Challenges and Opportunities in Contract Logistics

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Challenges and Opportunities in Contract Logistics

Contract logistics companies, since their emergence, have been playing an able role of a great aide to the user industries in not only offering logistics services in an organized and efficient manner, but have also been able to transform the logistical landscape over the years. While the road to success and sustenance was never easy, their ability to adapt to changes faster and bring in latest technological advancements and value-added propositions, has helped them steer the tide in their favour. Current times call for a close collaboration between contract logistics companies and the user fraternity to bring the equilibrium needed to refuel the economic growth wheels. This seminar, hosted on the sidelines of the Celerity Supply Chain Tribe Awards, discussed the competencies and approach required by Contract Logistics companies to support Industry 4.0. Excerpts…

Setting the tone of the discussion in the right context, the moderator of the panel, Jayanta Ghatak, Head – SCM, Payed International Freemoney Ltd., elaborated on the nuances of Industry 4.0 in procurement parlance. “Industry 4.0 is a thought process, which is perceived to be put in action by players who have already reached a certain level and go to the next level via implementing the smart technology levers. Here the Data remains constant. While we have been analysing data and been taking decisions based on that. The biggest change that has happened over the years is on the predictive abilities that the companies are going to have. Industry 4.0 is essentially that approach which augments a company’s capabilities in building a more robust mechanism in place that aids them in finetuning decisions based on Predictive Data Analytics.”

Jayanta Ghatak

He added, “Logistics and supply chain has a crucial role in enabling this approach because here we are talking about enhancing the efficiency of production systems. Next gen supply chains are truly embedded with new age technology solutions that facilitate companies in streamlining operations. Let me share with you the example of an often heard 10-minute delivery promise. There is a lot of science behind this 10-minute delivery. Companies need to first understand the demographics of the warehousing location vis-à-vis the target audience they are wanting to cater to. They chalk out the preferred shortest routes for delivery that is possible without breaching any speed limit. There is also a lot of science at play at the fulfilment centers as well and that’s where predictive analytics gains prominence. Today companies such as Swiggy and Zepto are able to predict a consumer’s behavioral pattern and basis that, they design their fulfilment centers. That’s the evolution that Industry 4.0 has brought to the fore.”

As a user or a provider or an enabler of logistics services, it is important to decide on the right level of autonomy and intelligence to make it more efficient, effective, connected and yet remain flexible. Kindly share your stance on this.

pawan Chandra

Pawan Chandra, Vice President – Supply Chain, Pidilite: Data is not something new. Every company, which is in the business of either production or delivery or distribution or service, will have loads of Data. The only thing that has changed is that shift which has happened. Around 20 years back, companies were managing the logistics service whether it is warehousing or the transportation on their own or through small service providers. The shift started happening when companies realized that this function can be delegated to specialists so that they can focus on their core businesses. The idea was that these 3PL partners would invest in new technologies, bring in new ways of working, ensure upskilling and ultimately provide better efficiencies in terms of cost competitiveness, flexibility and service experience. 

How does the Data come into play here? Well, new age logistics service providers have thoroughly analysed the impact that Data Analytics has in the entire supply chain. When they meet their prospective clients, they are able to showcase their capabilities on the back of a strong predictive analytics that has been developed by these 3PLs. This is where a competitive streak lies. While this is one side of the picture, I would like to give you a user side challenge that we are facing currently. While we have no problem in sharing the valued Data generated during the operational cycle, the complexity arises the moment the Data starts leaking from the system, no matter how fool-proof a contract is. The element of TRUST is a big miss. Besides, as a user, we are looking a Service Delight Factor from our logistics service provider. In the sense that they can offer us an alternate service route that is more efficient to serve our customers and can service a bigger geographic expanse in a single trip. In short, we are looking for flexibility in logistics while in-transit. This can only be possible if our LSP is backed by a sound Data Analytics capability.

Ravikant Parvataneni

Ravikant Parvataneni, CEO India, Argon & Co.: While multiple stake holders are involved in deciding on the level of autonomy and intelligence, it is actually the customer who decides what is to be done. All other stakeholders are enablers and influencers, but the customer is the one who decides what level of autonomy is to be achieved basis the balance between efficiency, effectiveness and flexibility required in the business.

Jayanta Ghatak: The aspect of data, turned into actionable intelligence and ultimately (autonomous, semiautonomous and human) actions, is key to smart supply chain management and logistics in Industry 4.0. The road ahead is one of more autonomy across logistics components such as inbound logistics, warehouse management, intra logistics or line feeding, outbound logistics and logistics routing. It is also important to understand the criticality to enable secure data exchange between its participants while at the same time ensuring data sovereignty for the participating data owners. As a user, it is critical to evaluate the capabilities, scalability and adaptability of the provider and accordingly undertake to share data and pain points to enable the provider to provide a solution or work around. As it is for the provider to provide confidence to the user about its unflinching resolve on data security, demonstrate key use cases relevant to the user's expectations and be aligned to the deliverables. These exchanges provide the platform for both the user and enabler to work seamlessly on the desired objective and provide the required level of service or output.

How can 3PL companies stand out in the crowd and strike the deal?

Jayanta Ghatak: It is imperative for 3PL companies to position themselves as extended arm of the user organisations and in order to do that they should focus both on the relationship front as well as advancement in technological front and demonstrable execution capabilities. It is important to build a trustworthy relationship with its vendor and clients and a key inclination to show that data and key business inputs are guarded fiercely by them like their own data.

Transparency in data sharing in terms of efficiency improvement and relevant benefits thereof give a huge boost for the service relationship. Keeping oneself abreast with the latest technological advancements, leveraging the power of collected data to shore up logistics efficiency and having the right resources to take benefit of them and provide a specialized service, attracts the interest of the customer. Transparency in the operating processes and sharing performance dashboards further cements the relationship. All these help in building use cases for the 3PL to make their go-to market strategy and help them stand out not only in terms of specialised offering but providing efficient services and more importantly building a trustworthy relationship.

Mohandas Menon

Mohandas Menon, Consultant, Stellar Value Chain: 3PL companies survive on proven track record. 3PL selection process is akin to traditional marriage proposals. Except for horoscope, companies check all other aspects like industry expertise, type of projects / customers managed, team strength and pedigree, financial position, etc. As the scope of outsourcing is expanding, the yardsticks for 3PL selection are also getting stringent. It is important or even imperative for 3PLs to walk the talk consistently. In my view, any 3PL company, which can demonstrate consistent delivery of KPIs with existing customers and offer customer references without hesitation, stands out in the crowd.

Dr Ashvini Jakhar

Dr Ashvini Jakhar, Founder & CEO, Prozo: We live in a world where it is supply chains that compete, and not brands. Enhanced supply chain capabilities are a key competitive advantage in today’s world. At Prozo, we follow a three-part formula to win clients:

  • Understanding the clients’ needs better than anyone else through data, interviews, and as-is visits.
  • Building supply chain solutions keeping in mind the clients’ current needs and challenges but at the same time developing a solution that will help them build their supply chain as a competitive advantage. Therefore, our solutions are cost as well as working capital efficient, and act as revenue enablers for our clients.
  • Serving existing clients well, so as to ensure that our clients have superior trust in our capabilities.

Ravikant Parvataneni: A very difficult question to answer…. Unless customers start to differentiate the service and cost and start valuing service levels with the same tenacity as costs, 3PLs will always be fighting on cost. On the other hand, 3PLs have to focus on value addition and stick to their customer acquisition strategy and refuse anything which does not form part of the strategy.

Dilip Sharma

Dilip Sharma, COO, ProConnect Supply Chain Solutions: If you look at the entire Logistics space in totality, we can largely divide it into three parts – first as to how the order management cycle behaves. I think there's great effort by the industry across and lots of these analytics have happened there to know our customer and the order better. The second part, which is the large piece, could be again subdivided – how do you warehouse the product and then after warehousing, how do you transport the product, that could be into First or Last Mile. In the last mile cycle, companies generate an abundance of data and there has been analytics. These are in the maturity cycle as of now. The trust part is also being factored into.

Coming back to the mid part, which is largely a 3PL, is further segmented into warehousing. It's still at a nascent stage. How do we create the differentiating factor and optimize the entire experience in the warehouse? We are the custodians of an inventory in a warehouse. It’s our responsibility to efficiently manage this part of the business in order to optimise an order and optimise the entire value chain of keeping the product for a life cycle and to have less dependency on the workforce.

Our differentiator has been as to how do we develop analytics to understand the life cycle of an in-bound, the life cycle of an efficiency as to how do you produce the pick and how do you make a warehouse very efficient without adopting much hardware. We can further break that now into the last mile, mid mile and the first mile of transport. Here we know lots of work has happened in Last Mile but if you translate that into mid mile again, there's a data scarcity. One part is the usage of the vehicle, the second part is efficiently securing the inventory in the warehouse. I think, as a differentiator, the next step is to secure the inventory. I can share with you one use case where we have been able to solve this puzzle. The industry has been deploying the track & trace of the shipment inside the vehicle. One of the resolve that we tried doing and we have been successful in doing is that that beyond putting the e-locks into the vehicle, tracking the driver's SIM card and geofencing of the routes, we have deployed RFID chips into the packets inside the vehicle and then do a seamless transaction of tracking A, B and C where A is the driver, B is the vehicle and C is the goods inside the vehicle. Here the game is to triangulate that information by factoring in all possible inefficiencies, be it theft, pilferage, etc. Once companies are able to identify the right mix, they are creating the DIFFERENCE.

What are the actions that the companies are taking on upskilling to ensure that human involvement remains?

Mohandas Menon: Nowadays you are living in a world where the products are not competing, the supply chains are competing. There comes the relevance of outsourcing. Whom to Outsource has become a million-dollar question today.

There are innumerable 3PLs in the market who can bid for services. The selection of a 3PL is extremely important in contract logistics and this is where companies need to perform due diligence about their financial background, their past record, and reputations of the clients, etc. The biggest differentiator in any company is the People Power. In our particular industry where we buy from people, we sell to people, we don't have a product to go and sell, we are talking about Service Selling or a Solution Selling, so the importance of people is Paramount in this business. The Covid-19 pandemic has only heightened the crucial importance of People in supply chain.

Besides, I would also like to mention another very important aspect that the supply chain fraternity has been facing since ages and that is we are never involved in supply chain planning. We need to be made part of planning too so that we can play an active role in deciding the right storage quantity instead of just offering storage solutions. In a crux, Collaboration is the order of the day, be it with the vendors or the service providers. This will make Supply chains more resilient, more robust, and more effective.

How would you define the criticality of data analytics in Contract Logistics?

Dr Ashvini Jakhar: While outsourcing their supply chain, brands seek to achieve one or more of the following key business objectives:

  • Cost Reduction
  • Enabling Faster Fulfillment
  • Professionalisation of the supply chain/making it more resilient.

In order to achieve these objectives, data plays an integral role as there are numerous service touch points in contract logistics. Understanding each variable is crucial for serving customers in the most seamless manner. Some of these variables include SKU spread; Number of line items; Quantity in a typical order; Types of end clients being served (B2C, B2B, GT, MT, CSD, CPC or Marketplace wholesalers); Type of deliveries (standard or appointments); TATs and SLAs expected; Type of inwards (supplier spread) and type of outwards (customer spread); Inventory holding strategy, etc.

On one hand, availability of client data, capturing all these aspects and more, can help the 3PL partner plan storage strategy, capex deployment, processes, industrial design and material flows besides manpower planning, in order to handle the supply chain in the most efficient manner. On the other hand, the very same data can be used to determine as-is state of the client so that future performance can be easily benchmarked against the current performance levels.

3PL partners who follow a data analytics-led solution approach are likely to serve the client much better, and therefore are likely to get rewarded with a higher supply chain share of the wallet from the client’s side.

Ravikant Parvataneni: I would say that the data in the last 10 years has not just grown 1x – 2x, it has gone up by 100x. Managing such a huge Data has become a greater threat these days. When we talk about data, three things need to be answered in this context… What data is required and for What Purpose. I think that's very important before you start churning the data and start analysing it. Secondly, we need to examine Who's going to do that analysis – is it the operations team or the management team because the objectives for both the parties are quite different from the same Data. The last and the most critical aspect that we need to focus on is, the frequency in which the data needs to be analysed. Some companies tend to do it just once when they are building a big warehouse. By the time that particular DC starts functioning, the same Data is already possibly 18 months old. Hence, it is very important to keep analysing the Data on a periodic basis. This factor is also of critical importance in case when we have varied number of SKUs where some of them would be fast-moving, and some would be slow moving.

As far as the confidentiality of Data is concerned, I believe that over the next five years, things will definitely change. There would come a time when companies wouldn’t have to fight and do a 10-page agreement just for the NDA to get that data and it will get more democratised. Without the right Data, even the clients cannot expect the 3PLs to come up with a great solution(s) because then it will be a like a Copy Book template. Data analysis is a discovery when you're actually doing solutioning, hence giving enough time to analyse that is critical too.

How do 3PL companies play their part in the omnichannel revolution or this multichannel revolution? What are the key innovations that you're working on to highly efficient processing within your fulfilment center?

Dr Ashvini Jakhar: Supply chains are becoming more and more complex with every passing day. Three interesting phenomena are happening currently:

  • Demand side for the companies is getting more and more fragmented because of an ever-increasing number of demand channels; offline, B2B online (Udaan, Industry Buying etc.), D2C and B2C marketplaces (20+ including Amazon, Flipkart etc.). Soon, we will be entering an era of super-apps where giants like Tata, Reliance, Facebook and Google would be launching their apps.
  • Customers' expectations from supply chains are on the rise. Both B2B and B2C customers want OTIF (On-Time, In-Full) fast-delivery, more visibility in delivery and seamless returns.
  • Pricing pressure is showing up on consumer’s side because of two reasons:
    • Product differentiation is diminishing day by day, and more pricing information symmetry is being enabled by new-age demand channels.
    • Cost of serving the customer is ever-increasing because of increased expectations and competition.

How can we solve this interesting puzzle?

Dr Ashvini Jakhar: Traditional modelbased supply chains will struggle to handle this new reality and we need omni-channel and multi-channel enabled supply chains. Supply chains that aggregate demand side, help a brand leverage the same pool of inventory for all demand channels and seamless, unified management of shipping needs for all kinds of customers. Control Towers that can drive performance of such multichannel supply chains will become the new normal, going forward.

At Prozo, we have invested heavily in creating multi-channel fulfilment capabilities at three key touch points in the supply chain - Warehousing, Technology & Logistics. Our warehouses are multichannel, our order management and warehouse management software are multi-channel enabled and our logistics platform can handle multi-channel transportation requirements. Moreover, our control tower can also manage all aspects of multi-channel operations.

What’s your take on the growing importance of Supply Chain Control Towers to enhance supply chain efficiency?

Ravikant Parvataneni: There are two aspects to it – Data Overload and Multiplicity of systems, which you manage within an organisation. Earlier it was just an ERP, then WMS arrived, which was followed by TMS, and the list kept on increasing. Unless we have one place where we take all these solutions to the supply chain Highway and unless we take this information from all these sources, put it in place and then just provide relevant information to the specific team, we can’t bring that difference. This is where Control Tower enables to seamlessly connect all the dots through a simple BI dashboard. Additionally, it's equally important that all the required data comes to a single place and then gets to where it's required and in the required format. Gartner has aptly defined a supply chain control tower as a concept that results in combining People, Process, Data, Organization and Technology. 

Control towers capture and use (close to) real-time operational data from across the business ecosystem to provide enhanced visibility and improve decision making. Working in orchestration with the existing technologies and systems, Control Tower capabilities can assist in proactively managing supply chains in right time, allowing companies to focus on other pressing issues, while the rest of the supply chain can continue functioning, business-as-usual—driving maximum value without a large-scale implementation.

Jayanta Ghatak: The very essence of control tower is to give real-time visibility across the supply chain network  of any organisation, pre-empt breaches through predictive alerts, give inputs for nuanced actionable insights and enable collaborative actions on these insights to ensure faster and seamless resolution, thereby minimising the impact on the operations. Ideally a digital infrastructure in combination with physical control tower serves best in increasing the supply chain efficiency with the key focus being unifying data silos, visualise decision support, maximise resources, weaponise response time and optimise operations. Various components of the control tower activity work in unison to increase efficiency, which include notifications, alerts and exceptions, simulation, collaboration within systems, capacity evaluation, performance dashboards, identifying key process improvements and system integration. Expectation setting for both internal and external stakeholders are better managed through and executed with the help of supply chain control tower.

Dr. Ashvini Jakhar: Control tower on the warehousing as well as logistics side is going to be the new normal. Without control towers, it is near impossible for 3PL companies to serve the TAT and SLA needs of their clients’ customers in a consistent manner. Also, control towers allow 3PL companies to take preventive actions rather than only remedial or reactive solutions to the operational escalations. Future control towers will also back-integrate and help clients plan their replenishment better and help them drive projects to further enhance efficiency in their supply chains.

Mohandas Menon: Supply chains without end-to-end visibility can be a real challenge to manage. Any real time endto- end visibility solution needs strong IT support. Control tower exhibits relevant key information from various stages of the supply chain namely planning, vendors, 2PL and 3PL service providers, etc. All information from the Control Tower would help decision making and hence should be accurate. Collaboration and IT interface among all stakeholders in the supply chain are imperative for a Control Tower for supply chain management to function efficiently.

Where do you see the expanse of contract logistics shaping up from here on?

Jayanta Ghatak: The 3PL sector in India is poised for robust growth, sustained by new technological advancement and enabling infrastructure. E-Commerce, digitisation and infrastructure modernisation are the key growth drivers for the 3PL sector in India. Greater acceptance of demand driven logistics practices brings forth a plethora of complexities into the supply chain and generate the need for contract logistics service providers to deliver more expertise driven services. Adaptability, transparency, service specialisation, asset & resource collaboration would be the key for the 3PL logistics players to be relevant, sustainable and expand their horizons. Furthermore, with India intending to move towards zero net emissions across industrial sectors, green logistics will likely become an important segment as more companies will adopt corporate strategies where they are able to reduce their carbon footprint, integrate sustainable solutions and ensure competitive operations. Some e-commerce giants and LSPs have also pledged to go electric, and these trends align with India's own government supported push for greater adoption of electric mobility. I believe there are exciting times ahead for us.

Ravikant Parvataneni: Contract logistics is bound to grow as more and more clients will start to outsource their logistics/SC activities in the time to come so that they can focus on their core business. As the pressure to grow the business increases, companies will start to realise the importance of the value 3PLs bring in and outsource more and more. I believe outsourcing to 3PLs will transform from a mere transactional event to something more strategic in nature.

Mohandas Menon: Contract Logistics or in other words outsourcing of supply chain activities is becoming essential rather than optional. The erstwhile popular arguments in favour of insourcing are fading away against the likely risk awareness. In the post covid era, the appetite for risk taking has diminished and companies are opting for increased outsourcing. Therefore, there are several opportunities on offer for 3PL companies other than the conventional warehousing and distribution services. Vendor Managed Inventory (VMI), Control Tower solutions, integrated logistics solutions (warehousing and secondary distribution under strict SLAs) are some of the latest visible trends. Capabilities (especially IT capability) of individual 3PL companies will play a key role in conversion of some of these opportunities.

Dr. Ashvini Jakhar: Contract Logistics will become more and more comprehensive in scope. Clients will seek pay-per-use solutions that can easily help them experiment and scale at the same time. Access to high-quality contract logistics services will be democratised by players like Prozo in the ecosystem.

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