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It's now the turn of the logistics industry to
promote outsourcing as the only way for manufacturers to reduce the
escalating supply chain management cost. And the fast growing
organised sector of third party logistics solution providers - 3PL
companies - are proving to be good at it. Growing at 25 per cent,
per annum, India's 3PL industry is poised to expand its market
manifold.
Leading 3PL players, who are participating at
Logistics 2007, a three-day exhibition being organised by
Confederation of Indian Industry (CII) in Chennai, said the
logistics industry is getting restructured, focusing more on
enhancing its knowledge offerings which promise huge cost savings in
supply chain operations, reduced lead time and safe transportation
of high value goods.
"Logistics is not a new name of transportation business. It is
about offering total supply chain solutions, from ensuring delivery
of components 'just in time' to manufacturers, to door deliver
finished products 'on demand' to end customers, it encompasses the
entire movement of goods, within and without an organisation," said
G Ragunath, deputy general manager - Marketing, TVS Logistics
Services Limited.
He said 3PL companies help original equipment manufacturers (OEMs)
and their tier-I, tier-II suppliers effectively implement
manufacturing best practices such as lean management and vendor
managed inventory. Logistics takes off the anxiety from
manufacturers on the timely availability of components and
drastically reduce the inventory cost.
"With the entry of 3PL companies, there's a lot of clarity on what
constitutes core business of stakeholders across the supply chain -
in a typical production scenario, manufacturers manufacture and
suppliers supply, while logistics companies take over everything
that take place in-between - from handling of materials to packaging
to documentation to transportation," he said.
He said OEMs can achieve a direct cost saving of over 15 per cent by
partnering with 3PL companies. "As 3PL companies have dedicated
fleets that do not depend on daily orders, adopt scientific
practices for route optimisation and employ trained manpower, they
can effect a reduction of transit time by over 30 per cent.
Realising the benefits, practically all automobile manufacturers
have made 3PL operations integral to business. The size of the
organised 3PL market in automobile could be conservatively estimated
at about 5 per cent of the turnover of the automobile industry in
India," he said.
TVS Logistics has registered a turnover of Rs 250 crore in the last
financial year.
A spokesperson of AFL Pvt Ltd, one of the leading 3PL companies
which currently caters to the needs of electronics and IT hardware
industry, said 3PL operators essentially consolidate warehousing
operations and transportation, based on a resource sharing model.
"Many 3PL companies partnering with electronics players focus on
door-to-door distribution - delivering laptops and desktops directly
to the end customers, following 'hub and spoke' model of
distribution. They provide reverse logistics solutions - carrying
old products received from customers on exchange offers back to
manufacturers; defective management solutions - replacing
un-repairable products with fresh electronic goods. Earlier, it
used to take 10-15 days before a customer got his defective mobile
instrument replaced. However, after the advent of 3PL solutions, a
mobile company can assure replacement within a maximum of three days
anywhere in the country," he said.
On the changing business dynamics in the logistics industry, Sanil
Kumar, sales manager, GATI, Chennai, said logistics services are
increasingly sold based on pallet locations, rather than on floor
space. GATI operates 'mechantronic warehouses' - fully automated
warehouses - of about a million square feet across the country.
"We offer customised logistics solutions for customers of different
sectors as billing, documentation, and statutory requirements differ
from sector to sector. Once we acquire an account, we spend a couple
of months to understand our customer's business and hire, train
human resource and streamline our operations and establish physical
infrastructure, such as warehousing, to suit the particular needs,"
he said.
Kumar said warehousing would not account for more than 10 per cent
of the total cost of logistics. Transportation cost consumes a major
portion. There are fixed warehousing and variable warehousing. In
fixed warehousing, the industry has to spend a fixed cost,
irrespective of the actual usage of a warehousing facility. However,
the industry is moving towards activity-based costing - paying
exactly for the invoice value. Out of GATI's turnover of Rs 456
crore last year, around 26 per cent came out of its logistics
operations.
GATI is setting up a dedicated 3PL infrastructure in Chennai with
one lakh square feet of mechantronic warehousing facility.
Abraham Varghese, general manager - Business Development, Total
Logistics India Pvt Ltd, said in India, 3PL is yet to catch up.
"Industries still do not readily believe that an outsider can manage
supply chain, which has been managed in-house all along," he said,
and added that the logistics cost is not well-derived in many
industries.
"Industries think of transportation when I mean logistics.
Naturally, they are alarmed at the total logistics cost, which would
take into account the investment on information technology, human
resources," he said.
Two major bottlenecks are the lack of trained manpower and poor
adoption of modern technologies. "There are no certified programmes
for forklift operators, pickers and packers, for instance. Material
handling infrastructure is at its infancy though bar-coding is
becoming popular, RFID is yet to go a long way. Since transport
vehicles are owned by individuals, implementing GPS proves to be a
problem," he said.
Logistics 2007 has attracted participation of 106 exhibitors who
represent a wide cross-section of the logistics industry, including
IT solution providers, automobile manufacturers, material handling
equipment manufactures, shipping companies and automation players.
R Rangaraj
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