THE USE OF THIRD PARTY LOGISTICS SERVICES
The importance of logistics and supply chain management is increasing in manufacturing companies as they are sourcing, producing and distributing across the world and hence managing their supply chain is getting very complex. However, outsourcing logistics activities such as transportation, warehousing, inplant material handling and other value-added services to experienced third-party logistics service providers enables companies to get customized logistical support while manufacturers focus on the core organizational activities to achieve excellence. The globalization of business and the consequent competitive pressures have placed demand on logistics operations and thus the use of third-party logistics services by manufacturing companies has become a common practice in the last decade.
INDIAN LOGISTICS INDUSTRY
The current state of Indian logistics industry has been studied by researchers and highlighted some of the logistics issues and key challenges with the help of secondary information. The logistics issues includes, high logistics cost of operation, focus in reducing cycle times to add value to their customers, regulation of service providers, demand for one-stop customized solutions for value added services (supplier base reduction) and changing government policies on taxation i.e., non uniform tax structures across country and other government regulations.
There are several challenges that remains before the Indian logistics sector and some of these challenges are at the firm level while others are at the policy level. At the firm level, the limitation of IT usage to large size firms, lack of trust and awareness as the key hurdles to its growth, whereas at the policy level, the issues of infrastructure and integration of the nation’s logistics network remain the two most critical areas that require attention The important challenge that prevails in logistics industry is dearth of skilled and knowledgeable manpower. In order to facilitate the sustained growth of Indian logistics industry researchers have made recommendations for the government to bring all third-party logistics provider/ fourth-party logistics provider under one group, policies and procedures must be simplified, creation of special economic zone/logistics parks/logistics hubs with concession in land and tax rates.
The logistics industry in Asia today is fragmented, somewhat similar to the situation in the USA in the 1990s, with a mix of small and medium-sized logistics players.
Now the 3PL market in India is in a fairly growing stage, with multinational companies of all industries being the users of these services from proficient service providers.
Evolution of Third-party Logistics
The third-party logistics industry evolved in the 1970’s during a time of expanding globalization and an increased use of information technology. These trends resulted in increased demands on firms, and possibilities for companies to operate more competitively in the marketplace. The first generation 3PL’s (1970’s-1980’s) offered services such as transportation, brokerage, and shipping. Second generation 3PL’s (1980-1990) was mostly asset or non-asset based companies with increased service offerings. The third generation 3PL’s (2000 onwards) was mostly web-based 3PL’s with increased supply chain integration.
Third-party Logistics Services Nowadays, managers in the manufacturing industries are interested to increasingly outsource logistics functions to third-party logistics (3PL) service providers in order to reduce supply chain complexities, curtail costs and overheads. The important 3PL services utilized by manufacturing companies as perceived by the previous work were inbound transportation, outbound transportation, warehousing , in-plant material handling, freight forwarding, scrap disposal, fleet management, demand forecasting, inventory management, order entry and processing, customs clearance, product labelling, packaging, after sales support, procurement, distribution and channelling. The various activities involved in the different logistics functions given by are mentioned below.
Logistics Functions and 3PL Activities
|Transportation||Shipping, forwarding, deconsolidation, contract delivery, freight bill payment/ audit, cross-docking, household goods relocation, load tendering, brokering.|
|Warehousing||Storage, receiving, return goods, kitting.|
|Inventory management||Forecasting, location analysis, network consulting, slotting/layout design.|
|Order processing||Order entry/ fulfilment, consignee management, call centre.|
|Information System||EDI, routing/scheduling, bar-coding, RFID, web-based connectivity, tracking and tracing.|
|Value-added activities||Packaging, marking/labelling, billing, call centre activities, customization.|
3PL Selection Criteria
Once the decision has been made to work with a 3PL, the next step is to choose the proficient logistics service provider. The selection of third-party logistics service provider is a complex process involving various criteria, which are often in conflict with one another, such as price, quality, service, technology, etc. Thus, the selection of an efficient third-party logistics service provider to strengthen the relationship with LSP becomes a crucial decision.