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Raja Simhan T.E.

If your company's focus is on marketing products, distributing them can take additional time and money. Leave it to the experts.

DO what you do best; leave the rest to the experts in the field. In other words, focus on your core competence, while getting the experts to take care of your non-core activities. This is what companies appear to be favouring in today's competitive environment.

On closer scrutiny, such a strategy makes sense. For instance, a manufacturing company is better off focussing on its manufacturing operations rather than spending a lot of time and money on distributing its products, which operation could be outsourced to another company. And this is what is happening in companies across industries. Particularly, logistics, especially warehousing and distribution, is one area being outsourced by global firms from third-party logistics providers, also known as 3PL.

In India, the 3PL concept has caught on in the last three-four years but is restricted mostly to large consumer goods companies. Firms in India still have a large in-house logistics division spending huge sums of money, says a logistics expert. However, one company in the IT hardware sector that says it has benefited from using 3PL is the Chennai-based Dax Networks Ltd, an Apcom group company.

Dax has been relying on Air Freight Ltd (AFL) for the last two years to distribute its products across the country, and saw 5-6 per cent cost savings in the first year, says the company's Country Manager, C. Sujit Singh. Initially, there were some mix-ups by AFL while distributing products. However, things moved smoothly when AFL employees were trained on Dax products, he says. Reporting profit for the last three years, Dax had revenues of Rs 62.5 crore during 2002. But even more than cost savings, he says, from the second year onwards, there was a significant reduction in product delivery time, which came down to a couple of days, from a couple of weeks. Efficiency increased among salespersons. Also, AFL is liable for any product loss in transit.

Before 2001, Dax used to have about 30 days of inventory at its Pondicherry warehouse, which blocked large sums of money, he says.

Dax is a provider of networking devices, including modems, switches and routers, and imports almost 100 per cent of its 290 products from contract manufacturers in Taiwan, China and Canada. The entire supply-chain management, right from procurement to product delivery, is taken care of by Air Freight. The company ships about 22,000 modems and around 5,000 switches a month across the country. There are 278 other products and the volume is huge, he says. An immediate saving outsourcing has brought to Dax is removing focus on non-core areas — warehousing and distribution — and concentrating more on marketing products. "Our officials need not chase retailers for payments. AFL collects it on our behalf," says Sujit Singh. According to him, in 2001, Dax had nine locations across India for sales and marketing. The sales force spent 50 per cent of its time on administration and payment collection. This, the company felt, was a matter for concern. The job of a marketing professional is on the field (market) always, it doesn't lie in doing an administrative job and chasing customers for payment. That is when Dax decided to follow the Singapore-model of complete logistics outsourcing from a third party, he says.

Through a Web-based intranet (communication among employees through a portal) a link was established between Dax and AFL on the entire supply chain, he says. The system works like this. Say, there is an order for modems from a customer in Delhi. The customer gets in touch with the local Dax salesperson, who, in turn, keys in the requirement on the intranet. AFL accesses this information, procures the material, and distributes it through its network to Delhi. AFL procures the Dax product from its nearest warehouse in a couple of days. With presence in 47 locations across the country, AFL can deliver Dax products to every nook and corner of the country. . This was impossible two years ago, with Dax having nine locations and a distribution centre in Pondicherry, says Sujit Singh. Once the delivery is made, AFL collects the payment and deposits it in the bank on behalf of Dax. Since it is a local invoice, done by AFL on behalf of Dax, double taxation (central sales tax plus local sales tax) is avoided.

3PL leads

For the eighth year in a row, growth in outsourced logistics outstripped US economic growth in 2002, a study from supply chain management consulting firm, Armstrong & Associates, says.

The 3PL sector in the US enjoyed a revenue increase of 7 per cent, net income growth of 3 per cent, and a 6.9 per cent rise in turnover.

By contrast, the US economy grew just 1.4 per cent in the fourth quarter of last year, slowing from a 4 per cent growth rate in the third quarter, according to estimates of the US Bureau of Economic Analysis.

raja@thehindu.co.in

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