Third Party Logistics Practices: An India Perspective
B. S. Sahay and Ramneesh Mohan ____________________________________________________________
Abstract: 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 multinationalcompanies are trying to establish themselves in this sector. This paper is an attempt to provide a 3PL perspective in India. The paper focuses on three major issues – present extent of usage of third party logistics services, reasons for outsourcing and impact of usage of third party logistics services on business results. The paper reveals that most 3PL users are satisfied with the current level ofservices provided by 3PL service providers as it has led to a positive impact on business results. As a result, the usage of third party logistics services is likely to increase substantially (40 percent) in the future. Key Words: Supply Chain Management, Third Party Logistics, Outsourcing, India.
IntroductionOutsourcing 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). In order to handle its logistics activitieseffectively and efficiently, a company may consider the following options – it can provide the function in-house by making the service, or it can own logistics subsidiaries through setting up or buying a logistics firm, or it can outsource the function and buy the service. Currently, there has been a growing interest in the third option, i.e. outsourcing of logistics functions to third party logisticsservice providers. Third party logistics services are widely prevalent in North America (Lieb, 1992; Lieb and Randall, 1996) and Europe (Lieb, Miller and Wassenhove, 1993) and have been examined in a number of previous studies. Similar studies have focused on logistics issues in Bulgaria (Bloomen and Petrov, 1994), South Africa (Cilliers and Nagel, 1994), Australia (Dapiran, Lieb, Millen and Sohal,1996), Korea (Kim, 1996), Asia Pacific (Millen and Sohal, 1996), Singapore (Bhatnagar, Sohal and Millen, 1999), and Indochina (Goh and Ang, 2000). These countries have availed large benefits of 3PL services over the last few years. However to date there has been no comprehensive study reported in the literature that has focused on third party logistics services in India. There are many isolatedexamples of individual organizations and their respective logistics capabilities. Hence, it was considered important to carry out a comprehensive survey on 3PL practices in India. The paper has been organized as follows. In the next two sections, we present a brief description of the Indian transport environment followed by a review of the relevant segments of literature. Subsequently, we outlinethe research methodology which is then followed by the results, based
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on data analysis, from the survey. Finally, future trends and conclusions arising from this research are presented.
The Indian Transportation Environment
With a gross domestics product (GDP) of over US $475 billion, the Indian industry spends 14 percent of its GDP on logistics. The Indianlogistics environment comprises road transport companies, railways, air freight companies, inter-modal transport providers, ports and shipping companies, as well as 3PL companies. Their performance is critically dependent on the state of infrastructure – roads, railways, ports and airports. Roads & Trucking: India has a fairly widespread road network totaling to 2.7 million kms of road length...