Supply Chain Management
Term Project
“Analysis of 3PL Industry in India”
Post Graduate Programme in Management
By
Monika Sharma
102029
Submitted to:
Prof. Arindam Lahiri
Indus World School of Business
Greater Noida
Date: 2nd, September, 2011
Content
1. Logistics Management: ……………………………………………………..Page #3
2. Third Party Logistics………………………………………………………...Page #3
3. Why 3PL? ..........................................................................................Page #3
4. Market Structure……………………………………………………………..Page #4
5. Key Players………………………………………………………………..…Page #9
6. Challenges for 3Pl Industry………………………………………………….Page #11
7. Results of using 3PL services Page………………………………………….Page #12
8. Future Prospects……………………………………………………………..Page #13
9. Some Factors that are Driving Indian Logistics towards 3PL. ……………..Page #13
10. Conclusion …………………………………………………………………..Page #14
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Logistics Management1:
Logistics is a channel of the supply chain which includes planning, implementing and controlling
the efficient cost effective flow of material. It is a process which adds the value of time and place
utility. In other words logistics is the management of the flow of goods and services between the
point of origin and the point of use in order to meet the requirements of customers or
corporations. Logistics involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging, and often security.
Third Party Logistics2:
Third-party logistics is the use of an outside company to perform all or part of the firm’s material
management and product distribution functions. Relationships in 3PL are said to be more
complex than traditional logistics supplier relationships. The benefit of using 3PL companies is
very clear. No investment in warehouse and transportation fleet is required by customers and
although it incurs additional cost to hire a company but it is proved to be very less as compared
to a 3PL provider. Then money they are left with, they can use to do something they have high
competency.
After knowing the definition of 3PL industry, people many confuse the concept of 3 PL with
freight forwarding. Distinction between 3PL and freight forwarders is that 3PL tends to perform
more value added activities while freight forwarders focus on transportation (air/sea/land
transportation) and warehousing aspect of logistics management.
Why 3PL?3
There are several reasons for using 3PL over home-manufacturing. That is listed below:

Cost Savings:
3PLs should be focused on delivering value, and that value equates to savings to the
shipper/customer. This is the most basic factor that is needed to be considered in
selecting a particular provider. For that you should show your cost very well so that you
can compare that with the cost of using an outsourcing firm.

Core Competency:
By selecting a 3PL, the shipper’s company can focus on their core competency versus the
distraction of building a supply chain. With resources becoming increasingly limited, it is
1
Designing and Managing the Supply Chain by David Simchi, Philip Kaminsky, Edith Simchi, Ravi Shanker
Designing and Managing the Supply Chain by David Simchi, Philip Kaminsky, Edith Simchi, Ravi Shanker
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Designing and Managing the Supply Chain by David Simchi, Philip Kaminsky, Edith Simchi, Ravi Shanker
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often difficult to be an expert of the every face of the business. Hence by logistics
outsourcing, the company can focus on the company’s particular area of expertise,
leaving the logistics expertise to the logistics company.
4

Technology:
The investment in technology is quite discouraging, and today’s 3PLs have invested in
the technology that can reduce overall costs while providing visibility and other valueadded services. Customers today would need tremendous outlays of cash to support this
initiative while securing internal IT resources. 3PLs have turnkey solutions at their
disposal to support complex supply-chain challenges4.

Specialization of the 3PL:
When 3PL providers are chosen, majorly companies roots lies in the particular area of
logistics that is most relevant to the logistics requirement in question. For example,
Roadway Logistics, Menlo Logistics, Blue dart and Yellow Logistics evolved from major
LTL carriers.

Decreased Cycle Times:
3PLs deliver the shipping community visibility into all modes of transportation. This will
reduce overall supply-chain cycle times and allow for superior customer service.

Awareness of current scenario of the industry:
By hiring a 3PL, customers get the latest industry information and trends. The 3PL
provides feedback on “best-of-breed” practices based upon its experiences in multiple
vertical markets.

Continuous Improvement
By selecting a 3PL, the customer receives constant feedback on how to improve the
overall supply chain. This is accomplished through a formal review process that has
established benchmarks for improvement.

Management and Reporting
The 3PL community provides leading industry expertise across the supply chain, from
inventory management to carrier management to customer delivery management. The
3PL industry is focused on delivery value and savings across all modes of transportation
and distribution.

Compliance.
Across the supply chain, 3PLs deliver technology and resources to support vendor
compliance and low-cost carrier utilization. This process ensures cost and service
optimization.
http://www.logisticsmgmt.com/
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
Leverage.
3PLs leverage the collective spending of their clients, increasing the buying power of an
individual shipper. 3PL technology allows for collaboration and consolidation to further
leverage the purchasing of transportation services
Market Structure5
3PL industry’s origin in India can be traced back to mid 1990s. Indian subsidiaries of
multinational companies in these sectors took evidence from their parent companies and began to
outsource a share of their logistics functions to these specialist service providers. Though it was
proved to be insignificant in the first few years, Indian 3PL industry is experiencing a rapid
growth after year 2000. We can analyze that by a survey under taken by Dr. B.S. Sahay,
Professor of supply chain management. By the help of pie chart we can analyze the reach of 3Pl
industry in India.
Distribution of the 3 PL industry sector wise:
Following data are taken from a survey held by Dr. B.S. Sahay, Professor of supply chain
management.
In which no. of respondents were:
14, 6%
No of Users
112,
44%
126,
50%
5
No of 3PL
Providers
Total No of
Responces
http://logistics.about.com/od/strategicsupplychain/a/select_3PL.htm
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Distribution of 3Pl industry By Turnover
Distribution of 3Pl industry By Industry
Automotive
Engineering
>Rs10 bn
22%
Rs5bn- Rs10
bn
18%
11%
Rs1bn- Rs5 bn
Others
2%
4%3%
4%
5%
4%
27%
Metals
7%
13%
Rs500 mRs1bn
36%
<500m
Chemicals/Fertiliz
ers
FMCG
21%
23%
Textiles/Apparel
Services
Telecommunicati
ons
Transportation
The number of participants in this industry had grown to be more than 400 by year 2005.
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Current Market Performance:6
Market Share of 3PL industry in overall industry:
100.00%
50.00%
0.00%
India
Europe
U.S
Japan
Analysis: We can analyze through graph that share of 3PL in Japan is highest among developing
countries i.e. 80 % and In India 3Pl providers are very less (10%).
Cost:
15.00%
10.00%
5.00%
0.00%
India
Europe
U.S
Japan
Analysis: We can infer from the graph that, being a developing country the logistics cost in
India is most i.e. 13 % and the reasons behind is lack of good infrastructure, industry
fragmentation, tax regime etc. In MNCs in all over world have been prominent users of 3PL
services but Indian companies are not. In order to gain market share significant cost reductions
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www.iactglobal.in/supplychain
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and other service benefits are provided by these companies. This is one of the reason for high
cost in India.
Logistics Performance Index:
Chart Title
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
High Income Countries
Low Income Countries
Analysis: Graph indicates that the performance of logistics is high in developed countries in
developed countries as compared to developing nations, while India occupying the middle
position. As managerial and physical effectiveness of Indian logistics is not so good hence the
industry is not capable of attracting the 3Pl providers in a high level
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Key Players:7
All though the 3PL industry in India is in nascent stage, but if we can talk in reference to the
present growth rate, like increase in manufacturing sector in India as well as increase in out
sourcing trend 3PL industry is estimated to grow by 30 % year by year.
Some of the basic 3PL providers like Federal Express (FedEx) and DHL have contributed to the
transformation of services and the business practices across the entire sector. Other than that
many companies are providing value added services like inventory management, warehousing
packaging, labeling and tracking of shipments etc. Some of them are listed below:







DHL
Menlo Worldwide
UPS
NEXUS
BAX Global
FedEx
TRINITY transport. Inc
Menlo Worldwide8: Menlo provides a complete integrated solution to their customers. Menlo
Worldwide Logistics specializes in the integration of all functions across the supply chain, from
sourcing of raw materials, through product manufacturing to the distribution of finished goods.
Mainly Menlo deals with the top-tier companies around the world which look to Menlo
Worldwide Logistics for innovative solutions that help plan business strategies, improve
customer service, accelerate order cycle times, and tighten control of the supply chain — all
while reducing costs in transportation, inventory and order fulfillment.
Menlo help firms attain operational excellence across their global supply chains. Through
practical and incremental solutions that leverage leading technologies and the best in third party
logistics services, we enable clients to address complex global supply chain management issues
by providing them with better visibility of their worldwide inventory, lower costs for systems
integration and management, and lower transportation expense. Menlo Worldwide Logistics
serves a broad spectrum of commercial and public sector industries. They develop dedicated
teams for each industry, each tailored to create and implement industry-specific solutions. They
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http://www.slideshare.net/ResearchOnIndia/third-party-logistics-india-sample
www.menloworldwide.com
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also share best logistics practices among industries, offering our customers leading-edge supply
chain solutions.
DHL9: DHL provides the following services to its customers:
 Freight Transportation:
DHL is a logistics partner which delivers freight of any kind, to any place via air, ocean,
road or rail, but capable of giving its customers the personal attention they need.
Welcome to DHL.
 Warehousing and Distribution:
By understanding customer’s issues and anticipating their business and logistics needs,
DHL experts provide robust solutions that will drive value for their customer’s business.
Whatever industry sector people operate in, DHL provides dedicated and shared
warehousing and distribution operations to ensure that they can deliver their service
promise to their customers worldwide.
 Customs, Security & Insurance:
With their network of customs brokerage offices, they are able to solve the difficulties of
cross border trade.
Their efficient customs brokerage, clearance and compliance service is designed to take
the complexity out of the customs process. As well as moving goods seamlessly across
international borders, they ensure complete security in challenging environments and
provide insurance against unforeseen events.
 Supply Chain Solutions:
They offer a comprehensive suite of services drawing on the global scale and local
insight to deliver value across all supply chain.
From the initial consultancy and design, to final mile delivery and reverse logistics, they
provide customized supply chain solutions across all industry sectors.
 Industry Sector Solutions:
DHL's focus on selected industry sectors means customers benefit from working with
specialists – not just in logistics, but also in their particular marketplace. They provide
leading solutions to their customers with real competitive advantage.
Their people work with a huge variety of customers to solve practical problems – from
achieving shorter lead times to delivering temperature-controlled freight – in the
following industry sectors:
 Customer Resource Area:
They also keep track of freight, with alerts and the latest tracking information.
This is also the place to get in touch with DHL, as well as keep up with the latest
information in white papers and guides.
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www.dhl.com/
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Challenges for 3PL industry in India 10:11

In India LSPs have to pay numerous other taxes, octrois and face multiple check posts
and police harassment. Complicated varying documentation process requirements of
different states make the business unattractive like documentation process changes with
high cost and delays involved in compliance. On an average an Indian vehicle loose 2448 hours in paper work and formalities while traveling on road and the cost associated
with that is 25 5 in the form of various taxes including fuel duty. Hence freight cost
becomes major component of cost in India.

Low Margin: Being High Cost and Low Margin Business, Organized players are not
able to withstand unfair completion with unorganized players, who can get away without
paying taxes and following operating norms stipulated in the Motors Vehicles act such as
quality of drivers and vehicles, volume and weight restrictions etc.

Lack of Economies of scale in the 3PL industries. Failure in implementation of value
added tax structure across different states has created a major problem for 3PL industry.

There is lack of trust among Indian 3PL providers and their customers due to awareness.
Value of outsourcing is very low in India (10%) if we compare it to developed countries
which are having outsourcing share in the range of 50%-80%. There is lack of awareness
about possible benefits, perceived risk and losing control of sensitive information among
customers and which raise the willingness in keeping activities in-house.

Indian 3PL industry is facing stiff completion from multinational 3Pl providers. MNCs
because of their large sizes and extended operations in many countries are able to provide
low costs and extended credit period.

Poor infrastructure is another huddle in attracting the 3PL sectors. Slow movement of
cargo due to bad road conditions, multiple check posts and documentation requirements,
delay in government clearances, couples with unreliable power supply and slow banking
customers. This all makes difficult to meet the deadlines for their international
customers. To expedite shipments they have to book airfreight rather sea freight, which
adds to the costs making them uncompetitive in international market.

Geographic diversity of India needing varied logistics expertise for each region is a major
challenge to be addressed by 3PL service providers. India has a diverse geographic
scenario coupled with a diverse consumer habit scenario in each of its 25 states. Logistics
operation in each state requires a suitable model that facilitates the effective storage and
transportation of goods mostly sold in that state, making it very difficult for adopting a
uniform logistics model. 3PL service companies interested in serving a particular
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Designing and Managing the Supply Chain by David Simchi, Philip Kaminsky, Edith Simchi, Ravi Shanker
http://www.managementparadise.com/forums/elements-logistics-logs/198853-inputs-research-project-3plservices-india.html
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company would have to offer multiple solutions to fulfill the nationwide logistics needs
of that company.

There is also inability for Indian 3PL service providers to offer more value added
services. This de motivates the Indian customers to go for 3PL.

Other than all the above mentioned points there is also lack of knowledgeable ,skilled
manpower in the logistic sector. To expand this industry companies have to look beyond
the level of brokers and transportations to attract and retain talent.
Results of using 3PL services:
However, domestic major companies in leading industry sectors have also begun to follow the
footsteps of their multinational counterparts, starting with outsourcing their basic logistics
functions. Realizing the significant cost reductions and several other benefits gained by these
companies, the large numbers of small to medium companies in all the industries are gearing up
to use 3PL services in their logistic functions, resulting in a tremendous potential market for the
3PL market in India.
Financial Improvements12
Financial Indicator
13.50%
Improvements in Sales revenue
12.30%
Working Capital Improvement
9.20%
Capital Asset Reduction
10.50%
Production Cost Reduction
10.00%
Labor Cost Reduction
10.00%
ROA Improvement
10.00%
Logistics Cost Reduction
15.00%
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http://www.docstoc.com/docs/74960915/3PL-usage-in-India
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Future Prospects13:
Despite all this challenges Indian logistic industry is growing at 30 % vis a via annual growth
rate which is 10 %. Nevertheless, considering that the most important logistics functions for
Indian industries still are transportation and warehousing, which are likely to be outsourced to
3PL in increasing share, a high level of growth is estimated for the Indian 3PL market in the next
5-7 years. The Indian 3PL market, estimated at about US$890.3 billion in 2005, is expected to
grow at a compound annual growth rate of 21.9 percent to reach US$3,556.7 million in 2012.
Frost & Sullivan’s research identified that the largest end-user industry for 3PL services as of
2005, is the auto industry. A lot of multinational automobile makers, like Suzuki, Honda, and
Ford, have set up manufacturing bases in India, and have been major users of 3PL services.
Expansion of manufacturing facilities by most of these companies indicates huge potential for
3PL services in this industry. Other sectors that have shown substantial contribution to 3PL
market and significant growth potential include the information technology (IT) hardware and
electronics, Fast Moving Consumer Goods (FMCG), and retail sectors.
Some Factors that are Driving Indian Logistics towards 3PL14
There are various policies implemented by government which will help in the boom of the
industry. In 2005 Government of India introduced value Added Tax (VAT) that will drive
Indians towards using more 3PL services. A full implementation of this regime is having
centralized large warehouses in regional hub cities, to achieve best efficiency in logistics. . Since
building such large warehouses requires huge investments, most Indian companies are likely to
outsource the warehousing function, creating immense potential market for 3PL service
providers. Leading companies in major industries have already started planning for the new
scenario and the required warehousing capacity to be outsourced. Others are expected to follow
them soon.
The focus of government of India is increased on improving logistics infrastructure is expected
to have a huge positive impact on 3PL market. The government has invested US $17 billion to
upgrade highway networks, with the implementation of two major projects, namely the Golden
Quadrilateral network and the North-South-East-West (NSEW) Corridor. Apart from this, in a
remarkable infrastructure related decision, the government has opened up rail freight operations
to private players, thereby creating opportunities for cheaper and faster movement of goods.
Transportation by rail is definitely cheaper than by road, as trains are faster and have lower costs
per unit distance traveled. This is expected to enable 3PL service providers in offering more costeffective services to clients, thereby increasing the 3PL usage by all industries.
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http://www.rncos.com/Press_Releases/3PL-Industry-in-India-to-Grow-at-25-CAGR-RNCOS.htm
http://www.slideshare.net/ResearchOnIndia/third-party-logistics-india-sample
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Apart from these factors, the increasing list of multinational companies starting operations in
India is expected to fuel the growth of 3PL market. Entry of giants like BMW, Flextronics, and
Wal-Mart are expected to contribute to considerable growth of 3PL usage in their respective
industry sectors. The opening up of the Indian economy to foreign investments is expected to
attract more companies into the country, thereby adding momentum to 3PL market growth. The
wide-spread information technology awareness and expertise in India is also expected to help
3PL companies in offering several value added services using IT such as Fleet Management
Systems, Warehouse Management Systems, and integrated Supply Chain Management systems.
Conclusion
By analyzing all the factors we can surely say that the Indian 3PL industry is set to grow
tremendously in the next 5-7 years, leading the growth of logistics market. There are several
factors including government’s support are instrumental in this growth and the new regulations
set by the government will surely support the 3PL industry in India. Though certain challenges
remain to be addressed, the general trend is highly positive. With scenario highly favorable for
them, now the focus is on 3PL service companies to offer quality services at affordable pricing,
and delivering Even most of the established logistics companies are moving towards 4 PL. The
need of the hour is consistent added facilities to maintain the momentum. For now, surely 3PL is
the way forward for Indian Logistics Market.
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