ISBN - 978-93-81583-46-3

A Survey on 3PL Practices in Manufacturing Industries

Girish Kumar Diwakar1, Mr. Avadhesh Dalpati2, Dr. R.C. Gupta3 2 Associate Professor, 3Professor & Head 1,2,3 Department of Industrial and Production Engineering, SGSITS, Indore, M.P. 1 gdgirish33@gmail.com, 2adalpati@gmail.com, 3rcgupta@sgsits.ac.in

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A Survey on 3PL practices in Manufacturing Industries

A Survey on 3PL Practices in Manufacturing Industries

Abstract: The logistics industry in India is evolving rapidly and it is the interplay of infrastructure, technology and new types of service providers that will define whether the industry is able to help its customers, reduce their logistics costs and provide effective services. (Chandra and Jain, 2007). Third party logistics (3PL) is drawing attention at government, industrial, academicians and practitioners levels (Gupta et. al, 2011). This paper is an attempt to provide 3PL practices perspective in manufacturing industries in M.P. region in India. The paper focuses on present extent of usage of third party logistics services based on primary data collected from the working professionals in manufacturing firms.

Keywords: Logistics, 3PL, Manufacturing Industry

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Introduction Logistics is essentially a planning orientation and framework that seeks to create a single plan for the flow of product and information through a business (Christopher, 2005). Jomini 2010 defined logistics as the practical art of moving armies and included a vast range of functions involved in moving and sustaining military forces: planning, administration, supply, billeting and encampments, bridge and road building, and even reconnaissance and intelligence insofar as they were related to maneuvers off the battlefield (Zanjirani et al. ,2011). Council of Logistics Management (1991), defined logistics as the process of planning, implementing, and controlling the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements

Raw Material Components Packaging Items Product Sourcing Inventory Imported Materials Brought-In-Parts Sub assembly Work-inprocess Unitization Warehouse Distribution centers Users Production Process Finished Goods Depots End

Key: Information Transport Reverse

Packaging

Figure 1: Logistic Flows (Zanjirani et al, 2011) The above diagram shows the various logistics activities which are interconnected between the various stages of supply chain. The information logistics in the supply chain is the two way flow i.e. forward as well as reverse. The transportation logistics is the forward
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flow in the supply chain and the reverse logistics is the concept that has been applied in promoting customer service and resources recycling. Concerning quality control, the defective components and finished products will be returned to their producers through reverse logistics systems. Outsourcing of logistics function is a business dynamics of growing importance all over the world. A growing awareness that competitive advantage comes from the delivery process as much as from the product has been instrumental in upgrading logistics from its traditional backroom function to a strategic boardroom function (Razzaque and Sheng,1998) Third party logistics (3PL) is a business dynamic of growing importance all over the world. However, it is at a very nascent stage in India, though some domestic and multinational companies are trying to establish themselves in this sector (Sahay and Mohan, 2003). Literature Review Logistics systems developed extensively during World War II (1939_1945). Throughout this war, the United States and its allies armies were more efficient than Germanys. German army stores were damaged extensively, but Germany could not impose the same destruction on its enemies stores. The US army could supply whatever was needed by its forces at the right time, at the right place, and in the most economical way. From that time, several new and advanced military logistic techniques started to take off. Gradually, logistics started to evolve as an art and science (Berglund et al, 1999). Outsourcing, third party logistics services (3PL) and contract logistics generally mean the same thing. It involves the use of external companies to perform logistics functions, which have traditionally been performed within an organization. The functions performed by third party logistics service providers can encompass the entire logistics process or select activities within that process. A key rationale for outsourcing of logistics functions is the intensified globalization of businesses. During the last two decades, globalization has emerged as a major force of shaping business strategies, leading firms to develop products designed for a global market and to source components globally (Cooper, 1993). This has led to more complex supply chains requiring larger involvement of managers in logistics functions. Lack of specific knowledge of customs, tax regulations and
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infrastructure of destination countries has forced firms to acquire expertise of third party logistics service providers. As a result firms are concentrating their energies on core activities and leaving the rest to specialist firm (Sahay and Mohan, 2003). According to a survey conducted by Berglund et al. in 1999 , there are three waves of entrants into the 3PL market. The first wave dates back to the 1980s or even earlier with the emergence of what are called traditional LSPs. The 3PL activities of these companies have emerged from a traditionally strong position in either transportation or warehousing. The second wave dates from the early 1990s when a number of network players, mainly parcel and express companies such as DHL, TNT, and UPS, started their 3PL activities. Usually, the 3PL activities of these companies are based on their worldwide airexpress networks and their experience with expedited freight. The third wave dates from the late 1990s. Currently, a number of players entering the 3PL market can be seen from areas such as IT, management consultancy, and financial services. These players are working together with players from the first and second waves. In most cases, several shippers and providers are involved (Berglund, et. al., 1999). Impact of usage of 3PL services Usage of third party logistics services is a strategic decision and hence it is necessary to perceive and quantify the impact it has on business performance. The purpose of engaging in third party relations is seldom cost reduction alone, but a combination of service improvements and efficient operations. Studies based on user firms indicate that the decision is worthwhile if it has an impact on one or more factors (Sahay and Mohan, 2003) Lieb et al. (1993), Dapiran et al. (1996), and Bhatnagar et al. (1999) have observed that the future usage of third party logistics services is a function of the current level of satisfaction of the firm with the logistics services provider. The authors have also explored the changes in the level and the nature of outsourcing of logistics services by the user firms. All the above studies indicate high levels of satisfaction with third party logistics services providers, which will translate in increased outsourcing in the future. Typically, firms start with the outsourcing of few logistics services, moving over to activities which have maximum impact on logistics performance and then increase scope of usage of logistics services with perceived and quantifiable impact on overall business performance.
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A Survey on 3PL practices in Manufacturing Industries

Factor
Impact on Customer Satisfaction Impact on Logistics system performance

IdentifiedBy(Year)
Gooley (1992); Lieb et al. (1993) Lieb et al. (1993); Dapiran et al. (1996); Bhatnagar et al. (1999) in Foster & Mullar (1990); Richardson (1992, 1995) Fantasia (1993); Foster & Mullar (1990); Richardson (1992) Goldberg (1990); Sheffi (1990); Trunick (1992); Fantasia (1993) Bowersox (1990); Dapiran et al. (1996) Foster & Mullar (1990); Richardson (1992, 1995) Minaham (1997); Mc Mullan (1996) Richardson (1990, 1995) Richardson (1995) Bradley (1995)

Reduction in Capital Investment facilities Reduction in Capital Investment in equipment Reduction in Investment in information technology Impact on Employee morale Reduction in manpower cost Improvement on specific Logistics Function parameters Improvement in inventory turnover rates Improvement in on-time delivery Increasing productivity

Figure 2: Impact of usage of 3PL services (Sahay and Mohan, 2003) The above studies provide a robust framework for the research methodology for analyzing the third party logistics practices in India. The input variables to the research framework depict the organization-specific characteristics, such as the extent of usage of third party logistics services, the reasons for outsourcing and the impact of the usage of third party logistics services (Sahay and Mohan, 2003). Research Methodology To determine the usage of third party logistics practices in India, a survey have to be conduct. The survey questionnaire is designed based on the studies carried out on various literatures on Logistics, Third party logistics and Manufacturing sectors in India. The survey instrument focused on the following areas: (1) Importance of various logistics activities to organizations; (2) Extent of usage of services offered by third party logistics service providers for carrying out specific logistics activities; (3) Reasons for outsourcing;
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A Survey on 3PL practices in Manufacturing Industries

(4) The overall satisfaction with third party logistics service providers; and (5) The future plans of current users of third party logistics services ( Kee-hung Lai, 2004) Structured questionnaires were designed and were distributed to the concerned professionals and executives working in various firms and companies, which are related to the manufacturing sector. The participating manufacturing firm consists of various firms such as auto component, fabrication, auto cluster, pharmaceuticals, pump industries etc. The first part of the questionnaire survey sought the information about the various Logistics functions performed by the third party logistic provider for each one of the respondents of various firms. This was followed by some general information about the position of respondent in firms, type of business, number of employees, geographic scope of company. This was followed by a statement (It is impossible to introduce new innovations in logistics without the co-operation of a few powerful firms) to which respondents were asked to rate their level of agreement. The diagrammatic research process for this study is given in the below figure. (Lai, 2004) FormulationofResearchProblems ReviewrelatedLiterature Formulatedresearchobjectives

QuestionnaireDevelopment Selectitemsforquestionnaire DesignSurveyQuestionnaire

DataCollectionandAnalysis PersonalInterviewofrespondents InterviewAcademicsandpractitionersinLogisticsforcontent Validation

Figure 3: Flowdiagram for Research Process (Source: Lai, 2004)

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A Survey on 3PL practices in Manufacturing Industries

Research Objective The main focuses is on three major issues present extent of usage of third party logistics services, reasons for outsourcing logistics services on business results. The objectives are: To study the logistics function in manufacturing industries To explore the significance of manufacturing industry in India To study the 3PL activities in manufacturing industry

Data Analysis

SizeofOrganisation(in%)
Small

Medium SizeofOrganisation(in%)

Large

10

20

30

40

Figure 4: Size of organizations On analyzing the data of survey on 3PL practices in manufacturing industries, the contribution of large scale organization is 18%, medium scale organization is 14% and small scale organization is 68% based on providing the relevant information about various 3PL logistics practices and reasons for outsourcing.

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A Survey on 3PL practices in Manufacturing Industries

JobPositions(in%)
Engineers

Managers JobPositions(in%)

Executives

10

20

30

40

50

60

Figure 5: Job Positions of the respondents in the various firms This chart shows the various job position levels in which the 12% of the respondents were senior executives working in manufacturing firms and 32% were from the managerial level gives their responses on the survey questionnaire and rest of 52% were from engineers level who contribute in the survey and provide relevant and important information on the 3PL practices in their firms.

GeographicscopeofCompanies(in %)
Global

Geographicscopeof Companies(in%) National

10

20

30

40

Figure 6: Geographic Scope of companies

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The survey is been conducted in keeping the view, Indian scenario in mind. In India, the national or local industries cover a maximum part of the industrial sector. So the national industries are preferred over global companies. The above chart shows the geographic scope of the companies in which the 76% are national companies and 24% are global companies.

TypeofIndustries
60 50 40 30 20 10 0 TypeofIndustries

Figure 7: Types of manufacturing industries Many types of companies have been taken into consideration during the survey but the survey conducted is based on the following manufacturing Industries i.e. automobile industries, pharmaceutical industries, pump industries and others. The other types of industries include steel industries, foils and pipe industries etc. Result Interpretation On the basis of the information provided by the working professionals in the manufacturing firms, the following results have been figured out. The study findings indicate some key function as shown in Table 1. For each function, there was an individual option marked which shows the level of performance of 3PL practices in their firms, as stated in the tables 1 and 2

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Table 1: Logistics activities results (in %) S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Logistics activities All Supply Chain Functions Logistics Information System Carrier Selection/Rate Negotiation Shipment Planning Fleet Management Warehousing and Operations Freight Payments/Auditing Inventory Management Labeling and Packaging Order Processing/Fulfillment Product Returns Order Fulfillment Product Assembly (Yes)
40 46 62 58 52 50 70 50 54 44 38 54 30

(No longer)
12 0 8 12 4 2 2 14 14 12 12 6 10

(May)
24 42 26 20 34 36 22 28 20 32 12 20 24

(N/A)
24 12 4 10 10 12 6 8 12 12 18 20 36

Currently almost all the organization using third party logistics services are satisfied with the performance of 3PL service providers with respect to their expectations. Most of the companys preferred freight payment/auditing (70%) as their major activity to be performed by the third party logistics provider. Most of the companies in this study are found relying on third party providers for performing some more logistics activities like carrier selection/rate negotiation (62%), shipment planning (58%), labeling and packaging (54%), order fulfillment (54%), fleet management (52%), inventory management (50%), and warehousing and operation (50%). The companies least focus was on product assembly (30%) as well as product returns (34 %). Product return deals with reverse logistics activities. This type of logistics practice is not in a flow in the central region of India; hence it is not accepted by the companies on broad scale. Interestingly, findings of this research study indicate that product assembly operations is such an activity which companies, in general, prefer to perform inhouse rather than outsourcing to any third party logistics provider. This is one of the reasons why 3PL is not acceptable for this activity in the central region of the country. Nowadays most of the companies are showing their trust on third party provider as they provide appropriate level of facilities and accuracy in their work. As future view most of the companies have shown their intentions to implement 3PL activities and expecting to get a
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large benefit from it. In view of most of the company, Chief logistics activities which will play a lead role are Logistics Information System (42%), Warehousing and Operations (36%), Fleet Management (34%) and Order Processing/Fulfillment(32%). Table 2: Reasons for outsourcing logistics activities (in %) S. No . 1. 2. 3. 4. 5. 6. 7.

Reasons for Outsourcing logistics activities Focus on core competencies Logistics cost reduction Improved customer services Success of firms using 3PL services Improving flexibility in operations Developing supply chain partnerships Productivity improvements

Not Less Important Very Important Important Important

8 4 0 22 2 22 0 20 36 6 14 14 24 2 62 26 8 52 48 28 22 10 34 86 12 36 26 76

To determine why companies decide to outsource their logistics functions, respondents were requested to indicate the importance of following factors affecting the decision to outsource. Most of the users indicate that improvement in customer satisfaction 86%, productivity improvement 76%, improving flexibility in operations 36% were moderately important or very important reasons for outsourcing and companies focus least on the focus on core competencies 10% and success of firm using 3PL services 12%. Conclusion Today's business success depends to a great extent on logistics and supply chain performance. The role of 3PLs has never been as critical as it is today. Changing market dynamics is influencing supply chain design. Shippers want responsive supply chains, capable of reaching more quickly to rapidly changing customer demands. They also want to create more sustainable, environmentally conscious logistics chains. Historically, the needed integration of the systems and services was accomplished by companies themselves as they purchased individual logistics service. In order to be successful, 3PL processes and activities both system and servicesmust be integrated. Entrusting the integration of logistics services to a 3PL requires trust, commitment, openness, shared risks and rewards, communication and preparation on both sides of the deal. This paper investigated the usage of the 3PL services in the manufacturing sector in context of central region of India and the findings of this research
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study clearly indicate that significant increase in outsourcing has been planned across all activities of the logistics function in future. References 1. Zanjirani,R., Shabnam, F., Rezapour, Laleh Kardar, (2011), Logistics Operations and Management:ConceptsandModels,ch.1513,pp373247248 2.M.Berglund,P.VanLaarhoven,G.Sharman,S.Wandel,(1999)Thirdpartylogistics:Is thereafuture?Int.J.Log.Manag.10(1) 3. H.L. Sink, C.J. Langley, Thirdparty logistics: results and findings of the 12th annual study.Availableonlineat:http://www.3plstudy.com,2007. 4.CouncilofLogisticsManagement(1991)DefinitionofLogistics.http://www.cscmp.org. 5. Sahay,B.S. and Ramneesh Mohan (2003), Third Party Logistics Practices: An India Perspective 6. Subrata,M.,(2005), A Survey of the ThirdParty Logistics (3PL) Service Providers in India 7. Christopher, M. (1996) Emerging issues in supply chain management, Proceeding of theLogisticsAcademicNetworkInauguralWorkshop,Warwick 8. Christopher, M. (2005), Logistics and Supply Chain Management :Creating Value AddingNetworksch.01,pp. 9. Razzaque, M.A. and Sheng, C.C. (1998), Outsourcing of logistics function: a literature survey, International Journal of Physical Distribution and Logistics Management, Vol. 28 No.2,pp.89107 10. Cooper, J.C. (1993), Logistics strategies for global businesses, International Journal ofPhysicalDistributionandLogisticsManagement,Vol.23No.4,pp.1223. 11. Keehung Lai (2004); Service capability and performance of logistics service providers,TransportationResearchPartE40,385399 12. Patricija Bajec, Marina Zanne, (2010),Trusted relationship: a key factor to successful future 3PL pp. 78 Gooley, T.B. (1992), To outsource or not to outsource, Traffic Management,December,pp.8387. 13. Goldberg, D. (1990), JITs next step: moves cargo and data, Transportation and Distribution,December,pp.2629.

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14. Dapiran, P., Lieb, R., Millen, R. and Sohal, A. (1996), Third party logistics services usage by large Australian firms, International Journal of Physical Distribution and LogisticsManagement,Vol.26No.10,pp.3645. 15. Bowersox, D. (1990), The strategic benefit of logistics alliances, Harvard Business Rreview,JulyAugust,pp.3645. 16. Fantasia, J.J. (1993), Are you a candidate for third party logistics?, Transportation and Distribution, January, pp. 30. Foster, T.A. and Muller, E.J. (1990), Third parties: your passporttoprofits,Distribution,Vol. 17. Foster, T.A. and Muller, E.J. (1990), Third parties: your passport to profits, Distribution,Vol.89No.10,pp.3132.

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