The Hindu Business Line : Logistics BPO, an emerging big opportunity

A FUNDAMENTAL shift in the way companies are producing goods and getting these goods to their customers is throwing up a big opportunity in logistics business process outsourcing (BPO).

Logistics BPO would be the right prescription for service providers seeking new opportunities that not only increase utilisation rates but also enhance service portfolios and boost growth rates, according to the National Association for Software and Service Companies (Nasscom).

A combination of demand side and supply side factors is driving the BPO market.

On the demand side, globalisation, increased reliance on suppliers, increased outsourcing of manufacturing functions, just-in-time and vendor-managed inventory strategies, development of direct-to-consumer channels, and the need for speed to market are all making logistics management more complex and challenging than ever before.

As for the supply side, logistics BPO services are becoming more integrated and comprehensive, and service providers are improving their technology capabilities and using technology to drive new efficiencies in logistics management. At the same time, logistics service providers are quickly consolidating global, multifunctional (not just warehousing or transportation or freight forwarding, but all logistics activities) capabilities and reaching out to different market segments.

These efforts are not only lending stability to the logistics services industry but also helping improve the value proposition of logistics BPO services.

Logistics might sound a simple enough business of moving things around, but it is growing more complex as customers demand more finely tuned services and as new technology and greater use of the Internet open up new ways of passing around information. Now that companies have delayered, re-engineered and scrubbed the waste from their assembly lines, logistics seems worthy of rather closer attention, says Nasscom. Companies are becoming more demanding, seeking to eliminate both incoming and outgoing inventory.

Management consultants at McKinsey calculate that the total American logistics market, which includes basic transport and in-house administration costs, is worth about $1 trillion a year, and growing annually by around 4 per cent. In other words, it is a mature business. But the third-party market, of around $50 billion a year, is reckoned to be growing at even faster clip - at 15-18 per cent.

McKinsey estimates that the European market was worth around $155 billion in 1999, and will expand to $213 billion by 2005.

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