Abstract
The purpose of the case is to introduce the students to an emerging business trend of outsourcing the logistics function. The case enables the students to analyse the benefits of outsourcing logistics function and understand the concept of third-party logistics (3PL) and fourth-party logistics (4PL). The case is developed based on the primary data collected through interviews with the protagonist. Also, secondary data from published reports and archives of the company were used for the development of the case. After the case discussion the students will be able to understand the role of project logistics services in the supply chain. They will also understand the role of value-added logistics services such as cross-docking, reverse logistics and customs clearance, and the documentation involved in cross-border logistics. This case is among the first few cases on the concept of project logistics services and their role in the supply chain management.
Introduction
Ittu Sharma, founder of Gurgaon-based fourth-party logistics (4PL) service provider, Kodan Solutions Private Limited (KSPL), had received an exciting business proposal. A leading two-wheeler manufacturer in the country sought KSPL’s services for the distribution of motorcycles manufactured in its north India-based plant to the dealer network across the Southeast Asian markets. Though excited with the prospect, Sharma was still weighing this opportunity of expanding into the vehicle logistics service segment which required optimal handling and transport, considering the fragile nature of cargo and customer expectations regarding delivery lead times.
KSPL had successfully captured the niche market need for a safe and cost-effective intercontinental movement of over-dimensional cargo (ODC) for high-capital projects in the mining, construction and power industries. Sharma, as KSPL’s sole founder and investor had maintained a growth of 50–60 per cent in turnover (Figure 1). Nevertheless, the dynamic Indian logistics landscape continued to burgeon with numerous logistics service providers operating on asset- and non-asset-based business model. Additionally, there had been several industry-wide consolidations and partnerships of logistics service providers, further intensifying the competition in the Indian logistics market.
Having bolstered its position in the market as a one-stop solution for project logistics service, Sharma was actively looking to expand KSPL’s service portfolio to offer more value-added logistics services. Confident of her vision that services such as last-mile distribution would not only allow for a healthy client pipeline but would also extend her typical customer lifetime value (CLV), Sharma was keen to explore the opportunity of entering into vehicle logistics services which included transportation of finished vehicles from the manufacturers to the dealers in the destination countries However, before she could make a firm decision in that direction, there were several questions that needed to be considered—after expanding into the highly demanding sector of vehicle logistics services would KSPL be able to maintain its focus on the existing business of project logistics and sustainably increase the business value it had amassed over the years? Was KSPL ready to enter the market of 4PL services for distribution of motorcycle to dealer network in Southeast Asia?
Birth of KSPL: The Vision of a Woman Entrepreneur
Registered in September 2014 as a one person company, KSPL was the brainchild of Ittu Sharma, a seasoned entrepreneur and renowned name in the Indian logistics sector. Married to a naval officer, Sharma is a woman of integrity and a hard taskmaster with a penchant for developing long-standing professional relationships. With a master’s in international business management, Sharma founded Gaarnets, a family-owned business for exporting Indian handicrafts in December 1999. While running this export business, Sharma developed acumen in international trade which involved evaluation of overseas market opportunities, identification of buyers and negotiation of product price. In her own words, ‘I always dreamt about single-handedly establishing a business that spans beyond national borders. I believe getting into international trade was the best thing that happened to me early in my career. Somehow, I knew I’ll eventually get there.’ Having proven her experience in handling international trade, she got an opportunity to work with Allcargo Global Logistics, the country’s first and biggest logistics company, as the vertical head of steel and cement industrial projects division. She vividly recalled her early years in the industry:
Despite the prevalent gender biases in the logistics industry, which is typically associated with the heavy lifting work, I always adored the dynamic and evolving environment of this industry. Each day brings a lot of learning with diverse challenges and idiosyncrasies of each project delivery and each day lets you prove to the world that businesses need right skills to run, not the right gender. Interestingly, my work as a freight forwarder allowed me to accompany my husband, who got frequent assignments in the key port cities of the country.
At Allcargo, Sharma single-handedly coordinated various international project logistics assignments in the steel and cement industry. However, the urge to run her own business was overriding.
A few years later, having gained considerable heuristic knowledge and experience in the industry, Sharma launched KSPL, her own 4PL service. Expert in coordinating the transport of heavy consignments and ODC or out of gauge (OOG) cargo, KSPL offered tailor-made project cargo solutions for companies operating in the construction, mining and power segment across the Middle East, Europe, Asia, United States and African nations. Leading the family-owned business, Sharma could eliminate the red tape and expand her business by reinvesting profits into the strategically selected projects for the company. She used her professional network to establish exclusive and non-exclusive agency agreements with logistics service providers across the globe. Sharma expressed:
By virtue of our global network of vessel owners, carriers and custom brokers, we can handle cargo of varied sizes and types. Based on the freight requirement, we decide on the mode of transportation. We propose options for ODC movement through barge or geared or roll-on/roll-off vessels based on full container load (FCL) or less-than-container load.
The company adopted internationally valid work standards such as the International Organization for Standardization 9001 for quality management and Occupational Health and Safety Assessment Series 18001 certifications for occupational health and safety management system. KSPL was licensed as a multi-modal transport operator (MTO) 1 by the Director General of Shipping, Government of India (GOI). It was registered as a ‘common carrier’ 2 under the Carriage by Road Act, 2007 of GOI.
Within a few years of its inception, KSPL delivered several projects including ocean freight forwarding assignments from Indian export houses such as Soccer International, a manufacturer and exporter of sports goods. It also managed industrial project cargo movement for large corporations such as Coal India, a state-controlled mining company; Jindal Steel and Power Limited, an Indian leading steel and energy company; Guangdong Oppo Mobile Telecommunications styled as Oppo, a Chinese company manufacturing consumer electronics product; and IRCON International Limited, a state-owned company in transport infrastructure. Sharma added:
We have managed logistics for construction equipment, modular plant units and one-off high-value items such as compressors and turbines. Our project portfolio comprises three categories of projects based on the scope of work—mini, mega and ultra-mega. We have completed 26 mini projects with value up to US$70,500; 18 mega-projects with value ranging from US$70,500 to US$563,500 and 4 ultra-mega projects with value well above US$565,500 in the last five years.
The Indian Logistics and Supply Chain Landscape
According to the Confederation of Indian Industry’s (CII) 2017 report (CII, 2017), the Asia-Pacific region constituted nearly 37 per cent of the global transport and logistics (T&L) sector. It was growing at a compound annual growth rate (CAGR) of 7.5 per cent to reach US$15.5 trillion by 2024 (from US$8.2 trillion in 2015). In India, one of the key manufacturing economies in the Asia-Pacific region, the T&L sector encompassed transportation (railways, air transport, road transport, shipping and ports), storage (warehouses, inland container depots), container freight stations and value-added services (freight forwarding, custom-clearance, 3PLs and multi-modal solutions; Figure 2). The Indian T&L sector was valued at US$160 billion in the year 2017. Growing at a CAGR of 10 per cent, this sector was estimated to reach US$215 billion by 2020 according to the estimates by CARE ratings (CARE Rating, 2018). Political impetus by GOI in the form of goods and service tax (GST) 3 optimized the cost and time efficiencies of manufacturing supply chains and gave way to infrastructure upgrade projects such as the Dedicated Freight Corridor, multi-modal logistics parks and inland waterways, thus serving as the key growth driver for T&L sector (Transport Corporation of India [TCI], 2012). Moreover, the adoption of emerging technologies for automatic identification, communication, material handling and ware-housing boosted the competitiveness of logistics operations in the country.
Globally, the trend of outsourcing of logistics function to external service providers was gaining ground. Increasingly, companies (manufacturers, assembly plants or retailers) utilized outsourcing of logistics activities as a strategic solution for the improvement of customer service by using the specialized service providers in the area of transport, warehousing and last-mile delivery (Capgemini Consulting, 2017). According to Armstrong & Associates, 4 the size of 3PL segment in United States was US$184.3 billion in 2017 (Armstrong & Associates Inc., 2017) Following the global trend of outsourcing, large manufacturing corporations in India started subcontracting their logistics activities to external service providers in response to the stringent delivery deadlines and rising supply chain costs. Initially, many consumer durable manufacturers and e-commerce retailers subcontracted their specific logistics functions such as transportation and warehousing to third-party logistics (3PL) service providers such as Gati and DHL, which specialized in courier delivery services. While the Indian corporations appreciated the benefits of logistics outsourcing in the form of supply chain efficiencies, they opened doors to new 3PL providers with expertise in traffic management, freight consolidation, cross-docking, payment collection and freight-auditing. Nevertheless, the 3PL segment of the Indian T&L sector was still at a nascent stage as compared to its global counterparts and accounted for 9 per cent of the total revenue generated from outsourced logistics service in 2017, according to a CII report (CII, 2017). These 3PL providers were typically the asset-based business entities, which were subcontracted for either a single or a handful of logistics services by their clients (Table 1).
Logistics Services Provided by 3PLs
These providers were legally bound to deliver the requested services for their client, even as they did not hold ownership of the product for distribution. Globally, C. H. Robinson, Kuehne & Nagel International AG and DB Schenker were some of the 3PL providers in tier-I category with revenues of several million dollars. A typical 3PL in the tier-II category had gross revenue of US$100 million, while in tier-III, consisting primarily logistics brokers, the revenue stood at US$10–20 million. After the augmented diffusion of information technology (IT) in the logistics sector, a new-breed of IT-based service providers, called 4PL providers, started offering integrated logistics solutions covering the entire supply chain of a client company. These non-asset-based 4PL firms created a collaborative network of specialized 3PL providers operating in various geographies of the world. These firms allowed their clients to fulfil their complete logistics requirements from a single source, instead of getting into multiple 3PL agreements. This helped them enhance the supply chain efficiency and reduce costs). Some of the prominent global 4PL companies were Geodis, Logistics Plus and Accenture.
Project Logistics Versus Vehicle Logistics
The massive rise in infrastructure development projects and expansion in the manufacturing capacities in the country had prompted the large infrastructure developers and manufacturers to outsource their non-core function of handling the project logistics function to external service providers. Such clients required movement of heavy loads and OOG such as steam boilers of an industrial plant or bulky modules of a factory building from the production site to the point of use. Gauging the market potential, several asset-based and non-asset-based logistics providers forayed into this business, thereby intensifying the competition.
Allcargo Logistics Limited, a leading Indian asset-based 3PL with over 300 offices across the globe offered end-to-end project logistics services including project feasibility consulting, multi-modal transportation and ship chartering. DHL’s industrial projects transportation division offered customized services for mining, oil and gas production, and engineering and construction. Recently, several internet-based logistics intermediaries offering single or multiple services had mushroomed in the marketplace. For instance, Ramco Logistics, a subsidiary of the Ramco Group headquartered in Chennai, offered innovative IT solutions for meeting the transport, warehouse and fleet management needs of 3PLs, freight forwarders and courier service providers. Other internet-based players in business-to-business logistics included LogiNext, that offered logistics analytics for optimizing logistics costs; Locus, which provided IT solutions for route optimization and vehicle tracking; and Leap India, which offered returnable packaging and pooling of storage containers to courier and 3PL service providers.
The function of vehicle logistics services was to offer an efficient and effective management of supply chain of finished vehicles including two-wheelers and four-wheelers for the original equipment manufacturers (OEMs). The Indian automotive industry was the fourth largest in the world with a year-on-year sales growth of 9.5 per cent in 2017 (India Brand Equity Foundation, 2018). Owing to the country’s growing population and young population, the two-wheeler segment dominated the automotive market in terms of volume. According to Society of Indian Automotive, the sales of two-wheelers (including scooters, motorbikes) in 2018–2019 was 21,181,390 units which was 4.86 per cent higher than the sales (20,200,117) in 2017–2018. Some of the established service providers specialized in offering technology-driven vehicle logistics services to the Indian OEMs were GEFCO India, APL Logistics and IVC Logistics. These providers typically offered solutions for collection of finished vehicles from OEMs, vehicle loading/unloading, tracking of shipments, repair services and distribution to dealer network.
Unlike project logistics, there were no standard approaches in vehicle logistics and much was depended on the vehicle in question and on the individual manufacturers’ preferences. Particularly, in case of two-wheelers like motorcycles, the shipping practices suitable for a standard motorcycle may not be apt for a high-end cruiser or sports bike. While the smaller bikes can be shipped as a break bulk cargo or as unit loads, the high-end motorcycles required protective stackable cradles for shipping. In contrast to movement of OOG, avoidance of damage during transport was a key priority in vehicle logistics due to the fragile nature of cargo. Further, considering the large volume of deliveries, investment in developing tailor-made logistic solutions were desired to achieve economies.
KSPL’s Business Description
Route Planning
A survey of ports, routes and bridges from the destination port to the installation site for identifying bottlenecks and vulnerable areas in the movement of cargo was a crucial step in the coordination of an ODC project. ‘Maintaining an optimal route mix is critical to the success of a project logistics assignment. It not only involves determination of daily route for the fleet, fleet size, service frequencies but also to analyse the trade-off between freight costs, service and profitability’, Sharma expressed. For execution of these extensive project feasibility studies, Sharma augmented the expertise of her in-house team and partners specialized in naval infrastructure, engineering and project management. Though the company had yet to invest in IT-based infrastructure to support route planning and other logistics functions such as tracking the movement of goods and real-time communication with 3PL partners.
Warehousing: Break Bulk and Cross-Docking
KSPL had access to coastal terminals on major seaports with multi-user warehousing space with facilities for picing and packing, stuffing and destuffing of containers, shrink wrapping, product labelling and fumigation services. Besides consolidating and holding of finished goods, KSPL used its warehousing facilities for break bulk, cross-dock and postponement. While cross-docking is a logistic procedure for distributing products from the manufacturing plant to the customer directly, break bulk is the procedure for breaking bulk shipments received through long distance transportation from manufacturing plants into smaller shipments for local delivery to customers.
We offer both production and distribution cross-docking services. While in production cross-docking, we pick up components from different suppliers, pre-assemble and then deliver at the client’s location, in distribution cross-docking, the consolidated shipments are deconsolidated and then distributed as per client requirement. Cross-docking saves considerably on storage and material handling times.
Customs service and support
Owing to two decades of experience in operating within ports, Sharma and her team had acquired a profound competence in country-specific custom regulations including tariff classification, duty drawback procedures and sche-mes for duty concession, exemption and refund. It offered advisory services including preparation of permits, certif-icates and other freight documents. “A knowledge base of custom procedures applicable across all main Indian and international ports allows us to promise nearly predict-able time for transportation and to save significantly on cus-tom duties, thus improving the cash flow for our clients,” Sharma said.
Other Value-added Services
Besides, the core service of transportation of project cargo, KSPL offered a range of other value-added services for retaining its clients. It included reverse logistics, export packaging and custom clearance. Along with managing the forward flow of freight, KSPL also supported its clients to handle the returns of freight due to quality or quantity mismatch. It offered an online platform for the advancement of an invoice for returned goods, which upon approval from the original consignor, were picked up and delivered back to the central warehouse. Upon assessment of returns, the undamaged products were repackaged, while the damaged one were recycled. ‘The process for reverse logistics is managed differently than the forward logistics due to a dissimilar documentation procedure and the need for specialized handling’, Sharma explained. Further, considering the vitality of packaging for overseas shipments, because freight costs were dependent on gross weight of cargo, and the diverse material handling conditions existed at ports, KSPL performed packing operations for the shippers. It offered co-packing services for shrink-wrapping, blister packing and labelling. KSPL helped the clients in custom clearance, which involved preparation and submission of documents such as bill of lading (BoL or B/L), export license, certificate of origin, commercial invoice, inspection certificate, packing list, dock receipt and airway bill.
Conclusion
As the founder of KSPL, Sharma was able to create a unique selling proposition by curtailing operational leakages in the intercontinental movement of ODC for high-capital projects. With her focus towards clients’ interests, vast experience in global logistics operations and a network of specialized 3PL partners, she was able to win and sustain the reputation of KSPL as a cost-effective 4PL provider for mining, energy and construction sector.
However, the crowding of Indian logistics sector with several asset-and non-asset-based logistics service providers, made Sharma to think of expanding the service portfolio (and thus, the client-base) of her five-year old venture that specialized in offering project logistics services. The offer of partnering with a leading motorcycle manufacturer as a 4PL service provider was a worthwhile expansion opportunity for KSPL. However, to ensure optimal handling and transport of a diverse range of finished motorcycles from manufacturer to the dealer network in the Southeast Asian markets, an adequate network of specialized 3PL partners was critical. Partnering with efficient truck fleet operators specialized in two-or three-decker trucks for moving the finished motorcycles from the manufacturing plant to the port and roll-on/roll-off (RORO
An in-house team of experts in international trade and an extensive global network of 3PL was behind Sharma’s optimism about the vehicle logistics service opportunity. However, it is to be seen whether Sharma, a women entrepreneur could create the synergy between vehicle logistics and project logistics using her experience and strengths in the field.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.