Where is 3PL headed?
The surge of e-commerce has changed the definition of ‘service window’. Such factors have pushed organisations to think about outsourcing of logistics activities and managing them more efficiently
Third Party Logistics (3PL) is one of the fastest growing segments in the Indian supply chain market. Though it holds much scope, the segment, at present, is riddled with challenges, some industry-wide and some that need to be addressed on a case-by-case basis. Vikas Khatri, Founder, Aviral Consulting, explains...
The 3PL market is divided between traditional 3PL players and new-age, e-commerce centric 3PL players. New-age players are, by and large, unicommerce companies like Delhivery and Ecom Express, funded by private equity players. Even e-commerce companies like Amazon are providing fulfilment services to their sellers and registering their presence in the 3PL market. While the traditional 3PL market is highly fragmented with many small players, a new set of Indian organised players is also growing rapidly. Implementation of GST has fuelled the growth of the 3PL market, and most of the service users are revisiting their existing network for optimisation. On the other hand, the surge of e-commerce has changed the definition of ‘service window’ to serve the customer. Such factors have pushed organisations to think about outsourcing of logistics activities and managing them more efficiently. Though the growth of the 3PL industry is attractive, business in this segment has huge challenges in terms of implementation. CHALLENGES
Shortage of skilled
manpower: The skillset of logistics companies needs significant upgrade to be more efficient and competitive. The sector needs a pool of personnel comprising truck drivers, warehouse operation staff, managers, quality checkers, etc., but there is a limited number of institutes for operational and technical training specific to industry needs.
Customisation: Each customer has unique and specific processes, as well as unique requirements, which make implementation and delivery challenging. Barring some of the smaller 3PL contracts, most of the larger ones are a project in themselves and 3PL organisations need to manage them accordingly, in line with specific requirements.
Poor collaborations with
shippers: For longevity and better yield of outsourcing to 3PL, the collaboration is required at a strategic level instead of a transactional one. The real challenge begins when shippers start looking at the relationship as transactional or tactical.
Inadequate infrastructure
and transportation: There is still a lack of quality infrastructure in India. Transportation is outsourced to other vendors by 3PL players in most of the cases, where the majority is unorganised. In such a scenario, 3PL companies also slog to get good transportation output.
Pressure of innovation and
automation: Increasing complexities of supply chain, crushing lead time, and the ever-increasing pressure of efficiency improvement require innovation and automation, which in turn requires substantial investment in talent and technology. Almost each 3PL organisation faces the pressure of innovation to match expectations. Pricing and profitability: Another challenge for a 3PL organisation is to deliver efficiency in the best cost structure. Today, most of the rate negotiations of large 3PL contracts happen on an open-book basis with a thin management fee. Any inefficiency, incorrect action, or error of estimation may lead to direct losses for 3PL service providers.