The 3PL sector in India has been experiencing a transformative phase with the introduction of several reforms and initiatives. With the implementation of GST to adopting new age technology solutions and innovating value-added services expanse, 3PLs have come of age. In order to stay ahead of the pack, they need to bring pathbreaking services. This discussion reflects upon views of the both the stakeholders – users as well as 3PLs to decode the way ahead for the industry…
What are the visible changes shaping up in the logistics market?
Dr Arunachalam R, CEO, ProConnect Supply Chain Solutions: In logistics, we are living in the era where social, political, economic & technological changes are influencing the industry. Regional consolidation of warehouses post GST, introduction of E-way bill reducing the hassles for transportation, technology implementation not only by 3PL players but by customers too, upcoming new-age starts ups, increasing M&As, Blockchain in logistics, are some of the transformations that the industry has witnessed in the recent past. Digitalization, software driven processes, automated machine-driven processes are also a trend now and will help in improving efficiency.
Anand Maithani, Head- SCM & IT (APMEA) Asia Pacific, Middle East, Africa, Apollo Tyres: Perhaps the most significant change in the last few years have been the recognition and adoption by 3PLs of technology as a key pillar to improving customer service, efficiency and in some cases a competitive differentiator. GST has had its expected impact of infrastructure development. The inflow of capital from more formal sources like institutions or PE funds has given rise to more organized players in 3PL and deployment of capital in better quality infrastructure as well as technology.
Laxmana Murthy, VP – Group India Strategic Projects, Novateur Electrical & Digital Systems, Legrand Group: Traditionally most of the organizations in India were managing their own warehouses. During the past five years, there is a gradual change in the business dynamics with organizations moving towards 3PL solutions. More and more professional organizations are evolving in this spectrum coupled with good focus and investment from reputed global 3PL players. We have seen significant investments and capacity additions by most of the global players in Indian market. Big facilities have come up in most of the Tier I cities. Mumbai, Chennai, Bengaluru and Delhi are the top to attract these new facilities. There is also a conscious shift in the mindset of the user industry in recognizing 3PL industry as an area of specialization and moving towards 3PL solutions. One factor which also has played a big role in the evolution of 3PL industry is the onset of GST regime. This has opened new opportunities and possibilities for the warehousing industry. In our organization, we have brought down the number of warehouses from 25 to 6. GST regime led to the creation of centralized warehouses serving wide customer bases. Operation of such facilities need a professional expertise, which can be offered by 3PL service providers. There is also now good scope and possibility to do more and more value additions by 3PL providers.
Shankar R, CEO – TVSLSL India: The logistics market in India is undergoing a sea change… the change is enabled by regulatory changes, technological adoption, need for an agile supply chain and by ‘organizing the unorganized’. The need for supply chain & logistics being a key lever for operational improvement and cost & market competitiveness, is understood by many companies including emerging and smaller sized organizations.
Adoption of technology to increase efficiency and reduce delivery cycle times has brought value in the last mile and significantly improved visibility across the supply chain. The granting of infrastructure status to the Logistics Industry is leading to high-quality warehouses of a good size, scale, and equipment being constructed. Multimodel movement of goods have started gaining traction. Digitization of the entire supply chain including the introduction of e- way bill is slowly making paperless transactions feasible. Initiatives like ‘Make in India’ is giving thrust on manufacturing and exports, thereby having a higher demand for value-added supply chain & logistics services. Data Analytics is helping in the optimization of inventory, reduction of overall costs, ensuring that the demand is met on time and is also leading to better revenue generation as ever-changing customer needs are well understood and demand fulfilled. Low cost automation in material handling in the warehouse is ensuring increased throughput and higher levels of accuracy in Storage and order execution. The changes are ongoing and significant shifts are becoming a way of life for the industry.
TAB Barathi, Vice President (SCM), Wheels India Ltd: During the early days, logistics used to be just seen as the external service and was considered the service providers’ responsibility to move goods from one place to another. Over the last decade, it has transformed itself. The understanding or the awareness of the core industry has changed over the last decade in the sense that they have understood that it’s better to focus on core competencies and delegate responsibilities to domain experts to move the goods and make it available to the customers in the most efficient and effective manner. In the initial years, 3PLs were looked down as only services providers who were providing transport services. Eventually organizations felt that these 3PLs can be upgraded to do better work. They can be taken to the next level imparting right intelligence and input and value to the total chain of activities, which made them a very important link of the value chain. In fact, these companies have more information and data about customers’ preferences, market intelligence, etc., which are passed on to the companies for product enhancement. So, the value of 3PL providers have slowly expanded to be the external arm of the marketing system of the company.
How do these changes spell for your growth?
Dr Arunachalam R: At ProConnect, we strive to ensure we keep up with the developments in the industry. As I mentioned earlier, software driven process and digitalization help in maintaining efficiency, better visibility and data transparency. E-Way bill has helped in reduction of idle time in the Trucking Industry. Tech enabled solutions, ERP implementation in warehousing & transportation provide one stop solution for the clients. Acquisitions give us the necessary impetus in geo-expansion, tech enablement, penetration into new verticals and drive synergy.
Shankar R: The overall increase in demand has gone up as organizations have realized that it is better to ‘outsource’ their logistics and supply chain requirements to 3PL organizations who are specialists in this area. The adoption of technology & digitization and cloud-based technology has helped to start and scale up these solutions faster. Organizations are realizing the value of solutions approach rather than a transactional approach. This is increasing the demand for 3PL players as customer value the solutions 3PL players could provide to their organizations. Demand for value-added services are helping us to grow – Packaging bundled with transportation, reverse logistics, repairs management, vendor managed inventory and assembly services for in-bound Supply Chain are some of the services in high demand. Use of technology – RFIDs, IoT, etc., are helping in optimization of warehouse space, leading to higher efficiencies. This is also leading to growth for players like us as we have invested in these already.
What are the challenges still being faced in addressing customer needs and requirements and vice versa?
Dr Arunachalam R: With lot of advances in technology, customer expectations have increased. It is not just about providing customers with better storage warehouse or timely deliveries, it has gone way beyond that. The key challenge is to transform & adapt quickly with technology. Moreover, with these services, 3PL players needs to be cost effective as customer wants all these services but at a very competitive pricing.
Anand Maithani: One of the biggest constraints of 3PLs is the lack of good quality talent that they attract or retain. They need to build a talent pool of cutting-edge professionals who can partner with industry to understand the nuances of each customer's business and delivery high quality solutions tailored to customer requirements. 3PLs need to build capabilities to deliver execution excellence in times of uncertainty. They need to handle the challenge of managing seamless customer experience despite volatility in demand. Safety culture in 3PLs is still primarily driven by customer requirements. They need to put a lot of sincere efforts in building a safety culture within their organizations which will have a positive rub off on their own businesses as well as customer satisfaction in the long run.
Laxmana Murthy: I believe 3PLs need to work on these core areas to gain growth and grow their businesses:
COST COMPETITIVENESS – Building a solution which is affordable to the customers is going to be a big challenge. Most of the industries that operate on tough margins and SGA expenses are always under pressure. The challenge is in building a solution, which is cost competitive. Obviously, this gives an opportunity to the providers who can master this challenge.
SCALE OF OPERATION – To be competitive, one must build facilities with bigger capacities, which can serve multiple clients. With the combination of bigger size and multi-clients, cost competitiveness can be targeted. From user industry perspective, the choice will be more and more towards multi-client facility. Multi-client facilities offer the advantage of compensating impacts in terms of volume fluctuations on the operations.
LOW COST PROCESS AUTOMATION - India is in a transition phase of moving from Manual mode to Auto Mode operations. To meet the service level expectations of user industry by meeting the expectations of cost competitiveness & Scale of operations, one has to explore this low-cost process automation. This is one area, which has great potential and needs exploitation. Not all user industry can afford high end automation and the need of the hour is finding low cost automation, which can be done with good innovation. Future belongs to the players who understand and implement the same.
Shankar R: Change management, being a critical element of supply chain transformation, will define your growth in the market as it is the ability of employees across all levels of the organization to embrace change especially at some of the traditional organizations. Infrastructure bottlenecks do exist, leading to a higher cost of logistics as a percentage of GDP especially compared to advanced economies. Pilferage, shrinkage and wastage are some of the reasons for the overall costs being high. High level of volatility and uncertainty is leading to some buffers being created across the value chain, leading to cost penalties. Lack of skilled manpower across all levels is a very crucial challenge throughout an industry and organizational level where many actions are already being taken.
What are the emerging technologies you feel will make a positive impact in the years to come?
Dr Arunachalam R: Though we all talk about Uberization but still there is a long way to go in terms of channelizing it in long haul movements. But indeed, this will emerge as a positive impact with consolidation, route optimization, vendor aggregation, reverse haul and drive cost efficiency. Blockchain will help highly encrypted business transactions and distribution of data with multiple stakeholders. Tech enabled processes pave the way for an organized 3PL structure.
Shankar R: Real-time monitoring of goods with IoT and automation of repetitive processes, machines assisting labor-intensive work, implementation of cloud-based predictive analytics with real-time information will make a positive impact in the coming years. Forecasting the demand and having the right inventory on hand by leveraging the data (big data) can help reduce the wastage and avoid unnecessary stock in the inventory. On-demand trucking as opposed to the traditional truck sourcing through agents/middlemen directly connects the fleet owners with the changing requirements. It helps in reducing the lead time, cost incurred on agents and prompts faster delivery of products.
Blockchain with its acceptance in the financial world is expected to expand in the supply chain industry by increasing the efficiencies and avoiding redundant activities. The transactions can be made simple as the data can’t be tampered with leading to optimization and visibility of process in the supply chain. Low-cost automation is in high demand, whereas for high precision and high throughput warehouses high-cost robotics are implemented. Unlike the developed markets, India has an abundant workforce, hence the warehouse robotics will be focused on improving the overall efficiency of the warehouse rather than the replacement of labor.
How have the customers evolved since GST?
Dr Arunachalam R: Customers now know that GST has enabled logistics with transformation with respect to lesser documentation and consolidation with unified tax system. Rapid deliveries with reduction in transit time have enabled customers to provide quicker services especially in ecommerce and meet the expectations of their end customers. Customers are adapting towards hub & spoke model which is cost efficient for them.
Shankar R: The importance of supply chain and logistics has been very well understood by all customers post-GST. From optimizing their network and to be tax-efficient, organizations are moving to become network efficient. Customers are opting for network redesign, reducing the number of warehouses through cost reduction, adopting the hub & spoke model and optimizing their entire supply chain. With the reduction in transit times, customers are realigning their inventories, reducing safety stocks and becoming more agile by producing products and variants at centralized locations rather than at multiple locations taking advantage of scale.
What are the opportunistic horizons waiting to be harnessed by the 3PLs?
TAB Barathi: A 3PL still needs to integrate as a part of the company and given the due respect and preference. Today customers are directly talking to 3PL companies about their demands and asking them to aggregate the products from different suppliers, which is a great step in itself. For this to happen at a larger scale, 3PL companies should transform themselves into a completely integrated entity. Efficiency and execution levels of 3PLs need to be enhanced. We need to move from integrated logistics to intelligent logistics. It’s the human intelligence and skill levels behind the sophisticated machines that have come into play that help the entire system to work in the desired way and ultimately up the reputation of the industry. There needs to be a structured way of enhancing the skill levels of the people behind those machines to take timely decision. 3PLs are working with different industry verticals, which de-risk their ability to grow. Of course, it comes with responsibility. They need to develop required skills for catering to different industries. There would also be chances of cross-industry learning. There has to be a large spectrum of understanding in trying to capture the needs of different industry verticals and finetuning activities and execute operations accordingly.
Anand Maithani: As shippers increase replenishment frequency, shipment lot sizes will vary from truck loads to case level going down to piece level. 3PLs with full stack capabilities to meet these requirements with increased efficiency will emerge winners. There is an opportunity for ‘vertical focused’ 3PLs who can move from service provider to partner. That, however, will be possible only when 3PLs have a stake in the ground by offering year on year improvements/cost reductions coupled with a long-term engagement. This would be a win-win scenario.
Laxmana Murthy: 3PLs need to provide a comprehensive solution. They need to move from being a simple warehouse operator to a solution provider. While most of the players claim these things, in reality, not all of them are able to bring the value to the customers. Another key factor which even the strong players have to work on is building the domain expertise. 3PL providers should not only be good at meeting the basic service levels, but also be strong in terms of logistics analysis, inventory management, industrial engineering, etc. With this expertise, the 3PL providers can act as an extended arm of customer’s supply chain. This is clearly lacking today and should be worked upon.
Setting up global benchmarks in terms of service levels is another aspect to be worked upon. Consistent and sustainable performance is another key topic to be worked upon. With the changing business landscape and evolving customer expectations, there is an evolution happening in the people skill sets. Skill sets of yesteryears are no more enough to meet these changing needs. 3PL industry needs people who are very strong on analytical and digital skill sets in addition to functional expertise. Without this quality manpower, it will be difficult to meet the user industry needs.