Outsourcing is vital to the
success of the supply chain industry and recognizing this, ETIG has been
tracking this vital issue since the first SCM survey in 2001. The very
growth and survival of the industry depends on the willingness of clients to
let a third party do non-core functions. Fortunately, as India integrates
rapidly into the world economy, India Inc is realizing that some things are
best not done by themselves. Most leading companies have now figured out
where their core expertise lies, and it’s not in logistics functions.
Transportation, not surprisingly, remains the most outsourced function in
supply chain, with 67% of all respondents doing it. This is much in line
with the trend observed in the past two surveys as well. Companies continue
to farm out trucking of finished products and raw materials to third parties
– most often the same trucker handles both inbound and outbound. However, a
trend worth noting is the increasing use of supply chain vendors who are
given the responsibility for transportation as well. These are now called ‘lead logistics
providers’, or LLP, and reduce the points of contact from
multiple truckers/ agents to just one – that of the LLP. In turn, this saves
time and cost for the cost for the client5 and fixes responsibility at one
The point of interest that the third SCM survey
the increasing outsourcing of warehousing. 33% of
respondents now outsource to third party logistics companies,
and not just to carrying and forwarding (CFA) agents,
against 27% in 2004.
This confirms a trend very visible in Indian logistics
in the past one year. Warehousing hubs are developing around the metros,
like Bhiwandi, near Mumbai ; Gurgaon, near Delhi, and Hosur, near Bangalore.
Nagpur, in almost the dead center of India, is already being touted being
touted as the central hub, once VAT comes in its full form. Supply Chain
service providers are putting in big money into warehousing as well, going
in for 50-feet ceilings, track and trace within the warehouse, docking
stations, warehouse management system (WMS) and online connectivity for
clients to see their inventory. This will be a virtuous cycle as well as
more supply chain companies invest in warehousing as a key business segment,
clients will allow more functions to be outsourced- like billing, receipts,
physical stock taking, track and trace and even demand fulfillment.
Not just space, but potential money
Some interesting facts are also revealed for warehousing. 37% of all
respondents say the warehousing cost for outbound products has remained much
the same as last year; and 16% say it has reduced between 1-10% (see chart
‘outbound warehousing costs’).
For inbound, material coming into the
factories and need to be stored either on
premises or in third party warehouses, 47%
respondents say cost of warehousing has remained
the same; while 8% say it has fallen between
1-10%. These numbers should be seen in the
background of several infrastructure
related costs- the partial implementation of
investment by service providers and road
networks allowing more direct transportation of
goods. Significantly, even as the business
volumes, in domestic and exports, rise, the
costs of warehousing aren’t. This suggests that
more value add is happening at same or
marginally higher rates, and that in turn means
that competition is hotting up. The next battleground for logistics companies
will be warehousing, without a doubt.
A corollary of increased warehousing
outsourcing is the doubling of spare parts
management outsourcing. Typically, spare parts
need hourly, rather than daily or weekly
replenishment. The fact that many more
now willing to outsource spare parts management to
logistics service providers suggests that quality,
quantity, scalability and assurance are all improving.
It also opens up a whole new business area for logistics,
that of time bound express distribution.
Some way to go yet
Invoicing, order management and inventory management still remain
low-priority areas for India Inc. Again, these areas are contingent on many
associated areas developing, and attracting investment- a prime one being
warehousing as a business and not just use of space. As the survey reveals,
warehousing coupled with the hub and spoke system of logistics offers the
ability to really manage inventory- and much higher margins that pure
trucking. Watch for an increasing level of inventory management outsourcing.
Already examples abound. Service providers have standards of 4 hour
replenishment of computer goods; digital cameras are distributed to metro
cities within 4 hours of order placement; or SIM cards for mobiles are moved
from A to Â within 2 hours-and all of this is done by the service provider,
not the brand owner. Signals are triggered to the client’s ERP/ production
system depending on the level of stock at the warehouse.