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3PL practices: an Indianperspective
B.S. Sahay and Ramneesh MohanInstitute of Management Technology, Ghaziabad, India
Abstract
Purpose – To carry out a comprehensive survey on 3PL practices in India and to establish the impactof usage of third party logistics services on business results.
Design/methodology/approach – Begins by analysing the studies carried out on 3PL practicesand establishing a research framework. The input variables to the research framework depict theorganization-specific characteristics, such as the extent of usage of 3PL services, the reasons foroutsourcing and the impact of the usage of 3PL services. The output function of future usage of 3PLservices is influenced by the three input variables. Data collected through survey questionnaire on theinput and output variables are used to establish impact of usage of 3PL services on businessperformance through statistical analysis.
Findings – The usage of 3PL services reveals positive and significant impact on businessperformance though 3PL practices are still at a nascent stage in India. Additionally, results clearlyindicate that significant increase in outsourcing has been planned across all activities of the logisticsfunction in the next 2-5 years.
Research limitations/implications – Further research work should focus on managing 3PLrelationships; selection and contract management of 3PL service providers for building collaborativesupply chain partnerships; and identifying critical success factors for 3PL implementation andestablishing performance measures for long-term 3PL relationships.
Practical implications – Detailed study to motivate supply chain managers to outsource and use3PL services to focus on the core business, drive logistics cost reduction, and improve supply chainefficiency. These indicators should also help the 3PL service providers plan the depth and scope oftheir service offerings to user organizations in India.
Originality/value – The paper contributes to the current 3PL and supply chain practices and theemerging trends in 3PL services for achieving improved business results and supply chain efficiencies.
Keywords Supply chain management, Outsourcing, India
Paper type Research paper
IntroductionOutsourcing of logistics function is a business dynamics of growing importance allover the world. A growing awareness that competitive advantage comes from thedelivery process as much as from the product has been instrumental in upgradinglogistics from its traditional backroom function to a strategic boardroom function(Razzaque and Sheng, 1998). In order to handle its logistics activities effectively andefficiently, a company may consider the following options – it can provide the functionin-house by making the service, or it can own logistics subsidiaries through setting upor buying a logistics firm, or it can outsource the function and buy the service.Currently, there has been a growing interest in the third option, i.e. outsourcing oflogistics functions to third party logistics service providers.
Third party logistics services are widely prevalent in North America (Lieb, 1992;Lieb and Randall, 1996) and Europe (Lieb et al., 1993) and have been examined in anumber of previous studies. Similar studies have focused on logistics issues in
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International Journal of PhysicalDistribution & Logistics ManagementVol. 36 No. 9, 2006pp. 666-689q Emerald Group Publishing Limited0960-0035DOI 10.1108/09600030610710845
Bulgaria (Bloomen and Petrov, 1994), South Africa (Cilliers and Nagel, 1994), Australia(Dapiran et al., 1996), Korea (Kim, 1996), Asia Pacific (Millen and Sohal, 1996),Singapore (Bhatnagar et al., 1999), and Indochina (Goh and Ang, 2000). These countrieshave availed large benefits of 3PL services over the last few years. However, to datethere has been no comprehensive study reported in the literature that has focused onthird party logistics services in India. There are many isolated examples of individualorganizations and their respective logistics capabilities. Hence, it was consideredimportant to carry out a comprehensive survey on 3PL practices in India.
The paper has been organized as follows. In the next two sections, we present a briefdescription of the Indian transport environment followed by a review of the relevantsegments of literature. Subsequently, we outline the research methodology which isthen followed by the results, based on data analysis, from the survey. Finally, futuretrends and conclusions arising from this research are presented.
The Indian transportation environmentWith a gross domestics product (GDP) of over US$475 billion, the Indian industryspends 14 per cent of its GDP on logistics. The Indian logistics environment comprisesroad transport companies, railways, air freight companies, inter-modal transportproviders, ports and shipping companies, as well as 3PL companies. Their performanceis critically dependent on the state of infrastructure – roads, railways, ports andairports.
Roads and truckingIndia has a fairly widespread road network totalling to 2.7 million km of road length(1996-1997), the third largest road network in the world. According to estimates of theplanning commission, the roads carried just 11 per cent of goods and 28 per cent ofpassengers during 1950-1951. The proportions stood at 60 per cent for goods and80 per cent for passengers during 1995. Express and National highways constitute only1.4 per cent of the total road length but carry nearly 40 per cent of all freight movedthrough the road sector. Reach in the interiors of the mainland is limited with only48 per cent of the 0.55 million villages being connected with roads. This poses a seriouslimitation of access and connectivity to rural markets. Overall the quality of roads isvery poor, resulting in slow transport speeds, increased wear and tear of vehicles andhigh accident rates. Despite suspect quality, the share of freight passing through roadshas grown to 61 per cent in 2001. The Indian Government has initiated a mega project,called National Highway Development Program, for four-laning of highwaysconnecting the four metros of India and the North-South and East-West corridor.Completion of this project by 2007 is expected to have a great impact on transportationtimes and costs.
Rail transportThe Indian Railway network is a government monopoly in India and is fraught withhidden efficiencies. It is the second largest railroad systems in the world covering aroute length of 62,809 km (1998-1999). This facilitates 4,630.05 millions of passengersand 450 million tonnes of freight movement every year (CMIE, 1999). However, thesystem of variable freight rates depending on class of commodities has discouragedsome of the industries from using rail transport. At the same time, the total cost of
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using the rail network is high due to handling requirements and the time and cost ofarranging pick-up and drop of consignment to and from railway facilities. This resultsin the slow average speed of freight movement and low average wagon turnaroundtime, which are major concerns for the logisticians in the country. Currently, the IndianRailways is making efforts to improve its services by introducing special freight trains,which offer much quicker transportation times, and offering multi-modal facilities toreduce handling times through containerized cargo movement by Concor (ContainerCorporation of India).
Airports and air cargoThe six international and 87 domestic airports handle 0.22 million metric tonnes ofdomestic cargo and 0.468 million metric tonnes of international cargo, which isextremely poor in terms of world standards. This is because the air cargo is used onlywhen sea trade could not be used either due to time or space constraint. This poses aserious limitation in procurement, especially when companies are looking at adoptingglobal sourcing strategies to reduce costs and enhance product quality. To make aircargo more attractive and efficient, the Indian government has initiated some majorsteps which include – introduction of “open sky” policy, introduction of integrated cargomanagement system at four metro airports, provision of centres for perishable cargo andsynchronization of working hours for city side operation for export and import activities.
Seaports and shippingThere are 11 major ports that handle the total foreign trade of the country amounting to271.92 million tonnes (1998-1999). The facility and infrastructure of Indian ports arerated low on global standards primarily on account of lack of storage space and outdatedhandling equipment. As a result, India’s share in the global maritime is miniscule thoughthe Indian fleet of vessels represent a little over 1 per cent of the global registeredtonnage. Owing to lower draft, the average size of the Indian ports is much smaller thanprevailing sizes internationally. Also, most Indian sea ports are inefficient in loading andunloading operations. The result is that ships are stuck for longer time here, whichmultiples the cost for the shipper by as much as 10-20 per cent. The granting ofinfrastructural status to the shipping industry is expected to give financial and taxbenefits for the development of this transport mode in the coming years.
All the factors related to transport infrastructure stated above have adverselyaffected the logistics network in the country – both in terms of lead-time and costs(Korgaonker, 1990a, b). However, a host of policy changes currently underway isexpected to bring about a positive change in the Indian transportation environment.This provides vast opportunities for companies offering logistics services in thecountry and hence augurs good news for Indian organizations to reduce logistics costsby using third party logistics services for enhanced supply chain efficiencies.
Literature reviewOutsourcing, third party logistics services (3PL) and contract logistics generally meanthe same thing (Lieb et al., 1993). It involves the use of external companies to performlogistics functions, which have traditionally been performed within an organization.The functions performed by third party logistics service providers can encompass theentire logistics process or select activities within that process.
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A key rationale for outsourcing of logistics functions is the intensified globalizationof businesses. During the last two decades, globalization has emerged as a major forceof shaping business strategies, leading firms to develop products designed for a globalmarket and to source components globally (Cooper, 1993). This has led to more complexsupply chains requiring larger involvement of managers in logistics functions. Lack ofspecific knowledge of customs, tax regulations and infrastructure of destinationcountries has forced firms to acquire expertise of third party logistics service providers.As a result firms are concentrating their energies on core activities and leaving the rest tospecialist firms (Byrne, 1993; Foster and Muller, 1990; Trunick, 1989).
An equally important development that is impacting the logistics industry isthe increased emphasis on supply chain management as a source of competitiveadvantage. In the last two decades, the quest for time-based competence led initially toa rapid adoption of new manufacturing methods like just-in-time, flexiblemanufacturing systems, computer aided manufacturing and so on by organizations.These methods have brought about significant improvements in supply chainperformance through their focus on compressed manufacturing lead times andimproved quality. However, further enhancements in supply chain performance willnecessitate speeding the flow of information on orders to upstream supply chainpartners, and expediting logistics activities like storage and delivery of materials orproducts through the entire supply chain (Bhatnagar et al., 1999). A recent researchcarried out on supply chain management practices in India highlights that the openingof Indian economy and globalization of businesses has been a key factor for the Indianindustry to align supply chain strategy with business strategy, streamline processesfor supply chain integration and form partnerships for minimizing inventories. Indianorganizations are increasingly deploying supply chain strategies for logisticsimprovements – to increase sales revenue, enhance profits, reduce order to deliverycycle time and minimize inventories (Sahay and Mohan, 2003).
Logistics is therefore emerging as a key frontier of competition in the future. Goodlogistics performance requires a tradeoff between the need to reduce overall supplychain inventory and lead times, while simultaneously capturing economies of scale andimproving customer service for enhanced business performance. Versatility of thirdparty logistics service providers enables them to maintain this trade-off by turningfixed costs into variable costs for companies using their services (Trunick, 1989). Theuse of third party logistics service providers has gained prominence in this context.
Empirical studies have tested the following factors in defining the extent of usage(Lieb, 1992; Dapiran et al., 1996; Bhatnagar et al., 1999):
. Length of experience with third party logistics firms.
. Level of commitment to the usage of third party logistics services.
. Percentage of the total logistics budget allocated to third party logistics serviceproviders.
. Specific logistics services outsourced (warehouse management, shipmentconsolidation, fleet management, order fulfilment, product returns, carrierselection, logistics information systems, rate negotiation, product assembly, orderprocessing, inventory replenishment, order picking, inbound transportation,outbound transportation, labelling and packaging, distribution, custom clearanceand forwarding, import export management, customer service/support).
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Lieb (1992), Lieb and Randall (1993), Lieb et al. (1996) have documented the experienceof North American and European companies in using third party logistics services.The studies indicated that European firms were significantly more committed andallocated a larger share of the overall logistics budget to their 3PL company, ascompared to their American counterparts. However, companies from both regionsagreed that outsourcing need not be an all or nothing proposition. There seemed to beconsensus on “what” services to outsource, with warehousing, shipment consolidation,and fleet management being the three services most frequently outsourced.
Dapiran et al. (1996) have presented an overview of the 3PL usage by largeAustralian firms. The findings of these authors indicate that more than one-fifthAustralian firms characterize their commitment to 3PL as extensive, and one-quarter ofthe firms allocate more than 50 per cent of their total logistics budget to third partylogistics service providers. Fleet management, warehouse management, and shipmentconsolidation were the most frequently outsourced logistics services.
Bhatnagar et al. (1999) have analysed the third party logistics scenario forSingaporean firms. The studies reveal that Singaporean firms have been utilizing theservices of 3PL service providers for several years with over three-quarters of the userscharacterizing their commitment as moderate or extensive, and one-half of the firmsallocating over 30 per cent of their total logistics budget to third party logistics serviceproviders. Shipment consolidation is outsourced by more than one-half of the firms andaround 40 per cent of the firms outsource order fulfilment, carrier selection and freightpayment.
At the same time, studies indicate that firms outsource logistics functions for avariety of reasons. Watson and Pitt (1989), Sheffi (1990), Foster and Muller (1990), andBardi and Tracey (1991) have suggested the following reasons for the growth oflogistics outsourcing in America: need to focus on core activities, better transportationsolutions (e.g. consolidation), cost savings, customized services, reducing inventory,penetrating markets, becoming more active in international shipping, gaining the useof sophisticated technology, need for more professional and better-equipped logisticsservices. Gooley (1992) added flexibility as another reason for outsourcing based on hisexperience with European firms. By understanding the reasons for outsourcing oflogistics services, 3PL service providers can gain insight into the benefits sought andprovide focused services. A third party logistics service provider with experience,focus and expertise is regarded as more competent, compared to those serviceproviders who profess to be “all things to any consumer” (Sink et al., 1996).
The research on supply chain management practices in India has identified thatoutsourcing of logistics activities is growing in popularity for Indian organizations andthere has been an increase in the number of third party logistics providers over the lastcouple of years (Sahay and Mohan, 2003). The major reasons cited for usage of 3PLservices include – cost reduction (27 per cent), strategic reasons (26 per cent), processeffectiveness (24 per cent), and lack of internal capability (11 per cent).
Usage of third party logistics services is a strategic decision and hence it isnecessary to perceive and quantify the impact it has on business performance. Thepurpose of engaging in third party relations is seldom cost reduction alone, but acombination of service improvements and efficient operations (Skjott-Larsen, 2000).Studies based on user firms indicate that the decision is worthwhile if it has an impacton one or more factors depicted in Table I.
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Lieb et al. (1993), Dapiran et al. (1996) and Bhatnagar et al. (1999) have observed thatthe future usage of third party logistics services is a function of the current level ofsatisfaction of the firm with the logistics services provider. The authors have alsoexplored the changes in the level and the nature of outsourcing of logistics services bythe user firms. All the above studies indicate high levels of satisfaction with third partylogistics services providers, which will translate in increased outsourcing in the future.Typically, firms start with the outsourcing of few logistics services, moving over toactivities which have maximum impact on logistics performance and then increasescope of usage of logistics services with perceived and quantifiable impact on overallbusiness performance.
The above studies provide a robust framework for the research methodology foranalyzing the third party logistics practices in India. The input variables to theresearch framework depict the organization-specific characteristics, such as the extentof usage of third party logistics services, the reasons for outsourcing and the impact ofthe usage of third party logistics services. The output function of future usage of thirdparty logistics services is influenced by the three input variables. This researchframework is shown in Figure 1.
Research methodologyTo determine the usage of third party logistics practices in India, a mail survey wasconducted during 2002-2003. The survey questionnaire was designed based on thestudies carried out by Lieb et al. (1993), Dapiran et al. (1996), Bhatnagar et al. (1999),Larrhoven et al. (2000) and Sahay and Maini (2002). The survey instrument focused onthe following areas:
. importance of various logistics activities to organizations;
. extent of usage of services offered by third party logistics service providers forcarrying out specific logistics activities;
Factor Identified by (year)
Impact on customer satisfaction Gooley (1992); and Lieb et al. (1993)Impact on logistics system performance Lieb et al. (1993) and Dapiran et al. (1996) and
Bhatnagar et al. (1999)Reduction in capital investment in facilities Foster and Muller (1990) and Richardson (1992,
1995)Reduction in capital investment in equipment Fantasia (1993), Foster and Muller (1990) and
Richardson (1992)Reduction in investment in informationtechnology
Goldberg (1990), Sheffi (1990), Trunick (1990) andFantasia (1993)
Impact on employee morale Bowersox (1990) and Dapiran et al. (1996)Reduction in manpower cost Foster and Muller (1990) and Richardson (1992,
1995)Improvement on specific logistics functionparameters Minaham (1997) and Mc Mullan (1996)Improvement in inventory turnover rates Richardson (1990, 1995)Improvement in on-time delivery Richardson (1995)Increasing productivity Bradley (1995)
Table I.Impact of usage of 3PL
services – literaturereview
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. reasons for outsourcing;
. the impact of using third party logistics services on logistics performance,customer satisfaction and employee morale;
. the benefits of using third party logistics services on specific business objectives;
. the overall satisfaction with third party logistics service providers; and
. the future plans of current users of third party logistics services.
The respondents were requested to fill out the survey that best captured the currentstate of logistics issues in the organization with emphasis on outsourcing. In additionto the questionnaire survey and a number of personal visits to various organizationswere carried out to get first hand information related to this field as well as cross-checkon the responses received from the survey participants.
The target population for this study was the 2002 Business Today list of top500 organizations in India. The questionnaire together with the cover letter and apost-reply envelope were mailed to these organizations addressed to the aboveexecutives. Within a month of sending out the survey questionnaire 85 responseswere received. Thereafter reminder telephone calls were made to the remaining272 organizations that had not responded. As a result, 49 organizations responded
Figure 1.Schematic diagram ofresearch framework
Present extent of usage of Third Party Logistics services
Employment characteristics of users Number of 3PL providers used
Length of experienceGeographical coverage
Logistics services outsourcedImportance rating of logistics activities
Level of commitment to usage of 3PL servicesPercentage allocation of logistics budget to 3PL service providers
Reasons for Outsourcing
Focus on core competenciesLogistics cost reductionImbibe flexibility in operationsImproved customer servicesProductivity improvementsAccess to emerging technologyAccess to unfamiliar marketDiverting capital investment / Improve ROATo increase inventory turn
Impact of Usage of 3PL services
Organizational impactLogistics system performanceCustomer satisfactionEmployee Morale
Financial impactImpact on business objectives related to Logistics system performance
Future usage of Third Party Logistics services
Overall Satisfaction with 3PL service providersKeenness to increase usage of 3PL services
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more in the next two weeks. However, after data entry 4 responses were foundincomplete and hence inappropriate for detailed analysis. It resulted in the finalresponse rate of 130 or 26.0 per cent of the original sample of 500 organizations.
The response rate is in line with the previous studies conducted on third partylogistics services in North America, Europe, Australia and Singapore that were basedon 131, 53, 84 and 126 responses, respectively, (Lieb et al., 1993; Dapiran et al., 1996;Bhatnagar et al., 1999; Laarhoven et al., 2000) resulting in response rate of 12.6 per centin Australia and 16.8 per cent in Singapore. The response rate also compares well withthe previous study conducted on supply chain management practices in Indianindustry that had a response rate of 156 organizations or 9.0 per cent (Sahay and Maini,2002). Nonetheless with 74.0 per cent of the organizations receiving the questionnairebut not responding, raises the issue of non-response bias. Does this fact introduce anybias to the data and implications derived from the responding organizations? Do theresults reported in the study truly represent third party logistics practices in the Indianindustry? The issue of non-response bias was validated by hypothesis testing using x 2
test with 95 per cent confidence level and found that:
(1) There is no significant difference in the distribution of the response group andthe overall population by geographical area, ownership and industry category:. classification of population and respondents by geography: x 2 value ¼ 3.887;
df ¼ 3; p-value ¼ 0.274;. classification of population and respondents by ownership: x 2 value ¼ 1.785;
df ¼ 2; p-value ¼ 0.410; and. classification of population and respondents by industry: x 2 value ¼ 4.326;
df ¼ 9; p-value ¼ 0.889.
(2) There are no significant differences in the responses received before reminderand after reminder. Reminders were sent to the organizations that did notrespond to the first mailing and assisted in generating a reasonable overallresponse rate of 25.2 per cent:. classification of respondents before reminder and after reminder by
geography: x 2 value ¼ 2.687; df ¼ 3; p-value ¼ 0.442;. classification of respondents before reminder and after reminder by
ownership: x 2 value ¼ 2.560; df ¼ 2; p-value ¼ 0.278; and. classification of respondents before reminder and after reminder by
industry: x 2 value ¼ 5.472; df ¼ 9; p-value ¼ 0.791.
(3) Furthermore, the characteristics and experiences of the respondents afterreminder are not significantly different to those obtained by the first mailing:. Comparison of mean scores on impact of use of third party logistic services
on logistics performance, customer satisfaction and employee morale beforereminder and after reminder: sample 2-T test value ¼ 0.54; p-value ¼ 0.60;df ¼ 2.
The x 2 results provided validity to the sample size and eliminated the possibilityof non-response bias. Finally, detailed data analysis was performed on the usablesample size of 130 Indian organizations. Analysis of the data are presented in thefollowing section.
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ResultsParticipants profileThe responding organizations represented a broad cross-section of the industryincluding engineering, chemicals, FMCG, retail, automotive, textiles, metal,pharmaceuticals, trading, and telecom industries. However, majority of therespondents were from automotive, engineering, chemicals, metals and FMCG (Figure 2).
The respondents include a mix of public sector as well as the private sector. Theresponses are markedly better from public limited company, which constituted nearly63 per cent of the total sample, followed by private limited (34 per cent) and publicsector (3 per cent) organisations (Figure 3). About 44.1 per cent of the total respondentshad MNC stake. Of the respondents with MNC stake 21.57 per cent had stake less than25, 35.29 per cent had stake between 26 and 50 per cent, 21.57 per cent had between51 and 75 per cent and equal percentage between 75 and 100 per cent.
Figure 2.Classification ofrespondents by industry
1.8
2.8
3.7
3.7
4.6
4.6
7.3
21
22.9
27.5
0 5 10 15 20 25 30
Transportation
Telecommunications
Services
Textiles/ Apparel
FMCG
Metals
Chemicals/ Fertilisers
Others
Engineering
Automotive
Percentage of Respondents
Figure 3.Classification ofrespondents by ownership
Private 34%
Public Sector3%
Public Limited63%
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Responding companies had turnovers ranging from as low as Rs 30 lacs-16,000 croreper annum. Majority of the companies had turnover ranging from Rs 100-500 crore perannum (FY 2002 figures) as shown in Figure 4. Overall, the respondent organizationsrepresented a combined turnover of US $350million in the financial year 2001-2002.
Present extent of usage of third party logistics servicesAbout 55.4 per cent respondents indicated that their organizations use third partylogistics services, while 44.6 per cent do not currently outsource logistics functions tothird party logistics service providers. Of those organizations currently outsourcinglogistics services, 82.3 per cent indicated that their firms employed the services ofmore than one logistics service provider. Furthermore, 28.6 per cent of these have beenusing the services of third party logistics service providers for over three years.Another 18.8 per cent have been working with third party logistics service providersfor 1-3 years. This indicates a relatively low amount of experience with third partylogistics service providers in India as a result of which the concept of outsourcinglogistics functions to third party logistics service providers is still in its nascentstage in India. This is in contrast to studies conducted in developed countries likeNorth America, Europe, Australia and Singapore (Lieb et al., 1993; Dapiran et al., 1996;Bhatnagar et al., 1999).
The employment characteristics of the respondents are shown in Table II.Hypothesis testing indicates that there is no significant difference between the firmsthat choose to outsource and those who do not, in terms of their current employment(x 2 test value ¼ 4.248; df ¼ 4; p-value ¼ 0.374; hence not significant at 95 per centconfidence level).
Figure 4.Classification of
respondents by turnover
< 50 cr22%
50 to 100 cr13%
100 to 500 cr36%
500 to 1000 cr11%
> 1000 cr18%
Current employment Outsourcing (per cent) Not outsourcing (per cent)
,100 21 15100–499 13 21500–999 8 181,000–4,999 16 10.5,000 5 10No response 37 26
Table II.Employment
characteristics ofresponding firms
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Out of the total no of respondents, more than half the organizations have alreadyoutsourced logistics activities such as outbound transportation (55.7 per cent), inboundtransportation (52.2 per cent) and custom clearing and forwarding (51.5 per cent). Otherlogistics activities that have been outsourced by more than a fourth of the respondents areimport and export management (34.5 per cent), outbound warehousing (33.9 per cent),inbound warehousing (29.5 per cent), labelling and packing (29 per cent), fleetmanagement and consolidation (28.6 per cent), order picking (27 per cent) and inventorymanagement (23.5 per cent) indicating that these are the more important services that arealready being outsourced. The logistics functions that are least outsourced includemarketing sales promotion, assembly/installation, selected manufacturing and customerservice/support.
To determine why organizations decide to outsource certain logistics functions,respondents were asked to indicate the importance of the same set of logistics functionson a five-point Likert scale, with a score of 1 indicating “not important” and a score of 5indicating “very important”. The responses to importance rating and the extent ofoutsourcing of all logistics functions are presented in Table III.
Discrete data analysis [1-3] was carried out to test the importance attached tologistics activities and the decision of using 3PL provider for those activities.Hypothesis testing (at 95 per cent confidence level) indicates that:
. There is a significant difference in the importance rating of logistics activitiesbetween organizations that currently use the services of third party logisticsservice providers and the ones who do not. (Sample-2T Test; P-value ¼ 0.04).
Importance ratinga
Logistics activitiesCurrent outsourced
(per cent)Outsourcingorganizations
Non-outsourcingorganizations
Customer service/support 15.8 4.50 4.14Inventory management 23.5 4.36 4.27Rate negotiation 22.6 4.23 4.37Outbound transportation 55.7 4.00 3.91Distribution 22.9 3.91 3.80Custom clearing and warding 51.5 3.91 3.50Order fulfilment 20.4 3.80 3.77Selected manufacturing 16.4 3.75 3.24Order picking 27.0 3.69 3.54Outbound warehousing 33.9 3.69 3.49Labelling and packaging 29.0 3.55 3.00Import/export management 34.5 3.54 3.34Inbound transportation 52.2 3.44 3.25Inbound warehousing 29.5 3.42 2.86Fleet management and consolidation 29.1 3.40 3.12Marketing sales promotion 8.5 3.25 3.89Order processing 19.4 3.22 3.93Assembly/installation 12.7 3.00 2.74Reverse logistics 22.2 3.00 2.40
Notes: aImportance rating on a five point Likert scale: 1 indicating “not important” and 5 indicating“very important”
Table III.Importance rating andextent of outsourcing oflogistics activities
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For a majority of logistics activities, the importance ratings are higher fororganizations that are currently outsourcing them compared to the ones who arenot.
. Amongst the various logistics functions, there is a significant difference in theimportance rating attributed to logistics activities (x 2 test: x 2 test value¼ 26.783; p-value ¼ 0.032).
The test results clearly explain the variation in outsourcing percentage for logisticsactivities by Indian organizations.
. Importance rating . 4.00. Logistics activities with “high” importance ratinginclude customer service/support, inventory management and rate negotiations.Less than 25 per cent organizations have outsourced these activities to 3PLservice providers primarily because of the criticality of the information related tothem and the strategic nature of these activities to impact business results.Organizations using 3PL services for these activities have been working with3PL service providers over an extended period of time and rate the effectivenessof performance of top management of 3PL service providers as “high”.
. Importance rating < 4.00 and . 3.25. Usage of 3PL services is exceptionallyhigh for logistics activities with a “moderate” importance rating between 4.00and 3.25. Outbound transportation, inbound transportation and customerclearing and forwarding are outsourced by maximum percentage of respondents.Distribution (22.9 per cent), order fulfilment (20.4 per cent) and selectmanufacturing (16.4 per cent) require organization-specific strategies from 3PLservice providers and hence score low on outsourcing percentage. Customizedsolutions at an operating level by 3PL service providers could provide immensebenefits for improving supply chain results for Indian organizations in thesethree areas. Increased 3PL services for order picking, order warehousing,labelling and packaging, import/export management, inbound warehousing, andfleet management and consolidation depict the increased service offering by 3PLservice providers and the growing confidence in their services by Indianorganizations.
. Importance rating of < 3.25. Currently less than 25 per cent organizations use3PL services for these activities because of their “low” importance ratings.However, usage of 3PL services for reverse logistics shows increasing trends.
Very clearly, outsourcing percentage is higher for organizations with importanceratings between 4.00 and 3.25, i.e. “moderately important”. Organizations are still notopen to increased outsourcing of either “very important” or “less important” logisticsactivities.
About 46.7 per cent of organizations in India use 3PL providers to perform bothdomestic and international operations. The other 44.4 per cent use such services fordomestic operations only and 8.9 per cent use these for international operations only.
The level of commitment to the usage of the third-party logistics services variesconsiderably amongst the respondents. Over two-third (67.7 per cent) of therespondents, currently using the services of third party logistics service providers,indicate that their organizations’ commitment to the concept was “moderate” or“extensive” while the remaining users indicated that their organizations’ commitment
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was “limited” or “very limited”. The varying degree of commitment is also reflected inthe percentage of the total logistics budget allocated to the third-party providers as aproportion of the total cost of logistics function (Table IV).
Of the respondents, 63.4 per cent had less than 20 and 7.6 per cent had 20-40 per centof their total logistics budget allocated to 3PL service providers. These figures indicatea fairly low level of commitment to the use of 3PL services in India currently.Furthermore, there is no significant correlation between the total cost of logisticsfunction, as a percentage of gross sales, and percentage allocation of logistics budget to3PL providers (x 2 test: x 2 value ¼ 27.593; df ¼ 16; p-value ¼ 0.759; hence notsignificant at 95 per cent confidence level).
Reasons for outsourcingTo determine why companies decide to outsource their logistics functions, respondentswere asked to indicate the importance of a number of factors affecting the decision tooutsource on a five-point Likert scale, with a score of 1 indicating “not important” and ascore of 5 indicating “very important”. The responses to this question are presented inTable V.
Over three-quarter of the users indicate that reduction in logistics cost (overallimportance rating 4.39), focus on core competencies (overall importance rating 4.28)and improvement in customer satisfaction (overall importance rating 4.11) weremoderately important or very important reasons for outsourcing. About half of theusers identify, improved return of assets (overall importance rating 3.91), productivityimprovement (overall importance rating 3.75) and increased inventory returns (overallimportance rating 3.73) as substantially important or very important in their rationalefor outsourcing of logistics functions. Interestingly, results of the hypothesis testingconfirm that there seems to be significant convergence in the importance rating ofreasons for outsourcing between respondents whether or not they utilize 3PL servicescurrently (x 2 test: x 2 test value ¼ 58.749; p-value ¼ 0.263; hence not significant at95 per cent confidence level).
Respondents were also asked to rank the top five reasons for using the services of3PL providers. Of the respondents 80.6 per cent state that logistics cost reduction is animportant reason for outsourcing thereby reducing their costs of servicing thecustomer. Of the respondents 76.0 per cent want to use the 3PL service providers sothat they can focus on their core competencies. Further organizations want to provideimproved customer service by using the competencies of the service providers as isevident from the 71.3 per cent respondents stating it as an important reason for usingthe service. The other important factors, which have been highlighted among the top
Level of commitment to usage of 3PL services(percentage of respondents)
Percentage allocation of logisticsbudget for 3PL services Extensive Moderate Limited Very limited
0-20 8.6 25.8 21.5 7.520-40 0.0 0.0 6.5 1.140-60 5.4 7.5 1.1 0.0.60 6.4 7.5 0.0 1.1
Table IV.Percentage allocation oftotal logistics budget for3PL services
IJPDLM36,9
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Per
cen
tag
ere
spon
den
ts(p
erce
nt)
Not
imp
orta
nt
Les
sim
por
tan
tIm
por
tan
tM
oder
atel
yim
por
tan
tV
ery
imp
orta
nt
Rea
son
sfo
rou
tsou
rcin
gO
NO
ON
OO
NO
ON
OO
NO
Foc
us
onco
reco
mp
eten
cies
0.0
0.0
2.6
0.0
12.8
33.3
15.4
30.6
69.2
36.1
Log
isti
csco
stre
du
ctio
n0.
04.
70.
02.
316
.416
.321
.811
.661
.865
.1Im
bib
em
ore
flex
ibil
ity
inop
erat
ion
s5.
96.
914
.713
.829
.437
.932
.427
.617
.613
.8Im
pro
ved
cust
omer
serv
ices
2.3
2.8
6.8
2.8
15.9
27.8
25.0
16.7
50.0
50.0
Pro
du
ctiv
ity
imp
rov
emen
ts8.
33.
05.
63.
038
.927
.311
.133
.336
.133
.3A
cces
sto
emer
gin
gte
chn
olog
y7.
120
.07.
116
.035
.724
.028
.620
.021
.420
.0A
cces
s/ex
pan
sion
tou
nfa
mil
iar
mar
ket
11.1
11.5
40.7
15.4
14.8
34.6
22.2
19.2
11.1
19.2
Div
erti
ng
cap
ital
inv
estm
ent
25.0
20.0
25.0
20.0
32.1
28.0
10.7
20.0
7.1
12.0
To
incr
ease
inv
ento
rytu
rn8.
33.
38.
313
.330
.613
.316
.736
.736
.133
.3S
ucc
ess
offi
rms
usi
ng
3PL
serv
ices
7.1
6.5
12.5
13.0
5.4
15.2
7.1
6.5
67.9
58.7
Cor
por
ate
rest
ruct
uri
ng
26.1
20.0
21.7
28.0
21.7
36.0
26.1
12.0
4.3
4.0
To
dev
elop
sup
ply
chai
np
artn
ersh
ips
14.7
3.6
14.7
25.0
35.3
32.1
11.8
17.9
23.5
21.4
Imp
rov
ere
turn
ofas
sets
5.6
3.3
11.1
6.7
22.2
13.3
19.4
36.7
41.7
40.0
Notes:
O¼
outs
ourc
ing
;N
O¼
non
-ou
tsou
rcin
g
Table V.Reasons for outsourcing
logistics activities
3PL practices:an Indian
perspective
679
five reasons for outsourcing, include improved return on asset, increased inventoryturns and productivity improvements (Figure 5). To a great extent, the ranking of topfive reasons falls in line with the importance rating given by the respondents.
The reasons for outsourcing were then subjected to a factorial analysis using theprincipal component equimax rotation method. The cumulative sum of four-factorloadings explains over 67 per cent of the variation. The four factors were thencompared with the weighted score for importance as rated by the respondents andwere classified under four “key” focal areas (factors) – cost reduction, strategic intent,improving supply chain efficiency, long-term benefits – as listed in Table VI.
The factorial analysis confirms the focus on “logistics cost reduction” among Indianorganizations, as the primary constituent driving outsourcing of logistics activities. Thesecond factor encompassing “focus on core competencies” “access/expansion tounfamiliar market” “corporate restructuring” sum up the reasons related to the strategicintent of organizations to seek 3PL services. It is because of these reasons that theinvolvement of top management is critical in all outsourcing decisions. The third factorof improving supply chain efficiency covers the issues related to “improving customerservices” “increasing inventory turns” “driving productivity improvements” “imbibingmore flexibility in operations” and “improving return on assets”. This is shaped by thecurrent business environment – in which the companies operate in the Indian economicscenario – to drive bottom-line results through enhanced supply chain efficiencies.
Impact of usage of third party logistics servicesUsers of the services of 3PL providers were asked to categorize the impact of thoseservices to their business in terms of logistics system performance, customersatisfaction and employee morale on a five-point Likert scale, with a score of 1indicating “very negative” and a score of 5 indicating “very positive”. The responses tothis question are summarized in Table VII.
Figure 5.Reasons for outsourcing
Percentage of Respondents
24.5
35.9
45.3
46.1
56.5
60.6
68.2
71.3
76.0
80.6
0 20 40 60 80 100
Diverting capital investment
Access/ Expansion to unfamiliar market
Access to emerging technology
Imbibe more flexibility in operations
Productivity improvement
To increase inventory turn
Improve return on assets
Improved customer services
Focus on core competencies
Logistics cost reduction
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Foc
alar
eas
(fac
tors
)R
easo
ns
for
outs
ourc
ing
(var
iab
les)
Rot
ated
fact
orlo
adin
gsa
Com
mu
nal
itie
saW
eig
hte
dm
ean
scor
eof
imp
orta
nce
b
Fac
tor
1:co
stre
du
ctio
nL
ogis
tics
cost
red
uct
ion
0.90
00.
832
4.39
Fac
tor
2:st
rate
gic
inte
nt
Foc
us
onco
reco
mp
eten
cies
0.83
90.
903
4.28
Acc
ess/
exp
ansi
onto
un
fam
ilia
rm
ark
et0.
765
0.86
13.
00C
orp
orat
ere
stru
ctu
rin
g0.
528
0.51
42.
56F
acto
r3:
imp
rov
esu
pp
lych
ain
effi
cien
cyIm
pro
ved
cust
omer
serv
ices
0.62
00.
612
4.11
Imp
rov
ere
turn
ofas
sets
0.70
70.
540
3.91
Pro
du
ctiv
ity
imp
rov
emen
ts0.
513
0.51
23.
75T
oin
crea
sein
ven
tory
turn
0.84
40.
793
3.73
Imb
ibe
mor
efl
exib
ilit
yin
oper
atio
ns
0.73
30.
665
3.35
Fac
tor
4:lo
ng
-ter
mb
enefi
tsA
cces
sto
emer
gin
gte
chn
olog
y0.
835
0.75
83.
28T
od
evel
opsu
pp
lych
ain
par
tner
ship
0.53
20.
516
3.21
Su
cces
sof
firm
su
sin
g3P
Lse
rvic
es0.
449
0.50
63.
00D
iver
tin
gca
pit
alin
ves
tmen
t0.
718
0.71
32.
66
Notes:
aR
otat
ion
alfa
ctor
load
ing
san
dco
mm
un
alit
ies
hav
eb
een
com
pu
ted
usi
ng
equ
imax
met
hod
inM
init
ab,
bw
eig
hte
dm
ean
scor
ein
dic
ates
imp
orta
nce
rati
ng
by
resp
ond
ents
ona
5-p
oin
tsc
ale
wit
h1
ind
icat
ing
“not
imp
orta
nt”
and
5in
dic
atin
g“v
ery
imp
orta
nt”
Table VI.Primary factors for
outsourcing logisticsactivities
3PL practices:an Indian
perspective
681
Results indicate that the usage of services of 3PL providers has had a strong positiveimpact on all the three dimensions. Nearly, 50 per cent of the users noted thatthe impact has been “positive” or “very positive” in all the three areas of organizationalimpact. However, 4.5 per cent of the respondents indicated that 3PL services had anegative impact on employee morale. Also 3.2 per cent of the respondents indicated anegative impact on logistics system performance. These results show that peopleissues are a critical factor to be considered in outsourcing of logistics functions.
Besides, the respondents were also asked to quantify the percentage improvementon financial indicators – improvement in sale revenues, working capital improvement,capital asset reduction, production cost reduction, labour cost reduction, return onasset improvement, logistics cost reduction – because of the usage of 3PL services.User organizations have cited substantial financial improvements as shown inTable VIII. The financial improvements tie well with the focus on logistics costreduction as the primary reason for using 3PL services.
Further, the survey questionnaire probed the respondents to report on theimprovement they have had on specific business objectives related to logistics systemperformance. Users report obtaining multiple benefits in varying degrees compared totheir expectations. More than 80 per cent of the respondents state that the use of theservice providers has helped them improve on-time delivery, provide specializedlogistics service and reduce cycle time at “expected” or “more than expected” degrees.Nearly, 75 per cent of the respondents feel that they have been able to improve focus ontheir core competencies and reduce operational costs at or above expectations. 3PLservice providers have been able to enhance the geographic reach of the userorganizations as is stated by 61 per cent of the respondents. Finally, the use of theservice has also helped organizations to bring in more strategic/operational flexibilityand differentiation from the competitors (Figure 6).
Clearly, 3PL providers can help an organization achieve significant results, both interms of business performance and logistics cost reduction. Logistics competencythrough outsourcing will definitely be a key differentiator in today’s competitive world.
Percentage of respondents (per cent)Factors Very positive Positive Average Negative Very negative
Logistics system performance 13.8 54.3 28.7 2.1 1.1Customer satisfaction 22.6 45.2 32.3 0.0 0.0Employee morale 6.8 42.0 46.6 4.5 0.0
Table VII.Organizational impact ofoutsourcing logisticsactivities
Financial indicator Percentage of improvement
Improvement in sales revenue 13.5Working capital improvement 12.3Capital asset reduction 9.2Production cost reduction 10.5Labour cost reduction 10.0Return on assets improvement 10.0Logistics cost reduction 15.0
Table VIII.Financial improvements
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Summary and future trendsCurrently almost all the organization using third party logistics services are satisfiedwith the performance of 3PL service providers with respect to their expectations.A total of 9.6 per cent indicated that their overall satisfaction with 3PL service providerwas “more than expected”. Another 72.3 per cent indicated that their satisfaction wasat “expected” levels. Only 6.0 per cent stated that they were either “not satisfied” ortheir satisfaction were “less than expectations” with the usage of third party logisticsservice providers.
Hypothesis testing was carried out to correlate the impact on logistics systemperformance, customer satisfaction and employee morale on overall satisfaction with 3PLservice provider. The results of the hypothesis testing have been elaborated in Table IX.All the test results, at 95 per cent confidence level, validate the alternate hypothesis thatincreased benefits – related to logistics system performance, customer satisfaction andemployee morale – by the use of 3PL services has a positive impact on overall satisfactionwith 3PL service providers. Not surprisingly, 96 per cent of the respondents indicated thatthe use of third party logistics service providers had been a positive development lookingat the impact of the usage of 3PL services on business objectives.
Users were also asked how they would modify their use of third party logisticsservice providers, if they were given complete corporate responsibility to make that
Figure 6.Improvement in business
objectives related tologistics system
performance
54.0
56.1
56.7
61.3
76.4
79.7
79.8
85.3
86.7
0 20 40 60 80 100
Strategic/ operational flexibility
Facilitate growth
Differentiation from competitors
Enhance geographic reach
Operational cost reduction
Improve focus on core activities
Reduced cycle time
More specialized logistics expertise
Improve on time delivery
Percentage of Respondents
Overall, satisfaction with 3PL service providers(correlation at 95 per cent confidence interval)
Factors X2 value Degrees of freedom (df) p-value Significant (yes/no)
Logistics system performance 28.292 4 0.026 YesCustomer satisfaction 11.978 2 0.003 YesEmployee morale 10.750 4 0.043 Yes
Table IX.Correlation of impact
with overall satisfaction
3PL practices:an Indian
perspective
683
decision. Most participants have shown keenness towards increasing the use of thirdparty logistics services from moderately increasing it to substantially increasing it. Ofthe respondents 39.8 per cent are looking forward to modify the services bysubstantially increasing it while 41.8 per cent of the respondents want to increase theoutsourced services moderately. Only, 15.3 per cent indicated that they would keep it atsame levels and the remaining 3.1 per cent would moderately decrease the use ofthird party logistics services. The fact that no one would like to eliminate the useof third party logistics service providers is in itself a positive sign of the changinglogistics scenario in India.
Hypothesis testing was carried out to validate whether the keenness to increaseusage was based on overall satisfaction with 3PL service provider. The test indicatedpositive results (x 2 test: x 2 value ¼ 10.592; df ¼ 6; p-value ¼ 0.035) validating thealternate hypothesis that increased satisfaction with the performance of 3PL serviceprovider had a significant impact on the keenness of organization’s to increase usage of3PL providers for outsourcing of logistics functions.
With a keenness to increase the outsourcing of logistics activities, respondents wereasked to quantify the activities they planned to outsource in the next two years and thenext five years (Table X). Outbound transportation (94.3 per cent), inboundtransportation (95.5 per cent) and custom clearing and forwarding (90.9 per cent) willcontinue to be the most prominent activities to be outsourced over the next five years.Other logistics activities like import and export management (81.8 per cent), outboundwarehousing (82.1 per cent), inbound warehousing (85.2 per cent) and fleet managementand consolidation (83.6 per cent) would be outsourced by over 80 per cent of therespondents in the next five years. However, maximum increase in usage of 3PL servicesis expected in the areas of inbound warehousing (44.3 per cent) and reverse logistics(42.6 per cent) in the next two years. Similarly, top five areas that will experiencemaximum growth in the next five years include reverse logistics (57.4 per cent), inboundwarehousing (55.7 per cent), fleet management and consolidation (54.5 per cent),inventory management (54.4 per cent) and distribution (54.3 per cent). Hence, the usageof 3PL service providers would increase at a faster rate in logistics activities with lowerimportance rating. This validates the need of Indian organizations to reduce logisticscost and focus on core competencies as prominent reasons for usage of 3PL services.
Results clearly indicate that significant increase in outsourcing has been plannedacross all activities of the logistics function in the next 2-5 years. However, nosignificant changes are anticipated in the mix of logistics activities being outsourcedbetween now and the future trends. Both the above conclusions have been validated (at95 per cent confidence level) with statistical analysis of data received from the surveyrespondents. Undoubtedly, the future trends are a concrete indication of the immensemarket potential of the third party logistics services in India. The trends alsosubstantiate the findings from the analysis in the earlier part of this section.Organizations will continue to increase the usage of 3PL services in traditional logisticsactivities and increase the scope of outsourcing based on the overall satisfaction andthe impact on business objectives – logistics system performance, customersatisfaction and employee morale. These indicators should help the 3PL serviceproviders plan the depth and scope of their service offerings in India. They clearlyhighlight the importance of delivering results that impact the business objectives inorder to increase outsourcing opportunities for Indian organizations.
IJPDLM36,9
684
Per
cen
tag
eof
resp
ond
ents
(per
cen
t)
Log
isti
csac
tiv
itie
sIm
por
tan
cera
tin
gof
log
isti
csac
tiv
itie
s
Cu
rren
tou
tsou
rcin
gle
vel
s
Incr
ease
inu
sag
eof
3PL
intw
oy
ears
over
curr
ent
lev
els
Incr
ease
inu
sag
eof
3PL
infi
ve
yea
rsov
ercu
rren
tle
vel
s
Rat
en
egot
iati
on4.
322
.633
.938
.7In
ven
tory
man
agem
ent
4.3
23.5
38.2
54.4
Cu
stom
erse
rvic
e/su
pp
ort
4.2
15.8
35.1
45.6
Ou
tbou
nd
tran
spor
tati
on4.
055
.732
.938
.6M
ark
etin
gsa
les
pro
mot
ion
3.8
8.5
39.0
47.5
Dis
trib
uti
on3.
822
.938
.654
.3O
rder
pro
cess
ing
3.8
19.4
40.3
53.7
Ord
erfu
lfilm
ent
3.8
20.4
35.2
42.6
Cu
stom
clea
rin
gan
dfo
rwar
din
g3.
751
.531
.839
.4O
rder
pic
kin
g3.
627
.038
.152
.4O
utb
oun
dw
areh
ousi
ng
3.5
33.9
35.7
48.2
Imp
ort/
exp
ort
man
agem
ent
3.4
34.5
32.7
47.3
Inb
oun
dtr
ansp
orta
tion
3.3
52.2
40.3
43.3
Sel
ecte
dm
anu
fact
uri
ng
3.3
16.4
34.4
47.5
Lab
elli
ng
and
pac
kag
ing
3.1
29.0
40.3
46.8
Fle
etm
anag
emen
tan
dco
nso
lid
atio
n3.
129
.140
.054
.5In
bou
nd
war
ehou
sin
g3.
029
.544
.355
.7A
ssem
bly
/in
stal
lati
on2.
812
.734
.545
.5R
ever
selo
gis
tics
2.5
22.2
42.6
57.4
Table X.Activities planned to be
outsourced
3PL practices:an Indian
perspective
685
ConclusionChanging business environment has pushed organizations in India to concentrate ontheir core activities and offload a host of logistics functions to experts in the field.Globally, the range of effective logistics outsourcing includes, apart fromtransportation, warehousing and custom clearance a whole range of other activitiessuch as freight bill payments, auditing, contract manufacturing and assemblyoperations, packaging and labelling, freight consolidation to name a few. The practicesin Indian industry reveal that:
. Warehousing, inbound and outbound transportation, custom clearing andforwarding are the most frequently outsourced activities.
. Activities such as packaging, fleet management and consolidation are gainingattention and growing in popularity.
. More and more companies are planning to use 3PL services in the future as anintegrated set of services rather than for just movement of material.
. The motivation for doing so comes due to the benefits of logistics cost reduction,ability to focus on the core business, and improving supply chain efficiency.
At the same time, the research study on the third party logistics scenario for the Indianindustry significantly validates the following prominent hypothesis:
H1. There is a significant difference in the importance rating of logistics activitiesbetween organizations that currently use 3PL services and the ones who donot. For a majority of logistics activities, the importance ratings are higher fororganizations that are currently outsourcing them compared to the ones whoare not.
H2. Amongst the various logistics functions, there is a significant difference in theimportance rating attributed to logistics activities. Outsourcing percentage ishigher for organizations with importance ratings of “moderately important”.Organizations are still not open to increased outsourcing of either “veryimportant” or “less important” logistics activities.
H3. There is a significant positive correlation of the impact on logistics systemperformance, customer satisfaction, and employee morale by the use of 3PLservices on overall satisfaction with 3PL service providers. Increasedsatisfaction with the performance of 3PL service provider has a significantimpact on the keenness of organization’s to increase usage of 3PL providersfor outsourcing of logistics functions.
H4. Statistical results also indicate that significant increase in outsourcing hasbeen planned across all activities of the logistics function in the next 2-5 years.However, no significant changes are anticipated in the mix of logisticsactivities being outsourced between now and the future trends.
Though the usage of 3PL services reveals positive and significant impact on businessperformance, third party logistics practices are still at a nascent stage in India. About55 per cent of companies subscribe to 3PL services as compared to 75 per cent globallyand these seem to be more of transportation and warehousing-related activities.However, with more and more customers of logistics service providers planning to use
IJPDLM36,9
686
in the near future an integrated set of services the need is that of a broadcomprehensive set of service offering by third party logistics service providers.
This research opens the way for other in-depth studies on some of the critical factorsshaping the 3PL scenario. Further, research work in this field should focus on:
. evaluating the relationship management of 3PL service providers and its impacton business performance of user organizations;
. selection and contract management of 3PL service providers for buildingcollaborative supply chain partnerships; and
. identifying critical success factors for 3PL implementation and establishingperformance measures for long-term 3PL relationships.
Detailed case study analyzing 3PL relationships that have either worked well or facedchallenges due to changing business strategy and economic scenario can be insightfulfor both 3PL service providers as well as user organizations.
It is evident that usage of 3PL services can help organization’s achieve substantialresults, both in terms of customer satisfaction and logistics cost reduction. This willform the cornerstone for increase in outsourcing of logistics functions in the near andlong-term future by present and prospective users for improved business results andsupply chain efficiencies.
Notes
1. x2 test. A x 2 test, also called “test of association,” is a statistical test of association betweendiscrete variables. It is based on a mathematical comparison of the number of observedcounts with the number of expected counts to determine if there is a difference in outputcounts based on the input category. Critical x 2 is the x 2 value where p ¼ 0.05.
2. Sample 2T-test. A statistical test used to detect differences between means of twopopulations. The test is used when you have two samples of continuous data, and you needto know if they both come from the same population or if they represent two differentpopulations.
3. P-value. The p-value represents the probability of concluding (incorrectly) that there is adifference in the sample when no true difference exists. It is a statistic calculated bycomparing the distribution of given sample data and an expected distribution (normal, F, t,etc.) and is dependent upon the statistical test being performed. For example, a p-value of0.05 means there is only a 5 per cent chance that you would be wrong in concluding thepopulations are different. If p-value is less than 0.05, it is safe to conclude there is a differencewith 95 per cent confidence level.
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About the authorsB.S. Sahay is currently Director at Institute of Management and Technology, Ghazibad, India.Prior to joining IMT, he was Dean (Research), Professor of Operations Management, andFounder Chairman of Centre for Supply Chain Management at the Management DevelopmentInstitute, Gurgaon, India. His teaching, research and consulting interest include supply chainmanagement, operations management, productivity management and business modelling.He has published seven books and 130 papers in international/national journals and conferences.IN token of excellence of his research work he has received six awards including three best paperawards. He is on the editorial board of seven international and many national journals. B.S. Sahayis the corresponding author and he can be contacted at: [email protected]
Ramneesh Mohan is a BTech (Mech. Engg.) and an MBA from Management DevelopmentInstitute (MDI), Gurgaon, India with specialization in Operations Management and InformationManagement. He has worked in the field of logistics and supply chain management with IndianRailways, Electrolux and Hughes Escorts Communications Ltd Currently, he is working withGenpact (formerly GE Capital International Services or Gecis) in the area of Operations in the fastgrowing business process outsourcing industry. He is a certified Six Sigma Black Belt in Qualityand has published/presented over a dozen papers in both international and national journals andconferences. He can be reached at: [email protected]
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