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SUPPLY CHAIN MANAGEMENT BEST PRACTICES : OUTSOURCING
 

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 clear point.
The point of interest that the third SCM survey

reveals is 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 VAT;  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 respondents

 are 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  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.
(Source MMR)

 

 

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