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Monday, May 13, 2002

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Third party logistics: New movers on the block

Raja Simhan T. E.

Crescent Take Solutions' multi-user facility in Chennai... The concept of third party logistics has huge potential and is slowly catching up in India.

LOGISTICS is a vital component of a company's strategy to improve performance. Manufacturers abroad have realised that the best way to improve performance is to concentrate on the core competence — making a product, and outsourcing the rest, including logistics from a third party logistics (3PL) service provider.

A small country like Singapore, for instance, has over 3,000 international and local logistics companies. The country has also earned the reputation of a premier logistics hub in the Asia-Pacific.

Though a bit late to enter India, the concept of 3PL — a single-window clearance — seems to be slowly catching up in the port city of Chennai. A couple of years ago, the Singapore-based SembCorp Logistics was the first to offer an integrated logistics management in Chennai, later expanding to Pune and Jamshedpur.

Joining SembCorp is Crescent Take, a 60:40 joint venture between the Dubai-based Transworld Group and the Chennai-based Take Solutions to offer a "multi-user facility" in Vanagaram, on the outskirts of Chennai. The "Chennai Hub'' will be a one-stop shop for all logistic requirements for customers, says Mr. Param Vir Singh, CEO, Crescent Take Global Supply Chain Pvt. Ltd. To begin with, the company would focus on such sectors as automobile, FMCG, white goods, consumables and retail.

A Chennai-based clearing and forwarding (C&F) agent and a Custom House agent are planning a similar facility in north Chennai, and a couple of city-based companies are set to enter this business. 3PL is not about regular warehousing, but involves end-to-end logistics solutions — picking up the product from a factory to delivering it to the user. Value-added services include MRP labelling, tagging, stickering, barcode scanning, repackaging, kitting, repairs/damage, payment collection and banking, all part of an end-to-end solution.

According to Mr Singh, "using the multi-utility facility (MUF), companies can save at least 20 per cent of their cost. Space would not be a constraint, and the whole operation is technology-enabled. Every pin is traceable in the 35,000 sq. ft of floor space". The company has taken on as associate partner the owner of the land who has built the infrastructure. Crescent Take would take care of the warehouse management, he said. "This saves us the land cost, worth around Rs 2 crore, and we work with the associate partner on a long-term basis," he added.

According to Mr Singh, Crescent Take's first client was Mahamayi Furniture, an international retailer based in Dubai. Mahamayi imports furniture from Malaysia, assembles them in the Chennai Hub and distributes the product across the country. With a showroom in Chennai, Mahamayi is targeting a turnover of Rs 5 crore in the first year, he added.

Located on the Chennai-Bangalore highway, Chennai Hub has about 35,000 sq. ft. of floor space, is racked and has 3,500 pallets of one-tonne capacity and 650 bins of 50 kg capacity each. The palletised area is 11,600 sq. ft, he said. "The general misconception is that MUFs are more suited for FMCG products. The Chennai Hub, however, offers options to all kinds of products and their requirement, and to multiple customers (who could also be competitors)," he added.

Says Mr Singh: "Warehousing is a crucial and challenging supply chain operation for many companies. Pilferage, damage and dead stock are a few of the problems that occasionally become warehousing nightmares. However, an MUF like the Chennai Hub would help companies increase supply chain efficiencies at costs that might be even lower than their current operational cost".

With the backing of the Rs 800-crore Transworld Group, which owns ships and represents around 13 shipping lines in India, and Take Solutions (which is into supply chain solutions), Crescent Take plans to become an end-to-end supply chain fulfilment company, in the long run, offering supply chain design, single window concept including door-to-door services, packaging, pick up, freight forwarding, primary transportation (land-air-sea), storage (warehousing) and secondary transportation (distributing the product to the final customer), said Mr Singh. Crescent Take plans to expand the hub to other regions, beginning with the major metros, he added.

According to an official of a leading Chennai-based C&F agent, planning to have a similar facility, Indian manufacturers still do not believe in outsourcing their entire requirement from a 3PL. They (the manufacturers) continue to engage different services providers including a C&F agent and transporters. "The mindset among Indian manufacturers is that every activity should be outsourced, but not through the same person. Though it costs slightly more, the 3PL provides a one-stop-shop for cargo clearance unlike the conventional way of clearance, involving multiple agencies, cumbersome procedures," he said.

According to the official, some of the manufacturers abroad believe that their core competence is manufacturing, and they outsource the entire logistics from a 3PL service — a cost-efficient measure. In India, for such a mindset to develop will take time.

"The 3PL concept has huge potential in the country, but will take a long time. Some of the major firms in India continue to have old godowns and warehouses at various places," he added.

In Singapore and Malaysia, once a product is manufactured, it is the complete responsibility of a 3PL to take the product out of the factory, pack it and deliver it to the end customer. In both the countries, due to shortage of space, there are multi-layered logistics centres, said the official.

In India, realising the potential the 3PL industry offers, small players are converting sheds into warehouses. However, the multinational companies, the large drivers of the 3PL market, would demand `fire rated' warehouses of international standard.

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