, milk run, value added assembling, warehousing and inventory management, JIT supply, packaging & repackaging, warranty management and repair shop (for a field complaint on the failed parts, the parts are collected back from the customers and returned to the OEMs), records and documents presentation and transit bay.

They also provide MIS reports like dispatch data in electronic form (soft copy), pre alert on truck movement from origin, status on critical material collection. A complete transparency is maintained for the OEM to do the planning.

The main attribute that any OEM looks for in a 3PL provider is the 3PL provider should follow first in first out(FIFO), wherein the provider maintains the sequence of receipts of materials from the supplier end, in order to ensure that old stocks do not pile up paving the way to discrepancy in pricing.

He concluded by saying that the 3PL providers’ role is essential for the OEM to achieve the ultimate customer delight.

Mr. Lakshmi Narayanan, speaking on supply chain innovation and the role of 3PL providers, said “innovation with value addition with professionalism”- that’s where the supply chain merges with the 3PL providers. He said that 3PL concept in India is in a transitional stage, we are moving from traditional to modern methods.

Mr. Lakshmi Narayanan, spoke on the role of 3PL from the FMCG industry perspective. The 3PL , as far as the traditional supply chain is concerned , are primarily focused on only a few portions of the chain - eg., with reference to warehousing, 3PL is focused only on managing operation of warehouses, or on the inbound and outbound transportation, or Customs , imports clearances. The presence of the 3PL is very limited and sporadic.

In the current scenario, with reference to FMCG industry, majority of companies have multiple 3PL providers based on the geography and topographical conditions. 3PL are considered to be cost reduction candidates, in the current perspective. 3PL, in the future, should be considered as value creators rather than as a cost cutting measure. In the future, 3PL will be required to manage large infrastructure, complex processes and specialized and skilled manpower, which will be their core activities as volumes keep growing in the future. It is imperative that the industry should outsource these non-core activities to 3PL providers.

Mr. Lakshmi Narayanan said that in the current scenario India is lagging behind in infrastructure capabilities. However, with the advent of current innovations, the country is going to see progress in the next two to three years. We are moving away from plain storages to racking or vertical storage, material handling equipments, and the future is going to be palletized storages and palletized transportation which is being piloted by some of the 3PL providers currently.

In the FMCG industry, given the current challenges of customer demand, customer satisfaction, JIT and brand loyalty - the traditional push method of replenishing the stocks are being replaced by the pull strategy by the retail chains.

We are moving from a “low cost, low quality” to “low cost, high quality” chain. Illustrating this with an example of Wall Mart,USA, where every single unit in the store is replenished at the point of sale. With pull based replenishment, they are able to manage their inventories better. In the food industry, improving the freshness of perishable commodities and products can be achieved by cutting down the length of the chain. Whatever we cut down on the distributor channel can be employed in engaging professionals like 3PL providers.

From a cost-driven service-oriented approach, the perspective of 3PL will shift to a value creating initiative - they will have to create value for business and have to manage the various stake holders in the chain.

He concluded by reiterating that whatever innovation happens in the industry ,it has to boil down with innovation from 3PL, only then both the industry and the 3PL provider can achieve a win- win situation.

Group discussion, Q & A
Later, Mr. Mustan presided over the group discussion and the Q & A session participated by the audience- 6 teams were formed from among the participants and each one was asked to discuss and bring about the various issues and also find the solutions for the same.

The topic that was touched upon was “Value addition by third party logistics - the issues, the causes and the remedies”.

1. Limited number of 3PL.
2. Poor logistics capabilities.
3. High cost of logistics.
4. Lack of Information and documentation.
5. Collaborative logistics.
6. Skilled manpower focusing on non-management cadre.

Views Suggested by teams
1) Collaboration in 3PL can be with the vendors, customers, partners, government bodies. The reason for collaboration can be various, but the obvious reason is to bring efficiency in the entire value chain, which results in reduction in operational costs and brings in transparency, visibility and control of operations.

2) The main concern of the service seekers from the service providers is continuous visibility and control of operations, whether 3PL delivers result as per the SLA. Also, collaborative technology will play a key role in increasing the trust the service seeker’s trust on the 3PL or the service provider.

3) Collaboration between service providers - like collaboration of allocation of transporters, consolidation of loads of multiple companies and automated invoicing system leading to prompt payment to transporter and higher efficiency in service. All this can be achieved only if it is enabled by technology.

4) There are significant opportunities for collaboration where technology can help the industry to collaborate to bring in efficiency- however, it is up to the player to choose and identify the area of collaboration.

5) 3PL sector in India is lacking an integrated approach to logistics. Some have expertise in warehousing undertaking, some in transportation and some in procurement; however, a collaborative approach is lacking which poses as a big challenge. To be a successful player, any 3PL company should have thorough domain knowledge.

6) Manufacturers expect expertise from the 3PL company, they need to have complete domain knowledge, there needs to be a visibility and transparency in the whole operations which is a prima facie requirement of any supply chain.

7) Lack of transparency is a greatest irritant for any customer. Besides lack of global network, there is a great need for retention of talents and succession in the organization, service providers are not able to retain the talents - there is neither a succession planning nor contingency planning done.

8) 3PL is the strongest link in the supply chain. Talking on the current scenario where third party logistics play a very vital role in manufacturing services, he asserted that the manufacturing industries or suppliers do not see 3PL as service providers any longer; rather they look upon them as their business associates and virtual partners.

9)3PL companies should assess, analyze and serve their customers knowing their customers’ organizational objective Corporate Mission and policy and should assume accountability and ownership in their deliverables.

10) Lack of Training & Development facilities – scarcity of training institutes for non-management cadre. The Government and Industry bodies should initiate the systematic training with a professional touch and start trainings and courses to train the entire people involved / deployed in the Logistics Sector.