Rise of the 3PL In a post GST market:

Shifts in 3PL service patterns & evaluating 3PL readiness

Malay Shankar
DIESL A TATA Enterprise

Scope

Rise of 3 PL ?
Impact of GST

Service Patterns
Impact on the Warehouses and Spread Impact on Freight Costs

Readiness
Parameters

Approach

Rise of 3 PL ?
Impact of GST

Service Patterns
Impact on the Warehouses and Spread Impact on Freight Costs

Readiness
Parameters

Approach

Impact of GST on Supply Chains

More companies will start outsourcing supply chain. Today after market SC is highly outsourced followed by FG Supply chain. However FG is customized considering the fact that its Sale material. Inbound logistics is still customer controlled and suppliers Supply chain is aligned to production line and depended on plant location.
Inbound SC will be driven by factors like Logistics and transportation infrastructure rather than Location of manufacturing plant. FG which has high customized SC will be segmented based on market demand, Sales model and product price and outsourced to network cos. Customers will push for End to End Outsource of SC from sourcing raw materials into production line, distribution of FG and after sales support Supply chains.

Impact of GST on Supply Chains

Cost Mindset to Solution Mindset. Customer will demand Technology, Information systems, material handling equipments
Demand on increasing geographical spread. Low Volume rural thrust.

More VAS operations in Warehouse. Example: Testing, Product bundling, Kitting etc
More 4PL Opportunities. Overall supply chain outsourced to one company which will in turn tie up with network / regional players.

A Definite Rise in 3PL Activities !!

Scope

Rise of 3 PL ?
Impact of GST

Service Patterns
Impact on the Warehouses and Spread Impact on Freight Costs

Readiness
Parameters

Approach

Significance of Numbers ??

No of Warehouses Total Space Presence No of Locations vs. Reach Average Size of W/H

Illustration of Changing Dynamics

Illustration of Changing Dynamics

Impact of Fewer Warehouses

Consolidation

The move towards fewer warehouses would require many warehouses to combine, close and re-locate

Expansion

Required capacity of many warehouses will undergo changes. With fewer warehouses, the average size of the warehouse will go up

Optimization

Fewer & larger warehouses may make it feasible to route plant production directly to warehouses rather than through hubs, due to larger throughputs. Thus the size and number of the hubs could get affected

Re-alignment & Organization

The linkages between factories-hubs-warehouses-customers of various products will get re-aligned with secondary & tertiary transportation shifting towards more reliable players as distances increase

Impact on Freight and Distance

Pre - GST

Impact on Freight and Distance

Post - GST

Impact on Service Level

Longer Leadtimes to Customers

This would not be an issue as long as the network redesign exercise puts a minimum lead time/distance constraint while serving customers in the new network

Improved Assortment

Often SKUs needed by customers are not available at the warehouse meant to serve them although they may be idling at another warehouse. This is especially true for slow moving items. With stock aggregated at fewer warehouses, the planning and assortment availability improves for slow moving SKUs.

Service to customers could be maintained or even improved in a network re-engineering exercise.

Pros &Cons of Network Re-Engg.

Pros
Reduced fixed warehousing costs Reduced Inventory (inverse square root law) Simplified planning and reduced warehouse and C&FA management

Cons
Higher Lead time to customers Possible higher freight cost especially secondary freight

Summing Up Service Patterns

There is increased reduction in the number of warehouses required to have the same service levels. There is a reduction in primary freight cost due to consolidation of freight. Secondary freight cost may increase because of increase in the weighted average distance between the warehouse and the customer & if re engineering not done scientifically. Benefits outweigh the Cons.

Rise of 3 PL ? Impact of GST Service Patterns Impact on the Warehouses and Spread Impact on Freight Costs

Readiness Parameters
Approach

Industry Views on Readiness

Crisil report says the introduction of GST will result in greater adoption of a hub-and-spoke model in infrastructure segments such as warehousing.
"Big corporations such as XX, YY and ZZ are planning to close down their regional warehouses in the wake of GST coming in," "Many corporations have approached us to handles their distribution and logistics part to cut down the cost. most of the leading manufacturers currently have 20-25 warehouses across the country. "With GST, this will change and companies like us will take charge," "We are building XX logistics parks with an investment of Rs. XXX crore by 2011. By then, we will have XXX million sq. ft. of warehousing space. Company X Spokesperson.

Key Parameters of Preparedness

Technology / Information System

Efficiency
Skilled labour

Modernized Hub
Large sizes, high throughputs and complex operations
Increasingly level and variety of services required by customers, Increasing scarcity of skilled labour and real estate requiring vertical and mechanised warehouses.

Key Parameters of Preparedness

Automation Network
- Last Mile Delivery

Change Management Investments

Rise of 3 PL ? Impact of GST

Service Patterns Impact on the Warehouses and Spread Impact on Freight Costs

Readiness Parameters
Approach

DIESL Approach

Investment in people: Huge investments in our people across all levels to

ensure required skills, experience and knowledge to manage intelligent supply chain business. Intensive training and Hiring good quality SC professionals.

Ready

to use Multi client Facility / Hubs: Build logistics parks will accommodate multiple clients and share common resources. These facilities are / will be built at strategic locations such that we cover most of Indias economy.

Hub & Spoke Model Investment in Technology: To manage the exponential growth, ensure
accountability and create visibility in our supply chain

We believe that investments in people, facilities and technology will help us support the exponential business growth .

Bibliography

Research Papers / White Papers from:

Accenture Crisil Technopak

E&Y

Thank You for your time & attention !

Malay.shankar@driveindia.co.in