Pirojshaw Sarkari CEO Mahindra Logistics Ltd Cracking the code on outsourcing – Partnering

Outsourcing of logistics has been gaining momentum across the globe Total logistics expenditures represent an average of 12% of OEMs’ sales revenues, and of this, an average 42% is outsourced The Value created by a 3PL: Strategic and operational value An ‘experts’ approach to design and optimization Focus on balancing service and cost Source: Armstrong & Associates, 2011

The scope of 3PL’s is increasingly shifting from just the core activities to now include more value added services Core supply chain activities outsourced include – transportation, warehousing & freight forwarding Reverse Logistics Product Labeling, Packaging, Kitting Technology integration Transportation Planning and Management Freight Bill Auditing and Payment Reverse Logistics Product Labeling, Packaging, Kitting Technology integration Transportation Planning and Management Freight Bill Auditing and Payment But, an evolving focus on value-adds creates differentiation Order Management and Fulfillment Service Parts Logistics Inventory Optimization LLP (Lead Logistics Provider)/4PL Services Sustainability/Green Supply Chain-Related Services Order Management and Fulfillment Service Parts Logistics Inventory Optimization LLP (Lead Logistics Provider)/4PL Services Sustainability/Green Supply Chain-Related Services Source: Third-party logistics study 2012 – Capgemini

Benefits of a successful outsourcing relationship Experience & Expertise of 3PLReduction in total logistics costs by creating valueImproved service levelsStrategic flexibilityAllows an OEM to focus on core competenceImproved end customer service levels

How is outsourcing made successful – key factors 3PL capabilities OEMs most value when entering emerging markets » Experience and expertise of the 3PL » Technology integration » Quality manpower » Managing the external environment » Working in partnership with other stakeholders

Experience and expertise of the 3PL Expertise provided by 3PL The expertise gained by a 3PL from experience in providing various solutions / services to different customers across geographies Expertise in design and operations as core functions Project management capability, local expertise and quality programs The expertise gained by a 3PL from experience in providing various solutions / services to different customers across geographies Expertise in design and operations as core functions Project management capability, local expertise and quality programs Expertise gained from managing conflicting requirements & still providing optimized solutions

Most OEMs today appreciate the benefits that Technology brings to the planning and functioning of their supply chain Technology integration Selection of relevant technology tools comes from experience & iterations done by 3PL in implementing industry specific solutions Return on investment & utilization of system tools is better for 3PLs when compared to OEM Synergies brought by a 3PL in implementing the technology solutions in actual operations Selection of relevant technology tools comes from experience & iterations done by 3PL in implementing industry specific solutions Return on investment & utilization of system tools is better for 3PLs when compared to OEM Synergies brought by a 3PL in implementing the technology solutions in actual operations

Logistics operations are manpower intensive Managing Manpower Specifically in contract logistics manpower plays a crucial role Large 3PLs who have a presence in a various geographies can collaborate & cross utilize the resources Managing both skilled & unskilled workforce 3PL’s ability to manage the factors affecting the skill, sourcing & sustained availability of manpower Specifically in contract logistics manpower plays a crucial role Large 3PLs who have a presence in a various geographies can collaborate & cross utilize the resources Managing both skilled & unskilled workforce 3PL’s ability to manage the factors affecting the skill, sourcing & sustained availability of manpower OEMs benefit from the capabilities of 3PLs in managing region specific manpower sourcing & deployment as per the required skill level

3PLs better manage the External Environment Managing the external environment Managing planning and execution is dependant on various external factors A 3PL can expedite the setting up & running of these key activities by managing: Statutory compliance License / Permit management Liaison with local bodies Various legal compliances Labor union management The 3PL basically insulates the manufacturer from various environmental factors & risks Managing planning and execution is dependant on various external factors A 3PL can expedite the setting up & running of these key activities by managing: Statutory compliance License / Permit management Liaison with local bodies Various legal compliances Labor union management The 3PL basically insulates the manufacturer from various environmental factors & risks

The ability to integrate across the supply chain and manage partnerships Manage vendor partners A 3PL conducts business in coordination with a host of business partners – transporters, manpower providers & consultants An OEM needs only a single point of contact in the 3PL to manage its entire supply chain The 3PL also manages the interests of the down stream partners by ensuring Route and load optimization Improving asset utilization Performance based business allocation Quality systems A 3PL conducts business in coordination with a host of business partners – transporters, manpower providers & consultants An OEM needs only a single point of contact in the 3PL to manage its entire supply chain The 3PL also manages the interests of the down stream partners by ensuring Route and load optimization Improving asset utilization Performance based business allocation Quality systems

So, ultimately what makes or breaks the OEM - 3PL partnership? Openness, Transparency, Trust and Communication Flexibility / Scalability of a 3PL to accommodate the OEM’s needs A real belief in the benefits brought about by close partnering Managing the correct balance between service and cost The ability of the 3PL to constantly innovate and create value A 3PL can play a strategic role in managing & growing an OEM’s business – if both the OEM & 3PL work towards creating value across the supply chain A 3PL can play a strategic role in managing & growing an OEM’s business – if both the OEM & 3PL work towards creating value across the supply chain

Aligning goals and focus Auto OEMs Focus on Core functions like manufacturing & sales Achieving reduction in logistics cost & improve supply chain performance Innovations in logistics help in reducing time to market 3PLs Expertise in managing auto supply chain Capability to deliver based on industry and cross-industry experience Managing the environment, returns from technology & best practices

A 3PL providing logistics services to captive customers from the parent organization develops expertise in providing solutions across industry verticals OEMs benefits from 3PLs having their genesis in well diversified organizations  Experience across different business verticals  Managing a mix of complex operations – always ensures the solutions provided are most optimal  High level of customization  Sharing of best practices  Leveraging base volumes OEMs benefits from 3PLs having their genesis in well diversified organizations  Experience across different business verticals  Managing a mix of complex operations – always ensures the solutions provided are most optimal  High level of customization  Sharing of best practices  Leveraging base volumes Auto Sector Farm Sector Retail Project Logistics Aftermarket Defense sector Two Wheelers International Business

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