Good logistics cuts costs, speeds work and improves customer services

With India’s gross domestic profit (GDP) growing at over 9% per year and the manufacturing sector enjoying double digit growth rates, the Indian logistics industry is at an inflection point and is expected to reach a market size of over $125 billion in the year 2010.

However, as a result of the under developed trade and logistics infrastructure the logistics cost of the Indian economy is over 13% of GDP compared to less than 10% of GDP in almost the entire Western Europe ad North America.

The Indian logistics industry is characterized by the dominance of a disorganized market. Transporters with fleets smaller than five trucks account for over two thirds of the total trucks owned and operated in India and make up 80% of revenues. The freight forwarding segment is also represented by thousands of small customs brokers an clearing & forwarding agents, who cater to local cargo requirements.

A logistic strategy can either be a pull strategy or a push strategy. A pull logistics strategy has orders for merchandise being generated at the store level, on the basis of demand data captured by the POS terminals. A push logistics strategy has merchandise allocated to stores based on historical demand, the inventory position of the store and at the warehouse.

As retail operations become more complex and the flow of information within the organization is established more retailers are now moving towards the pull strategy. At the heart of logistics is the distribution Center (DC). It serves functions from coordinating inbound transportation receiving, checking, storing and cross docking to coordinating outbound transportation.

The method of handling logistics largely depends on the nature of the industry ad the number of outlets that the organization would have in each city, state or region. Food World a grocery retail chain in India works on the hub and spoke system. The hub is the Distribution Center which it develops in each city. The hub services all the shops in that particular city.

On the other hand, a department store like Shopper’s Stop may find that it is not feasible to develop and maintain a Distribution Center in each city as it would have one or at the most two shops in every city. In such a case, a Regional Distribution Center may be developed. Some retail organizations in India like Globus, have outsourced their needs for logistics and distribution.

Emerging Concepts in Logistics

Third party Logistics

3PL / outsourced logistics is the outsourcing of a company’s logistics operations to a specialized firm, which provides multiple tactical logistics services for use by customers as opposed to the respective company having a business unit in-house to oversee its supply chain and transportation of goods.

A third part logistics provider can be defined as the supply of logistics related operations between traders by independent organizations. The trend of moving towards specialist providers of the services is increasing since as companies tend to spread their business across the globe, the need for specialist providers of services increases. A third party logistics provider (3PL) provider may provide logistics services to companies for part or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to suit the customer’s needs, based on market conditions and the demands and delivery service requirements for his products and materials.

According to Data monitor, outsourced logistics at just above one quarter of the entire $90 billion Indian logistics market is slated to grow at a compound annual growth rate (CAGR) of over 16% from 2007-10.

In order to reduce logistics costs and focus on core competencies Indian companies cross verticals are now increasingly seeking and using the services of third party logistics service providers (3PLs).

Realizing the potential in the contract logistics market, 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw materials. Trucking and courier companies are now leveraging their network to provide express distribution and warehousing. Similarly freight forwarders are moving towards owning assets in the form of container freight stations ( CFS) , Inland Container Deports (ICD) and container trains.

Furthermore 3Pls are also increasing investments to become end to end integrated players As per the investment plans of the leading 3PLs in India, the logistics industry’s capital expenditure is progressively increasing to almost its revenue growth, a strong indicator of both 3PLs desiring to become integrated service providers and the industry enjoying investments driven growth.