Suyashh Gupta 1058443 - Final Project

7/31/2019 Suyashh Gupta 1058443 - Final Project

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PROJECT SUBMISSION PROFORMA

(To be bound in front of the submitted Dissertation)

NAME:

HOME ADDRESS-

.

.

.

I wish the dissertation to be considered for (tickone only)

MSc in e-Business Management

MSc in Engineering Business Management

MSc in Enterprise Integration Management

MSc in Management for Business Excellence

MSc in International Technology Management

MSc in Manufacturing Systems Engineering

MSc in Process Business Management

MSc in Programme & Project Management

MSc in Supply Chain & Logistics Management

I have checked that my modules meet the requirements of the above award

I confirm that I have included in my dissertation:

An abstract of the work completed

A declaration of my contribution to the work and its suitability for the degree

A table of contents

A list of figures

A glossary of terms (where appropriate)

A clear statement of my project objectives

A full reference list and bibliography

I am willing for my marked dissertation to be used for staff training purposes

Signed: Date:.............................................


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THE LOGISTICS INDUSTRY IN INDIA WITH

PARTICULAR EMPHASIS ON 3PL SECTOR

&

THE CURRENT STATE OF AFFAIRS OF

FAMILY-OWNED LOGISTICS COMPANY

AND MULTINATIONAL 3PL PROVIDERS

By

Suyashh Gupta

August, 2011

Presented in partial fulfilment of the requirements for the degree of

Masters of Science (MSc)

In Supply Chain & Logistics Management

Department of Warwick Manufacturing Group

At the University of Warwick

United Kingdom


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ABSTRACT

Third party logistics (3PL) is a business dynamic which has been of growing

importance all over the world for quite some time now. However, it is at a very

nascent stage in India due to the highly fragmented nature of its logistics industry.

The industry is characterized by a large number of small truckers, customs agents,

brokers, etc. in the road freight market that leads to highly unorganized form of

logistics with limited barriers to entry.

Despite all its flaws, there are some domestic and multinational companies that are

trying to bring about a transformation in this sector citing reasons of explosive growth

of the Indian economy, increasing globalization and therefore, increasing drive from

companies towards outsourcing beyond basic road transportation and warehousing.

As a result, the usage of third party logistics services is likely to increase substantially

(40 percent) in the future.

This research study is an attempt to provide a 3PL perspective in India. It focuses on

four major issues current state of affairs logistics services providers in India, factorsdriving 3PL services, 3PL market in India and challenges it poses and the untapped

opportunities it offers and the competitive strategies of the service providers to sustain

and progress in this fiercely competitive and fledgling market.

To assess the current state of affairs of service providers in India and the competitive

strategies being implemented, three case companies were chosen as part of a multiple

case-study approach, which formed the basis of the primary research. These three

companies were specifically chosen on the basis of the influence they hold in terms of

recognition in the industry, their ownership structure, the type of services they

offered, the distribution network they had in India and lastly, the strategies been

applied by them in order to compete with one another.

These companies were carefully studied and their data analysed to finally provide a

rich comparison and contrast by cross-analysing them on the basis of the elements of

diversity they brought with them based on some of these factors as mentioned above.


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ACKNOWLEDGMENT

The writing of this dissertation has been one of the most significant academic

challenges I have ever had to face. Without the support, guidance and patience of the

following people, this study would not have been completed. It is to them that I owe

my deepest gratitude.

Gary Perkins who undertook to act as my supervisor despite his many otheracademic and professional commitments. His wisdom, knowledge and

commitment to the highest standards inspired and motivated me.

My father without whom this effort would have been worth nothing. It wasbecause of his initial recommendation that I decided to do my research on the

family-owned logistics company.

His love and support, wisdom and knowledge, and the patience to hear me out

really encouraged me to dive further deep into the topic. In the process, he

managed to teach me the basic principles of sacrifice, discipline and integrity,

which are going to help me shape my career in future.

All the managers of Best Roadways Limited who participated in this researchproject with interest and enthusiasm.

The Managing Director of Rhenus ProLog (India) Limited for his cooperationat the highest level to share all the information regarding his company without

much hesitation.

The Road Transportation Head of Schenker India Private Limited for beingkind enough to accommodate me in his busy schedules and provide me with as

much information about his company as possible.

My friend and colleague, Arun Shan who inspired my final effort and assistedme with his computer skills in formatting and presenting the thesis in an

organised manner.

This dissertation is dedicated to all my family members.


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DECLARATION

I have read and understood the rules on cheating, plagiarism and appropriatereferencing as outlined in my handbook and I declare that the work contained in this

assignment is my own, unless otherwise acknowledged.No substantial part of the work submitted here has also been submitted by me in otherassessments for this or previous degree courses, and I acknowledge that if this has

been done an appropriate reduction in the mark I might otherwise have received willbe made.

Signed candidate__________________________________________________

PROJECT JUSTIFICATION AS AGAINST DEGREE DEFINITION

Project definition for my degree-

(as copied from www2.warwick.ac.uk/fac/sci/wmg/ftmsc/project/requirement)

The project should relate to a logistics related topic eg. Purchasing/outsourcing,

material/production control, inventory reduction, material flow, warehousing and distribution,supply chain management or transport planning. MSc SCLM

My project relates to this definition in the following way:

I did an exploratory study on the state of the logistics industry in India, with particular emphasis onits 3PL market. I also investigated three logistics service providers in India who provide 3PLservices to their clients. I then compared and contrast between them based on strategies applied by

them in order to compete in the industry. Since the whole research revolved around logisticsoutsourcing from service providers perspective, it is safe to say that my final project did fulfill therequirements of project that need to be done by SCLM students at WMG.

This project can help me gain employment in the 3PL industry in India. I had always thought aboutworking in the service sector upon my graduation from WMG. The amount of information I had tocollect for this research- both from secondary sources and through my own efforts have only mademe much more aware about the whole of business of logistics services in India.

The topic of my project was of particular interest to me because it gave me an opportunity to godeep into understanding the entire operations of my family business, which is into transportationand logistics in India and that too, in a short span of time that otherwise would have not been

possible so soon.

The results that were revealed from this research should help its readers to change their perspectiveon India in general and perhaps gain a better understanding about the current situation of the Indianlogistics industry in particular.

The above shows the relevance of the work to the degree for which it is submitted.

Signed Agree DisagreeSupervisor

Second assessor


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TABLE OF CONTENTS

PROJECT(SUBMISSION(PROFORMA(...............................................................................(i!

ABSTRACT(..........................................................................................................................(iii!

ACKNOWLEDGMENT(........................................................................................................(iv!

DECLARATION(....................................................................................................................(v!

LIST(OF(TABLES(.................................................................................................................(vi!

LIST(OF(FIGURES(.............................................................................................................(vii!

CHAPTER(ONE:(MAIN(INTRODUCTION(.......................................................................(1!

1.1! Chapter Introduction(........................................................................................................(1 !

1.2! LOGISTICS INDUSTRY IN INDIA A BRIEF PERSPECTIVE(........................(1!

1.3! RESEARCH OBJECTIVES AND QUESTIONS(.......................................................(3!

CHAPTER(TWO:(LITERATURE(REVIEW(......................................................................(6!

2.1 Chapter Introduction(............................................................................................................(6 !

2.2 ! LOGISTICS(.......................................................................................................................(7 !

2.2.1! Defining Logistics!......................................................................................................................!7 !

2.2.2! Supply Chain Management!........................................................... ..........................................!9!

2.2.3! Defining Logistics Management!............................................................ ...............................!9!

2.3! LOGISTICS & CUSTOMER SERVICE(..................... .................. ................... .........(10!

2.4! LOGISTICS & COMPETITIVE ADVANTAGES(................ .................. ................(11!

2.5! THIRD PARTY LOGISTICS (3PL)(.................. .................. .................. ................... ...(12!

2.5.1! Defining 3PL!...................................................................................................................... .......!12!

2.5.3! Factors Driving 3PL Services!.................................................................. ............................!22!

2.5.5! Factors against Use of 3PL Services!.................................................................................!30!

2.5.6! Elements for Successful 3PL Relationships!............................................................. .......!31!

2.5.7! Third-Party Logistics in India!.................................................................. ............................!35!

2.5.8! Challenges in Indian logistics Industry!........................................................... ..................!44!

2.5.9! Opportunities in Indian 3PL Industry!.............................................................. ..................!52!

2.6! SUMMARY(.................. .................. ................... .................. .................. .................. ..........(62!

CHAPTER(THREE:(RESEARCH(DESIGN(&(METHOD(..............................................(64!

3.1! Chapter Introduction(................ ................... .................. .................. ................... ............(64!

3.2! RESEARCH PARADIGM(................. .................. .................. .................. ................... ...(64!

3.3! METHODOLOGY(........................ .................. .................. .................. .................. ..........(68!


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3.3.1! Case Study Strategy!.............................................................................................. ..................!71!

3.3.2! Multiple Case Study Selection!........................................................................... .................!73!

3.4! DATA COLLECTION & STORAGE(.................. .................. .................. ................... (77!

3.4.1!

Questionnaire!............................................................... ..............................................................!78!

3.4.2! Interview!................................................................................................................... ..................!79!

3.4.3! Archive Searching For Secondary Data!...........................................................................!81!

3.5! ANALYZING DATA(....................... .................. .................. .................. ................... ......(82!

3.5.1! Within-Case Study & Cross-Case Study Analysis!.......................................................!83!

3.6! RELIABILITY & VALIDITY(................... .................. .................. .................. .............(83!

3.7! ETHICAL ISSUES(................................. .................. .................. .................. ................... (86!

CHAPTER(FOUR:(WITHINCASE(STUDY(ANALYSIS(...............................................(87!

4.1! Chapter Introduction(................ ................... .................. .................. ................... ............(87!

4.2! Rhenus ProLog Logistics (India) Limited Case Study(................. .................. ..........(87!

4.2.1! CURRENT STATE!.............................................................. ...................................................!89!

4.2.2! COMPETITIVE SITUATION!............................................................... .............................!94!

4.2.3! STRATEGY REVIEW!..........................................................................................................!96!

4.3! Best Roadways Limited Case Study(.................. .................. .................. ................... (103!

4.3.1! CURRENT STATE!.............................................................. ................................................!103!

4.5.2!

COMPETITIVE SITUATION!.........................................................................................!110!

4.5.3! STRATEGY REVIEW!.......................................................................................................!117!

CHAPTER(FIVE:(CROSSCASE(DISCUSSION(............................................................(126!

5.1! Chapter Introduction(...................................................................................................(126 !

5.2! CURRENT STATE(......................................................................................................(126 !

5.2.1! Companies Overview!.........................................................................................................!126!

5.2.2! Physical Distribution Networks!......................................................................................!129!

5.2.3 ! Service Provided!..................................................................................................................!131!

5.2.4! Information Technology System!....................................................................................!132!

5.2.5! Business Trend!......................................................................................................................!133!

5.2.6 ! Customer and Contract!......................................................................................................!134!

5.3 ! COMPETITIVE SITUATION(..................................................................................(137 !

5.3.1 Competition!........................................................... .................................................................. ....!137!

5.3.2 Competitors!.................................................................................................................................!138!

5.3.3! SWOT Analysis of Rhenus, Best & Schenker combined!........................................!140!

5.4!

STRATEGY REVIEW(................................................................................................(142!

5.4.1! Information technology development!............................................................................!142!


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5.4.2! Willingness to Establish Partnership!..............................................................................!144!

5.4.3! Developing Compatibility!............................................................. .....................................!146!

5.4.4! Open Communication!.......................................................... ................................................!146!

5.4.5!

Mutual Commitment!............................................................................................................!147!

CHAPTER(SIX:(CONCLUSION(......................................................................................(149!

6.1! Chapter Introduction(...................................................................................................(149 !

6.2! OBJECTIVES OF THE STUDY(...............................................................................(149 !

6.3! CONCLUSION(..............................................................................................................(149 !

6.4 ! LIMITATIONS OF THIS STUDY(..........................................................................(154 !

6.5! FUTURE RESEARCH(................................................................................................(156 !

REFERENCES(...................................................................................................................(158!

APPENDICES(...................................................................................................................(165!

APPENDIX 1(................................................................................................................(165!

APPENDIX 2(................................................................................................................(175!


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LIST OF TABLES

Table 2.1 Cost of logistics as percentage of GDP in India and markets.......................................... 38

Table 2.2 Ease of starting new business in India compared to other BRICs.................................. 50

Table 2.3 Recent Mergers & Acquisitions in the logistics sector......................................................54

Table 3.1 Key features of positivist and phenomenological paradigms............................................64

Table 3.2: Positivistic Approach Advantages & Disadvantages.......................................................65

Table 3.3 Phenomenological Approach Advantages & Disadvantages.........................................66

Table 3.4 Differences between Quantitative & Qualitative methodologies......................................69

Table 3.5 Types of purposeful sampling strategies and their definitions.........................................72

Table 4.1 SWOT Analysis of Rhenus ProLog Logistics (India) Limited.........................................94Table 4.2 SWOT Analysis of Best Roadways Limited.....................................................................110

Table 5.1 SWOT Analysis of Rhenus, Best & Schenker combined together.................................139

Table 6.1 Compiled data of IT solutions in logistics.........................................................................148

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LIST OF FIGURES

Figure 2.1 The logistics implications of different competitive positions...........................................11

Figure 2.2 Composition of truck ownership in Indian market..........................................................15

Figure 2.3 Dissection of 3PL in Indian context...................................................................................16

Figure 2.4 Typical 3PL arrangement...................................................................................................17

Figure 2.5 Typical timeline of transformation from 3PL to 4PL......................................................19

Figure 2.6 Profit margin rise as service segment widens...................................................................26

Figure 2.7 Factors driving 3PL services from provider perspective..............................................27

Figure 2.8 Factors against the use of 3PL services.............................................................................30

Figure 2.9 Evolution of 3PL in India...................................................................................................35

Figure 2.10 Share of 3PL market in overall logistics industry of given countries...........................39

Figure 2.11 3PL Logistics integration model......................................................................................40

Figure 2.12 Total Contract Logistics Value Split By Category 2008 & 2013...................................41

Figure 2.13 Total Contract Logistics Growth in India (2004 2013)...............................................42

Figure 2.14- Comparison of Indias 3PL development to other countries..........................................43

Figure 2.15 Skill gaps in different segments of logistics in India......................................................46

Figure 2.16 Factors driving logistics outsourcing in India................................................................57

Figure 2.17 Reorganization of warehouses before and after GST....................................................59Figure 4.1 TIMELINE OF PRO-LOG GROUP.................................................................................86

Figure 4.2 Rhenus India Distribution Network..................................................................................87

Figure 4.3 List of services provided by The Rhenus Group..............................................................88

Figure 4.4 Sales revenue of Rhenus ProLog Logistics (2008, 2009, and 2010)................................90

Figure 4.5 Offices owned by Best Roadways (Plotted on Map of India)........................................103

Figure 4.6 Project Logistics arm of Best (Example of ODC truck)................................................105

Figure 4.7 Sales revenue of Best Roadways Limited 2008, 2009 and 2010..................................106

Figure 4.8- Future Network Development- Best Roadways Limited.................................................118

Figure 5.1 Distinction between Traditional & Emerging Logistics Companies............................126

Figure 5.2 Features and Objectives of Foreign Logistics Companies.............................................127

Figure 5.3 Turnovers of Rhenus, Best & Schenker (2008, 2009 and 2010)....................................132

Figure 5.4 Proportion of revenues based on nationality of clients..................................................133

Figure 5.5 Expansion strategy of 3PL providers in India................................................................143

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Chapter"One:"Introduction"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""2"

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The average logistics spend to GDP stands at 12% in 2008, which is higher than most

developed markets. Currently, logistics accounts for one fourth of cost of goods in

India compared to one sixth in the developed economies. It is believed that even a

0.5% to 0.75% reduction in logistics costs will result in an additional 2% growth in

trade and increase in the range of products exported.

According to a report by Datamonitor, the Indian logistics industry was valued at

$102 billion in 2008 (Davenport, 2009). The fast growing economy, increase in

foreign direct investment (FDI), introduction of special economic zones (SEZ) and

increasing globalisation are the macro factors driving the growth of the logistics

industry. Additionally, factors such as increase in outsourcing of logistics functions,entry and expansion of international logistics players in India, private equity

investments in logistics players, emergence of lean supply chains in manufacturing

and retail sectors are driving the growth of the logistics industry.

Third party outsourcing (3PL) has become imperative for industries such as

automotive, pharmaceutical, retail and electronics to reduce costs and build efficiency

in their supply chains.

Specialized value added services, catering to the requirements of different industries

are likely to boom as global logistics majors bring best practices to India.

Value added services are gaining ground, as companies seek to attain competitive

advantage. Most importantly, value added services such as tracking technologies,

reverse logistics, ERP systems are gaining ground in the auto components,

aftermarket, pharmaceutical, retail and electronic supply chains. As a result, logistics

service providers are continuously expanding their service portfolio and emerging as

end to end solution providers. Consequently, the industry sees immense potential for

3PL with an expected growth of 21% over the next five years (Datamonitor, 2009).

An important regulatory policy expected to further bolster the growing industry is the

introduction of the goods & service tax (or GST). GST is set to bring the much


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needed uniformity in the prevailing tax structure and has been the most demanded

policy reform by the logistics providers.

This uniform taxation regime is expected to eliminate the hassles of the varying state-

to-state taxation and reduce the time consuming documentation process, hence

bringing about transparency in the system.

The need for centralized warehousing, assembly operations, just-in-time supply to the

manufacturing centres, order management, vendor inventory management are the

main areas of concern for these industries.

The introduction of GST is expected to be the most important factor to step up

contract logistics, centralised warehousing and enable companies to invest in value

added services.

Currently, Indian warehouses are characterized by less usage of advanced

technologies. The absence of modern warehousing practices cause slippages to the

extent of 15-25% of cargo business. Shortage of skilled labour (Datamonitor, 2009) isalso a key concern for both the logistics and warehousing industry.

This untapped potential and more makes the future outlook looks very promising for

the Indian market. The logistics industry in India is becoming more attractive for both

Indian and multinational service providers. The industry provides immense

opportunity for investments and is pushing companies to shift their focus from

developed markets such as USA and Europe to India, and contribute in making it

globally competitive.

1.3 RESEARCH OBJECTIVES AND QUESTIONS

The main motive behind doing this research study was to understand the present-day

situation of the Indian logistics industry in general, and the Indian 3PL market in

particular.


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There have not been many case studies made on any specific India-based logistics

company that was needed to evaluate the different competitive strategies being

pursued by logistics companies to have a sustainable growth in the Indian market.

Hence, the researcher has attempted to present case studies of three logistics

companies that operate in India, focusing upon the providing a background of their

operations and the competitive strategies pursued by these companies to compete in

this market.

All three companies hail from very diverse backgrounds and differ in their

management style, ownership style, scale of operations, type of services offered, andso on.

The two underlying objectives of this research study is summarized as under-

1. To investigate about the current state of the Indian logistics industry as part ofa burgeoning Indian economy

2. To find out about the scope of 3PL growth in India given the infrastructuralbottlenecks in the country

3. To evaluate India-specific operational strategies pursued by service providers

4. To draw comparisons and contrast between the case companies based on theircore competitiveness

5. To evaluate the future direction of the case companies


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The following are the research questions that were designed in order to achieve the

above objectives-

1. What are the different types of logistics services provided by the casecompanies?

2. What is the distribution network of those companies in India?

3. What kinds of Information Technology platforms are the case companiesadopting?

4. What are the challenges and opportunities for 3PL providers in India?

5. What kind of competition does each of the three companies face

6. What are the competitive advantages of the 3 case study companies that givethem an edge over the rest?


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Chapter"Two:"Literature"Review"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""6"

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CHAPTER TWO: LITERATURE REVIEW

2.1 Chapter Introduction

It is only in the recent past that businesses have started recognising the vital impact

that logistics management can have in the achievement of competitive advantage-

Martin Christopher

Chapter 2 provides with a review of literature by familiarising the readers of the

fundamental concepts of logistics. It starts off by providing information in brief about

the origin of the word logistics followed by a review of various present-day

definitions of logistics and third party-logistics given by famous logistics and supply

chain experts.

In addition to that, relationship between logistics and customer service and how

logistics and competitive advantages of companies are inter-related have been

discussed.

Based on the correlation that exists between logistics and competitive advantagessuch as providing low cost or bigger basket of services, the researcher has attempted

to discuss the business model of third-party logistics and fourth-party logistics, the

factors driving 3PL services and elements of successful relationships with 3PL

providers.

Eventually, after establishing a general framework of logistics and 3PL in particular,

the final section of this literature review attempts to introduce its readers with theoverview of the logistics industry in India with particular reference to its fledgling

3PL market and the challenges and opportunities prevailing in the Indian logistics

industry alongside the growth of 3PL market.


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2.2 LOGISTICS

The word logistics is of French origin. Originally a military term called logistique,

it is concerned with the art of transportation, supply, and lodging of military troops.

Historically, logistics as part of a military science has been a deciding factor between

success and failure in many military conflicts (Hoda, 2010).

Transportation and logistics not only gave nations the ability to exercise military

power domestically, regionally or even globally, but it also provided them with an

impetus to expand their share in international trade.

2.2.1 Defining Logistics

Logistics means having the right thing, at the right place, at the right time.

Modern definitions of logistics vary from author to author and from varying key

components such as products, companies and systems that differ from one situation to

another.

According to Rushton et al (2010), an appropriate modern definition of logistics

might be that,

The efficient transfer of goods from the source of supply through the place

of manufacture to the point of consumption in a cost-effective way whilst at the

same time providing an acceptable service to the client (Rushton et al, 2010)

Rushton et al (2010) give out a similar clarification as mentioned earlier stating that

there cannot be a single true name or true definition of logistics that could be

applied universally. Logistics is made up of many sub-functions and many sub-

systems- hence, the scope of its definition changes accordingly.

Famous British supply chain and logistics guru Martin Christopher has defined

logistics as:


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the process of strategically managing the procurement, movement and

storage of materials, parts and finished inventory (and the related information

flows) through the organization and its marketing channels in such a way that

current and future profitability are maximized through the cost-effective

fulfilment of orders. (Christopher, 2005)

Peter Drucker, the most influential 20th century American management consultant

observed, in 1962, that physical distribution was for the US a dark continent

affecting negatively impacting its economy due to its primacy and laggardness (Koda,

2010). The murky picture that he drew of the way logistics was being handled in

America at that time essentially marked the beginning of an era, which saw bigadvances in enhancing distribution management, embracing transportation and other

logistics functions including order processing, inventory control, material handling,

and warehousing.

Philip Kotler, a well-known marketing expert defines logistics as,

A business marketing function that involves planning, implementing andcontrolling the physical flow of materials and final goods from points of origin

to points of use to meet customers requirements at a profit. (Kotler, 1997)

According to the Chartered Institute of Logistics & Transport (UK) (2005),

Logistics is the positioning of resource at the right time, in the right place,

at the right cost, at the right quality. (Cited in Rushton, Croucher et al, 2010)

The Council of Logistics Management (CLM), now the Council of Supply Chain

Management Professionals (CSCMP), defines logistics as-

that part of the supply chain management that plans, implements, and

controls the efficient, effective forward and reverse flow and storage of goods,

services and related information between the point of origin and the point of

consumption in order to meet customers requirements (CSCMP, 2010)

There have been other names that are often interchangeably used in the literature and


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in the business world when talking about logistics and distribution. Some of them

include- 1) supply chain management, 2) logistics management, 3) physical

distribution, 4) business logistics, and 5) procurement and supply.

2.2.2 Supply Chain Management

Supply chain management is one step ahead of logistics, in the sense that it covers

broader scope of the business idea, including supply of raw materials and components

and delivery of the final goods to the end-consumer (Rushton et al, 2010).

WhilstLogistics = Materials Management + Distribution,

Supply Chain Management = Suppliers + Logistics + Customers.

It can be seen from above that logistics is a subset of supply chain management as the

latter is considered to be very much a strategic planning process in which both the

suppliers and the end users are included in strategic decision-making.

2.2.3 Defining Logistics Management

According to Stern and El-Ansary (1988),

the term logistics management encompasses total flow of materials, from

acquisition of raw materials to the delivery of final goods to the ultimate

consumer and the counter-flow of information that controls and records the

material movement (Stern et al, 1988).

Hoda (2010) has stated a brief description of logistics management in simplistic

layman terms, as involving the integration of information, transportation, inventory,

warehousing, materials handling, and packaging.

Whereas Bowersox & Closs (1996) provide a defined boundary to the description

above by mentioning the words such as its a business strategy. They say that

logistics management includes design and administration of systems to control the

flow of material, work- in-process, and finished inventory to support business unit

strategy (Bowersox and Closs 1996).


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2.3 LOGISTICS & CUSTOMER SERVICE

New product development and marketing departments of many companies regard

logistics to be the single most critical factor determining the final demand for the

product.

Rushton et al (2010) mention about Paretos 80/20 rule, which in the context of

logistics and customer service means logistics constituting 20% of the final cost of a

product, whereas 80% of the impact that product will have on the end-consumers to

be influenced by how effective its logistics will be handled.

Thus, there is no denying the fact that no matter how attractive the product looks like,

it wont reap full benefits to its manufacturer unless it has been delivered to its end-

user in time.

In other words, customer service to the end-user is very important and logistics plays

a crucial role in providing good customer service (Rushton et al, 2010).

As mentioned in the very first line under 2.2.2 while defining logistics, that logistics

means having the right thing, at the right place, at the right time, Rushton et al

(2010) have expanded that definition and considered right quality, right quantity,right cost and even right condition in order to provide superior customer service.

It is easily to be noted that all of these seven rights of the end-consumer as it were

that are mentioned above will successfully accomplished only if the manufacturer

chooses quality logistics operations in getting the product to the market with all the

seven rights of the consumer intact.


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2.4 LOGISTICS & COMPETITIVE ADVANTAGES

Figure 2.1 illustrated below talks about two strategies that the logistics service

provider can adopt to gain competitive advantage over its competitors.

Figure 2.1 The logistics implications of different competitive positions

Source: The Handbook of Logistics & Distribution Management,

Rushton et al (2010), p26

Rushton et al (2010) explain that the LSP can either compete as a service leader,

where in it will attempt to provide a certain number of key service elements to

differentiate itself from its competitors, OR the LSP has the option to compete in cost

and become a cost leaderin the market.

In this scenario, the service provider will undertake maximum utilization of all the

available resources in order to provide services at the lowest possible price to its

clients and thereby, differentiating itself to have productivity advantage over its

competitors.

As mentioned in the Figure 2.1 above, companies adopting a value advantage

strategy will strive to differentiate their product or service offerings from their

competitors by providing its clients with value adding services to generate high levels


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of customer service- for instance, sharing regular update about the status of their

orders and giving them tailor-made customized solutions so as to ensure the product is

made available at the marketplace through different channels of distribution smoothly

and efficiently.

2.5 THIRD PARTY LOGISTICS (3PL)

2.5.1 Defining 3PL

Aertsen (1993) and Bowersox et al (1990) state that there have been a variety of

different terms that have been used interchangeably when describing about an

organizations practice of contracting out all or part of their logistics activities, which

had been earlier performed in-house (cited in Selviaridis & Spring, 2007). These

terms include logistics alliances, contract logistics, logistics outsourcing, lead

logistics provider, and finally, third party logistics.

According to Martin Christopher, Professor-Emeritus at the Cranfield Universitys

Department of Marketing & Logistics, Services provided by 3PLs are diverse where

in they might operate distribution centres, manage the delivery of the product through

their truck fleets or undertake value-adding services such as re-packing (Christopher,

2010).

Unlike Professor Christopher who remains rather simplistic in his approach when

defining 3PL, Selviaridis & Spring (2007) state that the definition of 3PL could have

a simplistic or broad approach as well as narrow or a specific approach depending

upon different considerations of the aspects of outsourcing arrangements the

customers choose to have with their service providers.These aspects can vary based upon various factors such as,

a) Number and types of services offered by the service provider,

b) Nature and duration of relationships between the 3PL user and 3PL

service provider,

c) Performance outcomes,

d) Extent of third party responsibility over the logistics process and lastly,

e) Position or role of the service providers in the supply chain

(Selviaridis & Spring, 2007).


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Ranjan & Tonui (2004) distinguishes third party logistics from the traditional

outsourcing of logistics functions that is based on per-transaction and regarded as a

one-off commodity. They say it is a partnership involving multiple transactions over a

fixed duration of time bound by a contractual agreement.

Thereby, if we see 3PL as more like a logistics alliance based on fixed contracts than

as a one-off commodity, the definition by Bagchi & Virum (1998) seems narrowed

down as it specifies the need for a long term relationship-,

3PL has a longterm formal or informal relationship between a shipper and

a logistics provider to render all or a considerable number of logistics

activities for the shipper. The shipper and the logistics provider see

themselves as long-term partners in these arrangements. Although these

alliances may start with a narrow range of activities, there is a potential for a

much broader set of value-added services, including simple fabrication,

assemblies, repackaging, and supply chain integration

(Bagchi & Virum, 1998).

Some 3PL providers have expertise in a select few range of services whereas others

are capable to provide end-to-end solutions. These end-to-end solutions may include

services ranging from road transportation, warehousing, outsourced freight

forwarding, order management, distribution, to value added services such as

packaging/ sorting/ labelling/ re-packing, inventory management services such as

inventory optimization and vendor managed inventory (VMI), and information related

services such as tracking and tracing, so on and so forth.

Bowersox (1996) have referred to such extra value adding service while defining 3PL.

He states, 3PL is a new type of service, which emerged from service providers that

formerly offered warehousing and transport services and have extended now by

adding new and unique value-added services.


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A combination of broad and narrow themes on 3PL definitions are well stated by

Berglund et al (1999), Bask (2001) and Coltman et al (2011) focusing more on

European markets, which indicates either a dyadic relationship, vis--vis the 3PL user

and the 3PL provider, or it could be a triadic relationship that involves the user, the

service provider and also the supplier together to form a B2B relationship on either

short-term (lasting 1-3 years) or long-term (more than 3 years) basis.

Hence, their versions of 3PL definitions include-

Activities that are carried out by a logistics service provider on behalf of a

shipper and consisting of at least management and execution of transportation

and warehousing. In addition, other activities can be included, for example

inventory management, information related activities, such as tracking and

tracing, value added activities, such as secondary assembly and installation of

products, or even supply chain management. Also, the contract is required to

contain some management, analytical or design activities, and the length of

the co-operation between shipper and provider to be at least one year, to

distinguish third-party logistics from traditional arms length sourcing of

transportation and/or warehousing(Berglund et al, 1999)

a dyadic or triadic relationships between the buyer and/ or seller of the

goods in the supply chain and the third party logistics provider whose main

business interests lie in logistics, providing anywhere between basic services

(transportation and warehousing) and customized logistics solutions (value

addition), in a shorter or longer term relationship, with the end goal of

achieving effectiveness and efficiency

[Modified from Bask (2001) & Coltman et al (2011)]

Berglund et al (1999) emphasize that in their definition of 3PL they exclude execution

of transportation activities that are not carried in conjunction with warehousing and

value adding services.

They also distinguish 3PL in the sense that the contract between the 3PL user and 3PL

provider should be at least of one year rather than just a one-off transaction involving

an arms length sourcing of transportation and warehousing (Berglund et al, 1999).


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Indian sub-context while defining 3PL

Sahay & Mohan (2006) have an Indian approach when defining 3PL that its logistics

industry largely comprises of fleet owners and transport contractors with limited

offering of warehousing and minimal or lack of capabilities in providing value

addition services.

Second point worth considering under the Indian context is based on the notion that

3PL relationships in India can also be on a one-off transaction basis.

And if they are on contractual basis, they are generally not triadic in nature as they are

limited to either between the seller of the goods and the logistics service provider, or

the buyer of the goods and the service provider.

The Indian logistics sector is still quite unorganized and fragmented with over 74% of

the logistics service providers having less than 5 trucks and limited warehousing

space to be able to accommodate for providing just the basic road transportation and

warehousing services at most. (Nagporewalla & Shrinivasan, 2007).

For this paper based on the Indian logistics market, the 3PL has been defined asprovider of outsourced logistics services, which may include only a single service like

road transportation or warehousing based on short-term or long-term contracts, or as a

one-off commodity, and can also include a complete integration of the supply chain,

also known as one-stop-shop solutions for all the logistical needs.


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Figure 2.2 illustrated as under gives us a clearer idea of the nature of truck ownership

amongst truck operators in India-

Figure 2.2 Composition of truck ownership in Indian market

Source: CRISIL Research- Roadways & Highways Annual Review (2009)

(Adopted from KPMG International Logistics in India Part 2, 2010)

According to Nagporewalla et al (2007) 3PL industry in India can be looked at from

three different elements- 1) Transportation, 2) Warehousing and 3) Value Added

Services (Nagporewalla et al, 2007). Value added services as part of 3PL arises after

leveraging core assets of transportation and warehousing and may differ from

different modes of transportation. This is illustrated as under-


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Figure 2.3 Dissection of 3PL in Indian context

Source: KPMG International, Report on Indian logistics- Part 1

(Bhattacharya et al, 2009)

Hence, based on the above information underpinning the Indian context, the following

definition of 3PL emerges-

Third-party logistics activities that are carried out by a logistics service

provider on behalf of shipper (either the seller of the goods or buyer of the

goods) and consisting of a combination of at least transportation with or

without any binding on any contractual agreement between the shipper and the

service provider. In addition other services can be integrated into the service

offering, for instance-

! Warehousing and/ or inventory management,! Information related activities such as tracking and tracing,! Other value added services as mentioned above

(Modified from Sweeney et al, 2010)


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According to Sweeney et al (2010), there are a number of features of the above

definition that are worthy of taking a note of, originally referred to the Italian logistics

sector but seemingly which are also relevant under the Indian context:

I. Companies that provide purely transportation services are included.II. The role of warehousing and the associated management of inventory, an

integral part of many theoretical definitions, are cited as the first of the non-

compulsory activity elements this implies that for many emerging 3PLs in

India, their first foray apart from transportation services is in warehousing and

for many that includes inventory management of customers as well.III. The non-compulsory activity elements include both information related

activities as well as elements of supply chain functionality which may be

outsourced by customers.

IV. The word integrated is used to indicate the importance, where more than oneservice is offered, of providing a customer with a coordinated logistics support.

(Adopted from Sweeney et al, 2005)


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2.5.2 Business Model of 3PL

Figure 2.4 - Typical 3PL arrangement

3PLs may have their own assets- known as asset-

based 3PLs to fulfil the logistics functions or they

may act as a conduit (as shown in Figure 2.4) to

further subcontract these functions to other

companies. These businesses are non-asset based

and are also known as fourth-party logistics service

providers or 4PLs. It is a term that was originally

coined by consultants at the business consultancy

firm Accenture.

Accenture in 1996 at the time of coining this new term, defined it as-

A 4PL is an integrator that assembles the resources, capabilities, and

technology of its own organization and other organisations to design and run

comprehensive supply chain solutions (cited in Bedeman & Gattorna, 2003)

According to van Hoek and Chong (2001), 4PL has been defined as-a supply chain service provider that participates rather in supply chain co-

ordination than operational services. It is highly information based and co-

ordinates multiple asset-based players on behalf of its clients.

4PLs are a form of lead logistics provider (or LLP) often providing many of the

supply chain operations directly with or without owning assets. They may have

geographic limitations, and to overcome this limitation they re-outsource their

activities to other LLPs such as the 3PL service providers. They focus on providing a

range of services just as 3PL including demand forecasting, inventory management

and so on (Williams, 2006).

Figure 2.5 given below illustrates a typical transformation of 4PL from being a basic

logistics service provider.


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Figure 2.5 Typical timeline of transformation from 3PL to 4PL

Source: Bisham Consulting, Coventry (Williams, 2006)

Non-asset based service providers such as the 4PLs are usually not bound to physical

assets like distribution centres and transportation fleet. They merely act as a conduit

for potential clients by sub-contracting their logistics activities to other 3PLs.

The asset-based 3PLs that own transportation and warehousing assets have the ability

to achieve economies of scale by utilizing their capacities over many clients volumes

and in many cases, to provide better availability of services (Manatayev, 2004).

The line between asset-based and non-asset based service providers is often quite

blurry in the sense that there have been quite a lot of consolidation taking place in

recent times, with asset-based 3PLs merging with non-asset based companies and

vice-versa.

In the case of new non-asset based entrants into this industry, Berglund et al (1999)

note that they excel in IT skills and generally possess a good knowledge of supply

chain concepts. But their challenge is in operations and strong network where thetraditional asset-based service providers have proven track record.


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The end goal of 3PLs is to act as a single-point-of-contact service provider of end-

to-end supply chain solutions.

According to Manatayev (2004), to differentiate their businesses from the rest, 3PLs

have traditionally been focusing upon tangible factors such as the type and variety of

services and performance.

That scenario seems to have changed in the last few years where in many logistics

service providers have started focusing more on intangible factors like brand building,

improving trust and awareness with their clients and also overall customer experience.

Acquiring Asset Base

It is easier to acquire assets, given a strong position in concepts and systems, but it is

not easy to acquire concepts, given a strong position in assets and systems (Berglund

et al, 1999). Hence, the traditional 3PLs with strong financial backing and strong asset

base often tend to tie up with non-asset based new entrant service providers to tap the

knowledge skills and high-value staff they have who possess the right expertise to

play a critical role in supply chain management and supply chain optimization,

coupled with strong IT skills, thereby offsetting their weaknesses.

According to Mitra (2009), from a new 3PL service providers perspective, it is best

to share assets of dedicated asset owners who are big and state-of-the-art, on a

transaction-to-transaction basis (Mitra, 2009).

Decision to outsource

The decision to outsource logistics activities to 3PL is driven on three characteristics

of the 3PL users business profile (Rao & Young, 1994), which influence the

formation of a favourable or unfavourable climate for outsourcing.

These characteristics include- (a) network complexity, taking into account the

differing geographies where the shippers trading partners might be located as well asthe complexity of business transactions with the selected trading partners; (b) process


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complexity, referring to time and task compression (or lack thereof) in the logistics

process; and (c) product complexity, after considering certain special measures that

might have to be taken for certain special products and materials due to the

complexity and uncertainty of external environment (such as the temperature,

humidity in the air and so on). Their transportation, storage and handling will need to

undertaken accordingly.

2.5.3 Factors Driving 3PL Services

Factors from demand side

From the demand point of view, cost reduction or cost savings by focusing on core

competencies have been considered as the primary reasons driving the companies

toward outsourcing 3PL services. In addition to this, there are eleven key factors

identified by Sahay & Mohan (2006) who state that the users are willing to outsource

to 3PL if one or more factors are impacted positively. They are listed as under-

I. Impact on customer satisfaction-Dapiran et al (1996), Lieb et al (1993) and Bhatnagar et al (1999) believe

that the future usage of 3PL service providers depend upon the level of

customer satisfaction they provide at present.

It remains a critical factor in driving 3PL services forward: simply put, the

higher the customer satisfaction the higher the outsourcing by its users in

the future (Sahay & Mohan, 2006).

Ojala (2003) believes that apart from the primary driving forces in the

3PL sector relating to cost reduction and substituting capital allocation for

alternative purposes or to be able to focus on core competencies, the

contemporary driving forces in present global business landscape, which

is affected by increasing competition and complexities have got more to

do with strategic influences- in terms of market coverage, improving the

level of customer service or increasing flexibility in view of the changing

requirements of customers.


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On-time shipment, inventory accuracy, customer complaints and shipping

errors are important gauging tools that the users use to assess the level of

satisfaction (Bhatnagar et al, 1999). Hence, as the 3PL service providers

are able to provide superior customer satisfaction, the there have been

upsurge in the usage of 3PL services.

II. Impact on logistics system performance-Increasing popularity of just-in-time (JIT) and other manufacturing

methods such as computer-aided manufacturing, use of robotics

technology in manufacturing, and revolution in computers andcommunication technology have services to a new level (Morasco, 2008).

III. Reduction in capital investment in facilities-According to Berglund et al (1999), on the demand side of 3PL, there

have been significant reductions of assets seen as the distribution centres

of the producers have gone a restructuring phase, which was in turn

caused by the restructuring of the entire production structure.This is primarily driven the growth of 3PL services as more and more

manufacturers have started focusing on their core competencies while

outsourcing all that is non-core.

IV. Reduction in capital investment in equipmentInstead of buying equipment for materials handling, they can invest on

buying equipment which will assist them in furthering their manufacturing

requirements.

V. Reduction in investment in information technologyCompanies dont need to invest on expensive IT software applications

such as Transport Management Systems when 3PLs already have them.

By being able to provide information processing services such as MIS

reporting, vehicle track and trace, electronic data interchange, freight bill


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auditing and payment, transaction processing and so on and so forth, the

3PL service providers have opened a vast array of opportunities to create

efficient, fast and reliable transportation systems (Sheffi, 1990).

Because of this, the companies do not necessarily have to invest on their

own on facilitating their supply chain anymore. They can simply

outsource their requirements to the 3PL and thereby, save on their

overheads.

VI. Impact on employee moraleA survey done by Dapiran et al (1996) on third party logistics serviceusage by large Australian firms revealed that over 68% of the companies

using services of contract logistics service providers had a positive impact

on employee morale of their own companies. Further it indicated that the

displaced employees from their logistics department would get transfer

within their organizations into other better departments they are good at

thereby improving employee morale.

The use of a 3PL brings logistics managers in contact with colleagues in

finance, marketing, manufacturing and other areas, thereby potentially

expanding the logistics influence throughout their organisation (Dapiran et

al, 1996).

VII. Reduction in manpower cost

Third-party logistics providers dramatically reduce the need for freight audit

and payment personnel.

Since they are specialists in what they do, 3PLs have the necessary systems,

manpower and the know-how in place for them to process thousands of bills

a day at a fraction of the cost compared to shippers.


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They can also audit all of the bills to make sure the carriers are charging the

agreed upon rates. This process can be a real headache with large amount of

LTL bills.

VIII. Improvement on specific logistics function parameters

Certain logistics function parameters such as order processing, inventory

and procurement management, warehouse management can effectively be

improved by experienced 3PL service providers.

IX. Improvement in inventory turnover rates

Companies use 3PL service to better their operational efficiency and

effectiveness. A good 3PL service provider can help companies reduce

their cash-to-cash cycle by significantly helping reduce investments in

inventory (Husdal, 2011), and thereby reduce inventory turnover rate and

improve inventory visibility.

X. Improvement in on-time deliveryBecause 3PL providers bring with them best-in-class service mechanisms,

it is possible for them to ensure on-time delivery of their clients goods. In

measuring their success, they regularly review their KPIs (Key

Performance Indicators), which also include on-time delivery as one of

the measuring benchmarks to ensure they keep up to their desired

performance objectives.

XI. Increasing productivity-Sweeney & Evangelista (2010) cite an example mentioning about 3PLs

having the opportunity to add value to unfinished products by providing

mass customization and final assembly services, thereby acting as a

contributor to the end-manufacturing process and increasing productivity.

Sheffi (1990) believes this has led to the delivery system becoming an

integral part of their product, to the extent that transportation and


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warehousing started to being considered as important as the product itself

(cited in Sweeney et al, 2010).

Bradley, P. (1995), Third parties gain slow, cautious buyer support,

Purchasing, May, pp. 51-2.

Factors driving 3PL services from supply perspective

According to Berglund et al (1999), declining profit margins for the service providers

in freight transport and an intense price war competition together with recent positive

attitude of the industries towards outsourcing and focusing on core competencies must

be regarded as the strongest drivers of 3PL growth.

Figure 2.6 below talks about an entire spectrum of logistics services segregated into

three categories such as traditional services, service packages and integrated

services. It is found that as the service provider progresses towards providing

integrated services, their profit margins increase from less than 2% to more than 10%.

This explains one of the factors why on the supply side many service providers are

expanding into becoming end-to-end integrated solutions providers.


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Figure 2.6 Profit margin rise as service segment widens

Source: Kuehne + Nagel (India) Private Limited, Internal Document

Expansion Strategy (July, 1998)

Figure 2.7 lists some of the other factors why many service providers are progressing

towards becoming end-to-end service providers.


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Figure 2.7 Factors driving 3PL services from provider perspective

Source: KPMG International, White Paper on Indian Logistics Part-2

(Bhattacharya, 2010)

Morasco (2008) indicate several factors that are causing 3PL services to experience

explosive growth across the world and especially in the emerging markets such as

India. He talks about increased global competition, deregulation of the transportation

industry, rising customer expectations on superior logistical service, growing focus of

companies on core competencies.

There is hardly any doubt that the logistics industry in India is going through a

massive transition, in line with the mature markets of the world where in the last fewyears, major changes have been taking place across industries. A key rationale is the

intensifying pace with which globalization is taking place across businesses (Sahay &

Mohan, 2006).

According to Cooper (1993), only within the last two decades, globalization has

emerged as a reckoning force of shaping business strategies, thereby leading firms to

develop products designed for a global client base and source components globally(cited in Sahay & Mohan, 2006).


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This has led to more complex supply chains requiring a higher involvement of

logisticians and 3PL service providers than ever before. Also, firms requiring

expertise of customs, tax structure and regulations, as well as infrastructure available

in the destination countries have them wanting to outsource these activities to a 3PL.

According to Sweeney et al(2010), on the demand side of 3PL, the growing need for

businesses to diversify and delegate as their supply chains become broader and more

complex has validated the role of 3PLs in every aspect of logistics.

After gaining acceptance in logistics operations and growing with notable speed over

the last few years, 3PL providers are now settling into their roles as integral parts oftheir customers' business plans.

This has fuelled the transition from the traditional arms length approach to the

supply of integrated logistics services packages on a one-stop shopping basis and

has further facilitated the migration of companies from asset-based to information and

knowledge-based, value-added logistics service enterprises (Sweeney, 2010).

Increasing use of Information & Communications Technology-

Increase use of IT software solutions have made it easy in information sharing, where

information management is considered to be increasingly important activity compared

to traditional asset management approach (Sweeney et al, 2010).

There is little doubt that use of ICT by many large 3PL companies has driven many

users towards 3PL. Lewis & Talalayevsky (2000) observes that use of information

and communications technology allows both the buyers and the sellers of 3PL

services to communicated directly over data rich and easy-to-use information

channels, which helps in reducing coordination costs and foster strategic partnerships

based on mutually agreed goals.

The emphasis that is being given by both manufacturers as well as suppliers on the

concept of integrated supply chain has given ICT an increasingly important role

within contemporary SCM strategy (Sweeney & Evangelista, 2010).


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Therefore, now the ability of 3PLs to provide superior customer service levels due to

high usage of ICT and increasing scope and characteristics of their service offerings

have driven the use of 3PLs to a new level (Daugherty et al., 1992).

As a consequence, 3PLs now have been entrusted with greater and more important

role than in the past with the responsibility of ensuring physical and information flows

along different levels of the supply chain with greater acceleration and integration

(Cooper et al., 1998).

In the Indian sub-context what it means

Under the Indian context, Sahay & Mohan (2003) lists certain factors that are

especially important for the 3PL growth in India, which are driving their growth.

They highlight opening up of the Indian economy and increasing globalization of

businesses as key factors that are driving companies to align their business strategy

with supply chain management streamline processes for supply chain integration and

forming partnerships for minimizing inventories. In addition to that, Indian

organizations have been quick in implementing supply chain strategies for logistics

improvements to increase sales revenue, enhance profits, reduce order to delivery

cycle time and minimize inventories. (Sahay and Mohan, 2003).

2.5.5 Factors against Use of 3PL Services

According to Manatayev (2004), the inherent problem with the asset-owning 3PLs is

that they are more concerned about utilizing their assets to full capacity than serving

the interests of any one customer in the most effective or efficient way.

It can often lead to sub-optimal solutions to the clients logistical needs as the 3PLs

would want to favour using their capacity and network, which may not be the

cheapest or the most beneficial option in terms of lead time. This can additionally

limit the ability to adapt to the changing supply chain requirement of the end-user.

Outsourcing logistics to a 3PL provider will attract a service tax, which was increased

in the last Government budgetary session from 8% to 10%; thereby increasing theoutlay in service taxes should a firm decide to outsource its logistics operations. In the


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changed scenario, the firm may find it cost-effective to keep logistics operations in-

house.

Figure 2.8 below illustrates some of the factors against the use of 3PL services.

According to a joint survey of 93 big American companies conducted by Cap Gemini,

Ernst & Young, & Accenture in 2001, 60% of them mentioned not renewing their

contract with their 3PL providers. 38% of those companies expressed their

discontentment in dealing with their service providers. And the most commonly cited

reasons for all that have been mentioned below-

Figure 2.8 Factors against the use of 3PL services

Source: Cap Gemini/ Ernst & Young (2001) & Accenture (2001)

2.5.6 Elements for Successful 3PL Relationships

According to Bowersox (1990), a common factor in all the companies who are in a

successful alliance with their 3PL service provider is their ability to recognize

logistics activity as an important part of their marketing strategy. Product, promotion

and price have been the three traditional competitive ingredients in driving companys

growth. Now, it is


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Before discussing the elements for a successful 3PL relationship, it is important to

understand the different relationship building stages that are involved in the build up

to a successful 3PL relationship.

Morasco (2008) has enlisted these different relationship-building stages, each one of

which goes through a number of interactions or activities. These stages are:-

I. Early build-up stage- In this stage, the prospective service providers areselected by companies to negotiate and produce a contract that could base

upon either formal or informal terms and conditions. In addition, the type of

logistics service required is also specified.II. Execution stage- The mutually agreed terms and conditions, and

commitments that were discussed by both the parties in the first stage are

carried into effect in this stage. In addition, the operations are organized,

coordinated, and executed. The level of experience that companies of

respective activities possess is carefully monitored (Morasco, 2008).

III.

Potential long-term stage- This is the stage where the ongoing affiliationbetween the buyer and the seller of 3PL services strengthens even further and

the association of collaborating ways of working with one another becomes

institutionalized.

The close alliance is a result of numerous formal and informal adaptations

between the two parties, which according to Hakansson & Johanson (1990)

lead to sharing of technologies used by the two parties, sharing of personal

knowledge and trust, administrative routines, legal contracts and procedures

(cited in Morasco, 2008).

Key Elements

A successful 3PL relationship can lead to-

I. Information sharing- Bowersox (1990) notes that the glue holding the twoventures together is through open disclosure of information. Advancements in


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technology have made possible the capability of information sharing from

operating details to strategic planning. Partners reluctance to share ideas can

abort the relationship, after they have entered into an alliance, even if they also

have to share information they earlier deemed as to be confidential.

Synchronization of all activities and progress towards shared goals are

realized when the communication gap between the user-company and the

service provider is kept as minimal as possible.

II. Working towards a common goal- Each party must see its task assignmentin terms of its contribution to the alliance and the way in which it can add

value to customers.

III. Understanding each others culture- The 3PL user and the 3PL serviceprovider must understand each others working culture, vis--vis the service

provider must appreciate the value system that drives its clients decision

making process; and the client or the 3PL user must grasp how the service

provider approaches its business. A clash of cultures and working styles may

arise; but the alliance must rise above it (Bowersox, 1990).

IV. Branding and service attractiveness- According to Manatayev (2004),successful branding and delivering promised levels of service quality have a

potential of turning small differences in service offerings into bigger

differences in market share. Many customers would like to do business with

3PLs that are recognized for quality and reliability, as they would not like to

risk having bad experiences with myriad different 3PLs that operate in the

market today.

The level of differentiation in service offering as compared to the competitors

in terms of types and geographic reach can heavily influence customer

relationship. The attractiveness in service offering will increase adoption rate,

accumulate a larger customer base and it will also increase industry demand

(Manatayev, 2004).


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V. Cooperation- An effective way to signal a willingness to work together is byestablishing ground rules at the very outset. These rules should also include

the procedure for conflict resolution so that any friction that later may arise

can be dealt with effectively before it strains the relationship. Negotiating for

roles and positions before the operations start, with compliance to the ground

rules already set can actually help preserve the longevity of an alliance.

VI. Developing trust- By setting unambiguous goals, establishing clear roles,laying down firm rules, and measuring performance rigorously, trust can be

developed. Also, Bowersox (1990) states that by focusing on the relationship

continuum rather than one-off transactions, a higher degree of reliancedevelops, which in turn stimulates further cooperation. Trust builds as both the

parties start focusing on customer satisfaction and loyalty.

Bowersox (1990) cites a wonderful case-study example of cooperation and working

towards a common goal in his paper to Harvard Business Review, which is worth

mentioning in this literature review section. It is about a trucking company called

Robin Transport and General Motors in USA.After studying GMs needs, Robin designed innovative trailers that benefitted all the

parties. The details are elaborated as under-

Robin Transport was one of the carriers for General Motors for their spare

parts distribution in America. The transportation companys close

understanding of GMs parts delivery needs and of their distribution channel

led to an innovation that benefitted both the parties.

What the fleet owning company did was to design their trailers with fabric

walls on the side that made the trailers capable of being loaded and unloaded

from the sides as well as the rear.

The trailers could load and unload in places where the standard trailer could

not go, and they could be unloaded from three sides at once, near points of

assembly. Robin loaded the trailers in the sequential order for ease of

component handling and delivered them at certain specified times when GM

was ready to receive the shipments.


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End Result-

To justify its investment in special handling equipment in the trailers and the

dedication of part of its over-the-road fleet, Robin Transport sought and got

the status of being a preferred carrier of General Motors and that also at a

premium rate. GM set up its production facility to benefit from the different

mode of materials handling. The manufacturer benefitted from Robins

understanding of the distribution channel by realizing productivity

improvement through inventory reduction, JIT delivery and more efficient

materials handling.

2.5.7 Third-Party Logistics in India

According to Hoda (2010), the Indian transportation and logistics industry is in a

transition phase, witnessing transformation and burgeoning growth, in line with the

developments that are happening in other parts of the industrialized world. There were

about 400 3PL or contract logistics providers in the country in 2005, which

experienced a rapid growth after 2000.

But a survey conducted by Mitra (2009) gives out a different story- the Indian 3PL

industry being in its early stages of development lags far behind the American 3PL

industry in terms of global reach and breath of service offerings.

The origins of 3PL in India can be traced back to the mid 1990s when 3PL was the

new buzzword and considered then by many as just a fad (Hoda, 2010).

The phenomenon of globalization and a general increasing awareness regarding the

convenience that an integrated service provider can bring to Indian companies have

catapulted to the rise of 3PL providers in the country.

Industries have started preferring service providers who can offer integrated transport

solutions rather than just individual transportation or warehousing services.


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Figure 2.9 below illustrates the evolution of Indian 3PL industry since its origination

in the 1990s-

Figure 2.9 Evolution of 3PL in India

Source: KPMG International, White Paper on Indian Logistics Part-2

(Bhattacharya, 2010)

According to Papadopoulou et al (1998), there are no clear cut boundaries to define

the evolution of 3PL industry, but in general, the development can be divided into

five different phases from the user-provider perspective, which are enlisted as under-

1. Introductory period- the concept of 3PL was almost non-existent. Thecompanies never really outsourced anything apart from basic logistical need

fulfilment(the bottom of the pyramid ab

Suyashh Gupta 1058443 - Final Project

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