The supply chain is as important as a backbone of businesses and the global economy, connecting raw material sources to the end consumer by managing the flow of goods and information, ensuring efficiency, quality, and timely delivery. This intricate system is crucial for providing products, boosting economic activity, modifying risks like disasters and geopolitical events, fostering innovation, and creating a competitive advantage for businesses.

Supply chain risks can cause big problems for firms. These risks come in many forms. Natural disasters, cyber-attacks, and supplier issues can all disrupt the flow of goods. The COVID-19 pandemic showed how fragile supply chains can be. Many companies struggled to get parts and materials. This led to empty shelves and angry customers. To cope, firms need to build supply chain resilience. This means having backup plans and suppliers. It also means using tech to spot problems early. Smart firms keep extra stock of key items too.

The bullwhip effect is a phenomenon in supply chain management where small changes in consumer demand create increasingly enlarged and distorted order quantities as they move up the supply chain from retailers to wholesalers to manufacturers. This exaggeration of demand leads to excess or insufficient inventory, higher costs, and reduced efficiency. It occurs because each stage in the supply chain lacks perfect information about actual consumer demand and tends to overreact to perceived changes, creating a ripple effect like a whip’s increasing motion.

The term “Bullwhip Effect” was first coined by Procter & Gamble researchers in the early 1990s. It described the phenomenon they observed in the supply chain for their Pampers brand diapers. They noticed that small changes amplified consumer demand as they moved up the supply chain, leading to significant inefficiencies and increased costs.

The bullwhip effect in a supply chain is when small changes in final consumer demand are magnified into increasingly larger fluctuations in orders as they move upstream to distributors, wholesalers, and manufacturers. This distortion causes parties to overcompensate for perceived changes in demand, leading to inefficient overproduction, excess inventory, stockouts, increased costs, and supply chain disruptions.

P&G experienced though the demand for their best-selling Pampers diapers was stable, the orders placed by retailers, distributors, and their own suppliers showed progressively larger fluctuations, leading to inefficiencies like excess inventory and increased costs. P&G coined the term to highlight this phenomenon, which they and other companies recognized as a major cause of inefficiencies in their supply chains. 

Common supply chain problems include material and labor shortages, logistics challenges like port congestion and rising transport costs, demand and supply imbalances, lack of visibility, geopolitical instability, and cybersecurity threats. These issues can lead to increased costs, operational disruptions, delays in delivery, and negative impacts on customer satisfaction. Some common problems for bullwhip are as follows: 

Demand Change at the Customer Level

A minor shift in consumer purchases occurs. A change in customer-level demand can disrupt a supply chain by creating sudden imbalances, leading to stockouts or excess inventory and increasing costs for businesses. This happens because the supply chain, which amplifies demand variability, struggles to react quickly enough to unexpected shifts, whether they are sudden surges or unexpected drops in demand.

Retailer Overreaction

The retailer, lacking full visibility into demand, overreacts to the perceived trend by increasing or decreasing their orders to the distributor by a larger margin. When retailers overreact to market conditions, they can cause supply chain disruptions through sudden spikes in demand (leading to shortages) or sudden drops in demand (leading to excess inventory). Overreactions, such as stockpiling or sudden order cuts, disrupt the flow of goods, causing higher costs, production halts, and potential loss of supplier and customer confidence. Effective supply chain management requires real-time visibility and intelligent demand forecasting to avoid these disruptions and ensure a smooth flow of products.

Amplified Orders Upstream

The wholesaler, receiving distorted information from multiple retailers, further inflates its own orders to the manufacturer. Where small fluctuations in customer demand become increasingly amplified as they move upstream from the retailer to the wholesaler, distributor, and manufacturer. This distortion leads to inefficiencies like excess inventory or shortages, increased costs, and operational instability, as each supply chain stage.

Magnified Demand Fluctuation

The manufacturer, with even less direct information about customer demand, drastically adjusts its production and orders from suppliers, creating the largest and most erratic swing.

Complex Supply Chain

The number of intermediaries between the manufacturer and the ultimate customer grows with a complex supply chain. Each intermediary may make assumptions about demand in a complex supply chain and place orders accordingly. Due to the sheer number of interconnected and interdependent entities, the vast amount of information and material flows involved, the global reach and multiple geographic locations of these entities, and the constant dynamic changes and disruptions that occur, making cause-and-effect relationships often unclear. These factors create a system with many moving parts that require significant coordination and can lead to cascading effects when problems arise.

Batch Orders

Batch order is a common practice in supply chain management where orders are placed in bulk at set intervals. The supplier and the retailer or distributor agree on a schedule for placing orders rather than placing orders as demand occurs. Batch ordering creates a distorted view of actual demand. This distortion of information leads to an excess inventory, which causes a stock-out or increase in holding costs. It can also lead to the bullwhip effect by creating a delay in the flow of information. This delay causes suppliers to react to changes in demand too late, leading to an oversupply or stock-out.

Consumer Pressure

Consumer pressure can cause the bullwhip effect by creating demand fluctuations that are difficult for suppliers to predict and address. It happens when consumers pressure retailers to stock a wide range of products and always have those products available. Consumer pressure leads to an overestimated demand and an increase in inventory levels. When consumers pressure retailers to stock a wide range of products, retailers place large orders to ensure they have enough supply to meet consumer demands.

Bad Communication

Distorted communication directly causes supply chain disruption by creating misaligned expectations, increasing operational costs, and leading to poor decision-making, which results in delays, shortages, and damaged relationships. This breakdown in information flow, especially in global networks, can be due to incompatible systems, data silos, security issues like cyber-attacks, or a general lack of real-time, transparent information exchange, hindering agile responses to unexpected events. It creates a lack of visibility and coordination among supply chain partners. It makes it difficult for suppliers to accurately predict demand and make informed inventory management and production levels decisions. Poor communication can lead to an overestimated demand and an increase in inventory levels, causing the bullwhip effect.

Price Volatility

Price volatility refers to the degree of price variations of a product or commodity over time. It measures how much the price of a product or commodity changes in each period.  Price volatility causes the bullwhip effect by creating uncertainty and unpredictability for suppliers. The rapid fluctuation in the price of a product or commodity makes it hard for suppliers to forecast future prices. This volatility causes them to overestimate demand, leading to an increase in inventory levels and the bullwhip effect in supply.

Lead Times Issues

Lead time is the time it takes for order fulfilment, from placing an order until the goods are received. Long lead times create delays in the flow of information between supply chain partners. This delay makes it difficult for suppliers to accurately predict demand and make informed inventory and production levels decisions. For example, if a supplier has long lead times, a retailer may place large safety stock orders to ensure they have enough inventory.

Incorrect Forecasts

Suppliers, retailers, and distributors often use historical data to make future forecasts. However, when there are significant changes in demand, it may cause them to base their projections on incorrect information. This wrong projection can lead to an overestimated demand and an increase in inventory levels. Incorrect supply chain forecasts create a vicious cycle of overstocking and stockouts, leading to increased costs, reduced profitability, and damaged customer satisfaction. This inaccuracy also triggers the bullwhip effect, amplifying small errors up the supply chain into significant demand and supply imbalances.

Five types of transportation in the logistics industry are roadway, railway, waterway, airway, and other modes including pipeline, cable transport and space transport. A good transport system can broaden the market for goods. It can also make the movement of raw materials, plant and machinery, components, fuel, equipment, etc. to the site of production easy. Roads and railway opens up interior and remote villages available for starting factories. The present government’s focus on infrastructure investment and its friendly approach towards Private-Public Partnership (PPP) model gives room for private players in the industry. PPP mechanism is a model for government to procure and implement public infrastructure and services using the resources and expertise of the private sector. The first line of Mumbai Metro between Ghatkopar and Varsova was built on PPP model by Anil Ambani controlled Reliance Infrastructure Ltd. and MMRDA. India has seen 112 completed road projects which are operating on PPP model and another 150 projects are being constructed and are on verge of completion.

Intermodal transportation refers to moving freight by two or more modes of transportation. By loading cargo into intermodal containers, shipments can move seamlessly between trucks, trains, air, roads and cargo ships. Intermodal shipments come in two categories: international intermodal or domestic intermodal. In intermodal transportation there are several parties involved for freight movement with a separate contract for each distinct leg of the journey. This means that there is more than one responsible entity for the successful delivery of the cargo. When using intermodal shipping, each leg of that shipment will be handled by a separate company.

In multimodal transportation, one contract covers the entire journey. One carrier takes sole responsibility of picking the cargo from pickup point and ensures delivery till the drop off point. Multiple carriers are used in the journey. The movement is made with shipping containers that can easily move from one transport mode to another. Pickup and drop off modes are usually road, and in some cases rail, while the main transit includes ocean or air. The freight during multimodal transportation is easier to track because of: lesser communication, improved routing and shorter transit time.

Both intermodal and multimodal transportation involves moving cargo from origin to destination using more than one method of transport. This can be truck, rail, barge, ship, or any combination of those. Both can also mean that several different carriers operate each leg of the journey. The difference between multimodal and intermodal lies in the contract / bill of lading and transport carrier responsibility / liability of the movement.

Organizations and individuals must make sure that they recognize the difference and communicate their needs accurately to the logistic companies to help in easing the movement and to avoid any misunderstandings and losses.

One example

When Boeing launched production of the twin-engine 787 in 2007, it vowed to set record production times. Within months the mission was in tatters. Tiny glitches held up the first phase of construction. Some were truly minuscule supply chain issues, like running out of fasteners. Boeing resorted to buying more at Home Depot. The small delays escalated into a revised timeline amounting to years. The question is not of size and value of the spare parts, it is the sustainability which is important. Companies should always strive to become more efficient and less wasteful instead of assuming they are already as sustainable as they want or need to be 

Another example

In 1993, the German sports shoe-and-clothing maker Adidas implemented a warehouse management system in its Spartanburg distribution hub in South Carolina. But the IT firm it was using went bust mid-project, so it engaged another, and forged ahead. Frustrated by long delays, in 1996 Adidas went live before the system was ready. Nothing worked, and it was unable to process and ship orders. It was able to fulfil just one fifth of its $50 million orders in North America. Adidas suffered market-share losses for years after, and haemorrhaged IT and logistics staff. 

Logistics Management, as name suggests, is a part of supply chain management that mainly focuses on plans, effective flow, storage of goods and services, etc. Modes of transportation are part of logistics. The Government of India has given infrastructure status to logistics sector, covering cold chain and warehousing facilities, a move that is likely to attract more funding at competitive rates for these segments. The government has been working on ways to attract more investments into transport and logistics as part of efforts to strengthen infrastructure development in the country.

The relationship between economic growth and infrastructure is very vital.  Our country’s economy has prospered ever since we have started making investments in infrastructure. For a faster growth of the economy we need faster and reliable mode for transport for movement of goods and people. The Indian economy today demands building of dependable good quality infrastructure.

Globally, DHL is one of the most recognisable logistics brands across the globe, specialising in international shipping, courier services, road and rail transportation, air and ocean freight, international parcel and express mail services and contract logistics. Founded in the US in 1969, the company had gone global by the late 70s and its current value is thought to be in the region of $10.7bn.

The Japan Railways Group is more commonly known as the JR Group and consists of seven for-profit companies that took over most of the assets and operations of the government-owned Japanese National Railways in 1987. The JR Group has a total route length of about 12,500 miles, of which about half is electrified. Current brand value is thought to be $11.1bn.

FedEx Corporation is a US multinational courier delivery services company with its headquarters in Memphis, Tennessee. FedEx offers a complete suite of online services for shipment preparation, package tracking, shipment rates and tools for international shippers and small businesses. The name FedEx is actually an abbreviation of the name of the company’s original air division, Federal Express. Brand value, according to Brand Finance, is $18.1bn. The CEO is Frederick W. Smith.

In India, Container Corporation of India Ltd. (CONCOR), was incorporated in March 1988 under the Companies Act and commenced operation from November 1989 taking over the existing network of 7 ICDs (Inland Container Depots) from the Indian Railways. It is the Largest Logistic Companies in India in Terms of Sales in the recent years.

Blue Dart Express Ltd. is a Mumbai, Maharashtra-based Logistics Company in India. Mr Tushar Jani launched the company in 1983. Blue Dart Express serves over 36,000 pin codes in India and over 225 countries worldwide. They provide a variety of payment options that combine services. These services include cash-on-delivery delivery, automated proof-of-delivery during fulfilment, weather-resistant packaging for orders, rapid delivery, and time-based/slot-based delivery.

TCI Express Ltd was established in 1996. TCI is a market leader in integrated supply chain and logistics solutions and a pioneer in the Indian market for cargo transportation. TCI provides integrated multi-modal logistics solutions, including transportation, storage, warehousing, and transportation support services. The company engages in express delivery and provides consumers with a single-window door-to-door service.

Since 1989, Gati has altered India’s logistic business through a series of ground-breaking, revolutionary efforts that prepared the way for an organised logistic industry. Gati now delivers complete Express Distribution and customised Supply Chain Solutions to customers across multiple business verticals with annual revenue of INR 1700 Crores. Gati’s advantage of continuous connectivity across air, road, and rail has resulted in an unrivalled array of customer options. Gati owns and runs a fleet of approximately 5000 vehicles on the road in India, and over 7000 business partners dubbed as Gati Associates.

DFCCIL

The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is shaping up under the ownership of Indian Railways, Ministry of Railways and Government of India for taking responsibility of planning, development, implementation, financial resources, construction, maintenance and operation of the dedicated freight corridors (DFCs). The DFCCIL was registered as a company under the Companies Act 1956 in the year 2006. First 2 DFCs Western dedicated freight corridor and Eastern dedicated freight corridor will decongest railway network by moving 70% of India’s goods train to these two corridors, both corridors work is on track for completion by June 2022. Due to continuous economic growth, demand for rail transportation in both passenger and freight sectors is continuously increasing and the Indian Railways is constantly endeavouring to increase its capacity over a large number of routes to meet this growing demand.

Conclusion

Most organizations feel dealing with a single carrier may be easier, but in many situations, overall total shipping costs can be better controlled by leveraging the individual expertise of multiple individual carriers. In such cases, the logistics also become more complicated. Therefore, in order to achieve the full benefits of multimodal and intermodal freight transport systems, it’s up to you to understand exactly what they are, the terminologies, and how they work. The Dedicated Freight Corridor Corporation of India Limited (DFCCIL will add lot of value to the transportation system in India. Its mission is to support Government of India’s initiatives towards ecological sustainability by encouraging users to adopt railways as the most environment-friendly mode for their transport requirements. The project is of national importance it will ease the burden on roadways and clear the National Highways and its interiors.   

Muda is Japanese word which means futility, uselessness, wastefulness, and it is a key concept of lean thinking.  Lean Thinking is a business method based on the history of Japanese manufacturing techniques which have been applied worldwide within many types of industries. It is ultimately a mind-set – a way of viewing the world that aims at handling work in a Lean manner. Lean puts focus on providing high levels of customer value by continuously improving business processes while eliminating wastage.

Lean takes its roots from the Toyota Production System. This Japanese company was able to create a sustainable ecosystem for work, where they are able to minimize their costs, ensure efficiency in their processes, and sell their products at a competitive price. In fact, when Toyota entered the U.S car market, they were able to sell their cars at a much lower price than U.S manufacturers. The Toyota Production System (TPS) consists of the three types of unconventional allocation of resources: Muda, Mura and Muri.

Mura means unevenness, non-uniformity, and irregularity. Mura is the reason for the existence of any of the seven wastes; defects and mistakes, waiting or delay, transportation, motions, over production, inventory, over processing and human potential. 

Mura drives and leads to Muda. For example, in a manufacturing line, products need to pass through several workstations during the assembly process. When the capacity of one station is greater than the other stations, you will see an accumulation of raw material, overproduction, waiting, etc. The goal of a Lean production system is to level out the workload so that unevenness or waste accumulation is eliminated.

Muri means overburden, in organizations some people are overburdened while some escape work. It also means excessiveness, impossible or unreasonableness tasks, wrong deadlines. Muri can result from Mura and in some cases be caused by excessive removal of Muda (waste) from the process. Muri exists when machines or operators are utilized for more than 100% capability to complete a task or in an unsustainable way. Muri exists due to employee absenteeism, illness, unavailability of raw material and breakdowns of machines. Standardization of work can help avoid Muri by designing the work processes to evenly distribute the workload and not overburden any particular employee, machine, workstation or equipment.

I give here below a short instance to explain how Taj Mahal Palace Hotel in Mumbai had to learn removing muda from their system. 

The Taj hotel group had invited Mr. Masai Imai from Japan to hold a workshop for its staff. The staff members were very sceptical about what they would learn from him as the hotel is doing excellent business. Masai from Japan had no exposure to hotel industry. What could he teach them? Everybody as planned gathered for the workshop in the conference hall sharp at 9 am. Mr. Masai was introduced to them; his personality could hardly impress them. He couldn’t speak great English either. He was formulating each sentence in Japanese and then translating it into rather awkward English. “Good morning! Let’s start work. I am told this is a workshop; but I see neither work nor shop. So let’s proceed where work is happening. Let’s start with the first room on the first floor.” Mr. Masai was followed by the senior management, the participants; the video camera crew trouped out of the conference room and proceeded to the destination. It was a room on the first floor which happened to be the laundry room of the hotel. Mr. Masai entered the room and stood at the window, “beautiful view!” he said. The room had panorama view of the Arabian Sea. The staff knew it; they didn’t need a Japanese consultant to tell them this! “A room with such a beautiful view is being wasted as a laundry room. Shift the laundry to the basement and convert this into a guest room.”

Oh God! Nobody had ever thought about that! The manager said, “Yes, it can be done.” “Then let’s do it.”, Mr. Masai said. The manager said he would make a note of it in the report and do the needful later. But, Masai insisted on doing it immediately, he told the manager to immediately decide which room in basement should be converted in a laundry. By lunch time the first floor room was converted into a guest room it was ready for customer to move in. Mr Masai asked the staff why the hotel loses few thousands per day of beautiful view room.

So he pointed Mura – short-sightedness wasting a room with beautiful view to laundry, loosing of thousands of rupees per day on the room, delay in decision making, motion etc.

The next destination was the pantry. The group entered. At the entrance were two huge sinks full of plates to be washed. Mr. Masai removed his jacket and started washing the plates. “Sir, Please, what are you doing?” the manager didn’t know what to say and what to do. “Why, I am washing the plates” said Mr. Masai. He continued washing, “I think sink is for washing plates, there are stands here to keep the plates and the plates should go into the stands.” All the officials wondered – did they require a consultant to tell them that? After finishing the job, Mr. Masai asked, “how many plates do you have?’ The manager answered “Plenty, so that there should never be any shortage.” Mr. Masai said, one lesson to be learned in this workshop is to avoid muda. If you have plenty of plates, there will be delay in cleaning them up. The first step to correct this situation is to remove all the excess plates. The manager told that he would report this also. Masai told him that reporting writing is also wasting time, instead he advised to pack the extra plates in a box immediately and send them in storage. Masai told the staff that the particular workshop was to find hidden ‘muda’ The staff eagerly waited to find out other mudas and to learn how to avoid it.

This incident pointed out muri which means overburden. The sink was full of unwashed plates. The process of washing plates was delayed unnecessarily; over and above the hotel stored additional plates overburdening the inventory.

On the last day, Mr. Masai told a story of Japanese and an American, both fond of hunting, entered a jungle with guns. In the pursuit of game they entered deep jungle and suddenly realized that they had run out of bullets. Just then they heard a lion roaring. Both started running. But the Japanese took a short break to put on his sports shoes. The American said, “What are you doing? We must first get to the car.” The Japanese said, “No. I only have to ensure that I remain ahead of you.” All the participants were engrossed in listening to the story; they realized suddenly that the lion would stop after getting his victim! The lesson is competition in today’s world is so fierce, that it is important to stay ahead of others even by just a couple of steps. Mr. Masai said further that India is such a huge and naturally well-endowed country, we need to remove the numerous mudas in our system.

Organizations which deliver the highest quality of service or products are the ones who receive the most customers. Prominence is therefore important. But ability is also important, if prominence brings customers to organization, ability helps organizations to retain the customers. Ability of the organization tells who they are. So the eminence and ability consist of four operational processes volume, variety, variation and visibility. Organizations survive when operations management lays in the hands of able managers to manage core activities that transform key resources into deliverable products or services.  The process of creating the products and services are based fundamentally in creating value in each operational management processes.

Volume

This refers to how much production of a specific product is required to satisfy its overall demand in the market.  This refers to the physical number of units or items produced.  A high volume manufacturing service example would be a fast-food joint like Dominos. They sell quite literally millions of pizzas and other related food items every day around the world, and one of the known characteristics of Dominos is that they have a very high degree of consistency in all of their products and their service delivery. 

Alternatively, a low-volume example might be an artist who produces specially made commissions and pieces of artwork. They are entirely unique, which are likely to take a very long time to produce and which cannot be easily replicated or repeated exactly, if at all. This is highly resource intensive and often long-term process. Scarcity is often used to boost sales, but it can also be used to create massive brand lift. It plays on the customer’s fear of missing out. Please remember this fact that marketers use limited-time offers like daily deals, limitations on quantities, or one-time only promotions to create a sense of urgency and leverage scarcity.

Volume is significant tool because it shows the confidence of buyers in a product or service. Though volume should never be used alone to determine price or selling patterns, but it is a base to gain insight into the markets and determine the next strategies.

Variety

This relates to the variety of goods/services to be produced and sold to customers. This V is all about diversity. Selling a variety of products or services helps organizations to increase sales and profit potential and reduces their dependence on one or two products, which can lead to business closure if demand for that product ends or wanes out.

For example HUL sells 44 brands spanning 14 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf excel, Rin, Wheel, Glow & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit. HUL has a product to offer each segment of the society. In an given product category its has maintained variety.

The high variety gives more flexibility to produce goods services to match the customer’s requirements. Variety and volume correlate, the higher the variety the lower the volume of the products or services.

Variation

This refers to how much the level of demand changes over some time due to external factors. However, several factors make it difficult to predict variation. For example, a natural disaster such as Covid 19 pandemic struck the world which made the entire world go topsy-turvy in all walks of life. Most business processes do not exist as singular entities but rather as a plurality of variants that need to be collectively managed. Most of these approaches are built on the assumption that the variation points and variation drivers are given as input. The question of how process variation is drawn and conceptualized in the first place has received relatively little attention. It takes lot of experience and maturity of managers to fill the gaps. When processes fail to follow a precise pattern, it causes quality issues both in transactional and production processes.

Visibility

This refers to value chain of a company’s all processes put together. The customers need to experience the company’s product/service. The service industries have a high level of visibility compared to the manufacturing industries. For example, Amazon has a track and trace software on their website which enables their customers to have visibility of where their packages are at any given time. It is important that potential customers can locate the company they are looking for. Most people have had the experience of being lost. It is truly  frustrating driving around unable to find the location a customer is searching – may be its company’s workshop, warehouse, retail store, head office, customer care centre anything.  Organizations must make sure that their signage is clear and visible so visitors can easily locate. Otherwise the experience can turn into a negative one. High-visibility signage has already helped easy to find repeat customers.

Unilever’s operations management is responsible for keeping the four Vs integral with high productivity throughout the global organization. Operations managers develop procedures and processes to support the organization in achieving higher volume, variety, variance and visibility. The operations team of Unilever directly supports marketing, sales, financial and HR performance. It essentially addresses concerns in all strategic decision areas to maintain high productivity. As a leading consumer goods firm, Unilever has evolved operations management approaches to keep all four Vs highly productive.

 Today e-commerce is become part of our life. The arrival of e-commerce and m-commerce (mobile) has transformed the entire retail sector.  Retailers are tapping multiple channels for selling their merchandise; from traditional stores, using catalogue, through the internet and more and more via smart phones and tablets, no stone is left unturned. Technological advancement means that the store is omnipresent! It’s now everywhere, in consumers’ pockets, at their homes and at the mall too. For surviving the competition in the e-commerce world distribution has become key component of the business. Supply chain and logistics experts have become key players and the other important element being real estate – strategic locations for Distribution Centres (DC).

While retailers are developing their multichannel strategy multichannel marketing which refers to the practice by which companies interact with customers via multiple channels, both direct and indirect, distribution strategies also need to be worked at a faster pace especially when the bar has been raised with delivery models like same-day and next-day delivery at the customer’s doorstep.

Retail supply chain executives go for locating fulfilment facilities closer to their customer base in order to meet service commitment goals such as aggressive delivery schedules.

Retail chains are therefore finding online logistics more cost-effective. They rather opt for this than open more traditional stores that require an entirely different kind of distribution model. Therefore, retailers are evolving their regional distribution networks with the addition of e-commerce distribution centres. Traditional warehouses which act as stores require lesser investment and machinery and fewer staff.  The new e-commerce distribution centres, which involve direct order fulfilment, can cost three times as much and involve three times as many employees.

Retailers need to consider points such as proximity to key customers, tax incentives, sales tax and the availability of local labour which are vital for business when searching for the right location for their e-commerce distribution centres. Also, the global spread of technology into multichannel retailing has also opened up new markets in both developed and developing countries. While online sales are growing in the United States and UK, China and Hong Kong are following the trend. China’s consumers are fast embracing e- and m-commerce and are spending most of their money online. And as technology and commerce is expanding faster, retailers are finding it difficult to keep pace with logistics and infrastructure because these two fields are still emerging with newer software and newer gadgets.

In most cases domestic logistics service providers are unable to provide services to fulfil high volumes of customer parcel shipping at low costs and within a realistic delivery time frame, this noticeably impacts the direct-to-customer channel. Retailers have to thus establish their own distribution networks or rely on outsourced express shippers.  This leads to an opportunistic gap in the market for third-party (3PL) and forth-party (4PL) logistics companies and investment in industrial real estate infrastructure.

In the US for the past two decades, U.S. companies have been shifting production to markets with lower labour costs. However, as energy costs rise and labor becomes more expensive in Asian markets, companies are increasing near-shoring and on-shoring. Firms which opt for all-water options but cannot tolerate the lengthy shipping times from Asia are shifting some operations to near-shoring destinations such as Mexico or Central and South America and even back to the United States.  With production and demand closer to home, retailers can respond more quickly to trends and changes in buying patterns.

Nearly 80 percent of retailers say that online sales have increased in the past five years with some reporting increase of 25 percent or more. This has forced retailers to change the traditional distribution network for their e-commerce model. 3PL and 4 PL providers have gained a huge role to play in the e-commerce business model.

Generally, 3PL provider’s main business is to provide logistical services as its core activities. The logistics services offered are based on the range of its logistics’ function. They include freight forwarders, courier companies and other companies integrating & offering subcontracted logistics and transportation services. 4 PL differs from third party logistics in some of these ways: 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 4PL organization acts as a single interface between the client and multiple logistics service providers; ideally all aspects of the client’s supply chain are managed by the 4PL organization; and it is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.

4PL was originally defined by Accenture as a trademark in 1996 and defined as “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” but the concept has almost changed at present.

4PLs have also been referred to as “Lead Logistics Providers”. In the present scenario, new crop of companies have emerged who are actual transportation companies too. While a 4PL is sometimes described as non-asset-owning service provider, their role is to provide broader scope managing of the entire supply chain. The 4PL model offers a platform to get companies thinking about long-term strategy; developing an idea of what they want their future supply chain scene to look like.

If you look closer, the 4PL model actually drives 3PL outsourcing. The difference between the two activities ultimately comes down to scope. In a traditional transactional role, the 3PL will hold on to scope—managing a warehouse, for example. With a 4PL model, the scope recedes and flows. The service provider scales resources depending on different skill set requirements that turn upwards.

If e-commerce brings the logistics industry closer to the point of consumption, it has boosted the demand in the logistics industry. Would it be wrong if we call Amazon and Wal-Mart logistics companies? At heart, these companies are retailers; but, actually on the basis of the economics of these two companies, Amazon and Wal-Mart are far, far better at handling the logistics of their trade than their competitors and hence they are the leaders. Distribution is their core competence.

If you read the case of Amazon.com one understands how important firm’s logistics is in e-commerce. Amazon.com has come a long way since its founder and chief executive officer, Jeff Bezos, stopped imagining the company as a virtual bookstore. It has evolved into an online retail giant that generated US $74.45 billion in revenues in 2013. It is worth mentioning that much of that came from its support of more than two million companies that used Amazon to sell their products online and distribute them to customers. Under the company’s various programs, Amazon not only provides its customers with a means of advertising and selling their products, but also offers to store those products in its fulfilment centres; pick, pack, and ship them; and provide customer service which includes handling returns.

In the process of developing its network to support those services, Amazon has built out an infrastructure which by recent account includes 145 warehouses around the world! 84 in the United States, four in Canada, 29 in Europe, 15 in China, 10 in Japan, and seven in India. This collectively accounts for more than 40 million square feet of space. Amazon has also made substantial investments in material handling systems, including the acquisition of Kiva Systems for $775 million in 2012.  Kiva is now a wholly owned subsidiary of Amazon, which designs robots, software, workstations, and other hardware that has been used in the distribution facilities of companies such as Staples, Office Depot, and The Gap. The systems produced by Kiva are expected to be an integral part of the distribution network now being developed by Amazon. Amazon has also made major investments in cloud computing. At the same time, the company has been developing transportation capabilities to support its Amazon Fresh same-day grocery business. That’s called might of an e-commerce company!

Why ISO?

Can we undermine importance of quality in business? No way. Quality management is the buzz word in global business. Businesses survive when they make quality their motto. Globally, customers prefer paying for quality products; therefore we see rush for Apple premium products such as iPad, Iphone and Imac, their feel is very good when held in hand. BMW’s business model of selling well-crafted luxury cars in row has become a standard for automobile companies. Ford Motor Company’s total quality management or TQM practices started way back in the 1980s when “Quality Is Job 1” was their slogan.

A quality management system (QMS) is a collection of business processes focused on achieving policies and objectives on quality. It is purely customer centric. Once the quality policy is set in an organization, the organizational structure, policies, procedures, processes and resources needed to implement are put in place. Earlier quality systems would emphasize predictable outcomes of an industrial product production line, using simple statistics and random sampling. By the 20th century, labor inputs were typically the most costly inputs in most industrialized societies, so focus shifted to team cooperation and dynamics, especially the early indications of problems via continuous improvement cycles. In the 21st century, QMS has tended to congregate with sustainability and transparency schemes. The emphasis is laid on sustainability and transparency because both investor and customer satisfaction and perceived quality is increasingly tied to these two factors. ISO has over 19,500 standards touching almost all aspects of daily life. Out of all standards, the ISO 9000 family of standards is probably the most widely implemented worldwide.

The International Organization for Standardization, known as ISO, is an International Standard setting body composed of representatives from various national standards organizations. It was founded on 23 February 1947; the organization promotes worldwide proprietary, industrial and commercial standards. It is headquartered in Geneva, Switzerland, and works in 164 countries.

ISO standards are a guide that can help transform company’s quality system into an effective system that meets and exceeds customer expectations. Once the certification is acquired, an organization needs to adhere to the quality norms, and with implementation of the same the internal and external benefits accumulate over time. The processes are aligned with the organization’s policies and goals and with customer expectations; therefore forming a more organized working environment for both management and employees. While product and service quality will improve, it decreases wastes and defects in the entire system. Process improvements help to motivate employees and increase staff participation. Products and services become continually improved. All of these internal benefits continually drive better financial results, hence creating more value for a business.

As for the external benefits, ISO certification shows the customers and the world that quality is certainly the motto of the business house. Besides this the organization has the opportunity to increase its competitive advantage, retain and build its customer list, and more easily respond to market opportunities around the world.

I have seen this: once the organization goes in for ISO certification, it automatically becomes a Learning Organization. The processes of ISO compel the management and employees learn to add skill to create, acquire and transfer the knowledge. The ISO certification process help the firms cultivate tolerance, foster open discussion, and think holistically and systemically. The atmosphere in organization fosters continuous learning which makes the working force capable to adapt to the unpredictability more quickly than their competitors. It helps them confront bottlenecks in the business line.

The definition of learning organization is: an organization that acquires knowledge and innovates fast enough to survive and thrive in a rapidly changing environment. Learning organization creates a culture that encourages and supports continuous employee learning, critical thinking, and risk taking with new ideas. Such organization allows mistakes, and values employment contribution. It circulates the new knowledge throughout the organization for incorporation into day-to-day activities. Peter Senge, the man who coined “Learning Organization” concept; his vision of a learning organization is as a group of people who are continually enhancing their capabilities to create what they want to create has been deeply influential.

ISO Certification helps an organization to identify gaps between the business processes. It helps optimized allocation and integration of the inputs (resources), and the current allocation level. It reveals areas that can be improved. Gap analysis involves determining, documenting, and approving the difference between business requirements and current capabilities. Gap analysis naturally flows from benchmarking and other assessments. Once the general expectation of performance in the industry is understood, it is possible to compare that expectation with the company’s current level of performance. This comparison becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization. ISO certifications help in analyzing gaps and filling them analytically and scientifically.

The Standard Operating Procedures (SOP) in ISO certification is an important aspect of a quality system; is does not allow to work in ambiguity. A SOP is a document of compulsory instruction. If deviations from this instruction are allowed, the conditions for these needs to be documented including who gave permission for the alteration and what exactly the complete procedure will be. The original should rest at a secure place while working copies should be authenticated with stamps and/or signatures of authorized persons. A systematically drafted and designed standard operating procedure (SOP) provides directions to all those involved in a particular task. It improves communication, reduces training time, and improves work consistency. This happen because the instructions are clear, well structured leaving no scope to haziness of any kind. The SOP development process is an excellent way for managers, workers, and technical advisers to work together for everyone’s benefit. A very positive sense of teamwork arises when these parties work together toward common goals. The leadership quality enhances; because everyone is assigned work proportionately, with an allotted time line to complete it; helping the leader to concentrate on further strategic thinking and implementation.

Standard operating procedures used in combination with systematically planned training and regular performance feedback lead to an effective and motivated workforce. Managers and advisers benefit from consistent work performance and predictable results. Workers benefit from increased confidence and a clear sense of achievement.

I am amazed at the ISO’s coverage in almost all areas of standardization. It has hardly left any area which is not covered under its equivalence program. I am simply astonished. Following are few of the standards which are popular but not known much:

ISO 9000 standards are designed to make sure your products and services meet customers’ needs. ISO 14000 standards family is designed for environmental performance. ISO 22000 inspires standards in food products. ISO 26000 helps organization to operate in a socially responsible way with this standard; it’s designed for the CSR theme. ISO 4217 is designed to avoid confusion when referring to world currencies. ISO 31000 is designed for risk management. ISO 27001 ensure information security standards. ISO 20121 is designed to manage the social, economic and environmental impacts of events. ISO 3166 is for avoiding confusion when referring to countries and their subdivisions. This standard defines codes for the names of countries, dependent territories, and special areas of geographical interest. ISO 50001 helps making energy savings and helps making an organization more efficient in energy usage.

And, ISO 639 is designed for describing languages in an internationally accepted way. This standard is a standardized nomenclature used to classify all known languages. Each language is assigned a 2-letter (639-1) and 3-letter (639-2 and 639-3), lowercase abbreviation, amended in later versions of the nomenclature. The system is highly useful for linguists and ethnographers to categorize the languages spoken on a regional basis, and to compute analysis in the field of lexicostatistics. Lexicostatistics is an approach to compare linguistics on the bases of quantitative comparison of lexical cognates.

Globally, water management is the need of the hour. ISO provides global tools to help us manage our shared water resources evenhandedly and durably. Over 1000 ISO standards help us in water standards to build confidence through consensus-based global solutions for good business practice, management of resources, risk assessment, metrics and infrastructure. They facilitate sustainable water management and increase water potential, helping alleviate water scarcity and contributing to achieving the UN’s Millennium Development Goals.

In today’s over competitive business world managing the firm’s supply chain brilliantly is one of the strategic responsibilities. A well designed supple supply chain can be firm’s competitive advantage and it can support firm’s value chain. Today companies are under increasing pressure to reach out to their far-flung markets. Buyers want the products and services available to them as swiftly as possible; therefore companies are pressed to deliver when customers are ready to buy. Organizations are taking inputs directly from their customers. Customers are also in constant touch with firms; they are directing the firm’s supply chain right from what goes in the product, timing of the launch, packaging, price and delivery. And therefore, in this emerging world of demand-driven markets the supply chain plays a crucial role. It must not only be flexible and cost-effective, it must be able to respond directly to customer’s call.

Necessity is the mother of inventions. When people are hard pressed for finding solutions to their problems, they will figure out a ways to find them. This means people think laterally when they have to struggle, when they need to fight odds, when they are pushed to the corners. Since the beginning of human life, enormous changes around us have taken us to a path of scientific progress, which in turn has benefited mankind in a number of ways. In every era, men invented many things in order to cater to their rising needs. I would like to showcase in article how some great companies have brought in innovations and strengthened their supply chains.

This article is based upon pure desk research. The desk research technique is mainly acquired by sitting at a desk, using secondary data from various sources such as internet, newspapers, journals and magazines. My 20 years industry experience in the field of sales and marketing and later as my research in Marketing, has taught me that if a products however good it is, if not available when customers wants it can lose out its preference forever. 

In a news item published in Economic Times dtd 8^th June 2011, the former Finance minister Pranab Mukherjee asked chief ministers of all states in India to ‘urgently’ look into the supply chain of items and remove the bottlenecks that are driving food inflation in the country. In a letter to all the chief ministers, Mukherjee said particular attention should be paid to the local factors that are widening the gap between the wholesale and retail prices. The Food Corporation of India recently reworked its supply-chain management. It took help of some leading consultants to reduce the bottlenecks. The nodal agency that procures and distributes food grains across the country annually buys 250 lakh tones of wheat and 300 lakh tones of rice. In 2010-11, it lost a whooping sum Rs 482 crore due to lack of storage facility and constant transiting of food grains.

Food Corporation of India(FCI) uses linear programming technique to manage movement of stocks, this technique has a limited use as all loading railheads and recipient railheads cannot handle full rakes. At times, demands of nearby railheads are combined so that a full rake is used to reduce operational cost and time. Food grains are transported from surplus regions, such as Punjab, Haryana, Andhra Pradesh, Madhya Pradesh and Chhattisgarh, to deficit regions. A detailed monthly movement plan is charted out to help the Railways in allotting rakes and ensuring smooth movement of food grains. In September 2010, the Supreme Court asked the state-owned Food Corp. of India (FCI) to expand and modernize its distribution infrastructure, and noted that 50,000 tons of wheat had already worsened. The case brought renewed focus on the interlinked challenges of feeding India’s population and overhauling its food grain procurement, storage and distribution infrastructure.

According to West Bengal Governor, Mr. M. K.Narayanan, better supply chain management will help reduce inflations in the price of agro-products. Due to lack of proper governance of supply chain there is a huge wastage of food grains in India.

While on one hand when we see the Government failing to take the right measures to improve the supply chains, the private sector is using innovative techniques to combat bottlenecks in supply chain. Companies like Hindustan Unilever, ITC, and Godrej support their marketing channels such as wholesalers, retailers, stockiest for effective sales to nook and corners of the nation. In rural India mandis are emerging as the target centers for direct sales. BPCL (Bharat Petroleum) has introduced specially designed Rural Marketing Vehicle, which moved from villages to villages to fill gas cylinders on spot.

Another innovative distribution model that merits mention is the HLL’s Shakti project, which connects Self-Help Groups (SHGs) with business opportunities. Hindustan Lever promotes and uses the SHGs network present in the villages for increasing its sales in the rural areas. The SHGs are offered chance to become company’s local small scale distributor in the rural areas. The groups, typically of 15 to 20 people, buy a small stock of items such as soap, detergent or shampoos and then sell directly to consumers in their homes. The model is a win-win for the company and the village SHGs.

A supply chain that responds directly to customer needs may look quite different from the supply chains of the past. For one reason that today firms rank distribution function at the top of the value chain. Supply chains need some of the following characteristics

Visibility

Here visibility means an array of record and movement of goods with the right processes. The recording of the movement, events, and patterns that enable the automation allow accurate expectedness, this also enhances dynamic responses of all stakeholders in the business. Today supply chain professionals are insisting on the need for more visibility. After re-inventing the category of express parcel shipments, FedEx went a step further in the mid-1980s with its development of a new computerized tracking system that provided near real-time information about package delivery. Outfitting drivers with small handheld computers for scanning pick-ups and deliveries, a shipment’s status was available end to end. The Fedex system really drove the idea that information of the package movement was as important as the package itself. I must say that Fedex laid foundation of our current supply chain visibility concepts.

Adaptability

The supply chain professionals are realizing that the emerging markets in the globe are driven by middle class buyers who are cost conscious, always eager and demanding. Hence, supply chains need to adapt to the costing factor of firms. In 1982, 3M, like every other company, had to leave transportation decisions to each plant and distribution center. Roy Mayeske, at that time the Executive Director of 3M Transportation, got the idea to centralize transportation planning to look for network synergies. 3M took mainframe software being used by Schneider National – one of its major carriers and modified it to be workable from a shipper perspective. This enabled 3M to plan shipments, logical routing, curtail time gaps and intervals. Roy Mayeske thus brough a huge change to the company’s supply chain. Costs were cut, time was saved and most important damages and wastes saved.

Improved communication

A dynamic supply chain needs to respond to rapid reactions in crisis by keeping the response time short. Progressive companies in the world recognize importance of efficient communication and they take help of social media. Social media tools, like blogs, can be more effective in encouraging and idea sharing. TEVA Pharmaceuticals – a Canadian Pharma company has recognized that the speed of supply chain is about people talking to people. TEVA has beautifully harnessed the power of social media to reduce barriers in communication between internal functional groups and external functional group. Their VP –Supply Chain rests his decision by communicating with channels, suppliers, customers etc on social media sites. He says that social media has resulted in a “spontaneous association” between him and their customers.

Collaborating supply chain with value chain of the firm

Firms recognize these days that they need to team up with the right supply chain partner to enhance their value chain. Partnering with a good logistic firm for the movement of supply chain improves sales forecasting of the firm by getting closer to the points of demand and methodical supply. It strengthens strategic relationships with suppliers and marketing channels, enhances sales and operations planning to achieve corporate goals. An automated monitoring makes the supply chain hassle free.

Square D, a division of Schneider Electric, which is based in Palatine, Illinois, provides a good example of a nonlinear development flow in the electrical controls and automation management industry. Demand-driven innovation is an important part of Square D’s business, and the company actively engages its customers in developing new products. But instead of simply submitting specs for a desired product and waiting for Square D to produce it, customers collaborate online or on the phone with order engineers. Customers are allowed to talk to designers to suggest their own ideas or push back and forth on features. This however does not   create hurdles in the manufacturing process. The nonlinear program in their production process has made back-and-forth process easier, richer, and faster than it would be otherwise. The organization is always ready for innovating new designs of switches and circuit breakers. The supply chain managers are ready to plan ahead at the early stages of product development. Square D never compromises on the standard of components. Everything on the shop floor goes from step to step crisply. The overall result of Square D’s nonlinear flow helps the company a 30 percent reduction in order-taking cycle times.

Wal-Mart’s innovation in supply chain

In its persistent quest for low consumer prices, Wal-Mart embraced technology to become an innovator in the way stores track inventory and restock their shelves, cutting costs and passing the savings along to customers. In the process the company became synonymous with the concept of successful supply chain management. Through a combination of distribution practices, truck fleet management and technological innovations Wal-Mart became the model of supply chain efficiency. Wal-Mart’s core competency lies in its supply chain management. Wal-Mart showed the world that Supply chain management is moving the right items to the right customer at the right time by the most efficient means. In the 1980s Wal-Mart began working directly with manufacturers to cut costs; it went cutting costs because of eliminating the intermediaries.   From 1993 to 2001, Wal-Mart grew from doing $1 billion in business a week to $1 billion every 36 hours.

Under a Wal-Mart’s supply chain initiative called VMI (vendor managed inventory) manufacturers becomes responsible for sending the supplies directly to Wal-Mart’s warehouses. As a result, Wal-Mart is assured of 100 percent order fulfillment on merchandise.

Wal-Mart developed the concept of “cross docking,” or direct transfers from inbound or outbound truck trailers without extra storage. The company’s truck fleet and corps of non-unionized drivers continuously deliver goods to distribution centers (located an average 130 miles from the store), where they are stored, repackaged and distributed without sitting in inventory. Goods will cross from one loading dock to another, usually in 24 hours or less, and company trucks that would otherwise return empty “back haul” unsold merchandise. Collaboration Companies within the supply chain synchronize their demand projections under a collaborative planning, forecasting and replenishment scheme, and every link in the chain is connected through technology that includes a central database, store-level point-of-sale systems and a satellite network.

Wal-Mart is the first company in the world to implement ‘Universal Product Code bar codes’.  Through the bar codes store level information can be immediately collected and analyzed. Through a global satellite system the retail link is connected to analysts who forecast supplier demands effectively. In recent years, Wal-Mart has used radio frequency identification tags (RFID), which use numerical codes that can be scanned from a distance to track pallets of merchandise moving along the supply chain. Even more recently the company has begun using smart tags, read by a handheld scanner, that allow employees to quickly learn which items need to be restored so that shelves are consistently stocked and inventory can be closely watched. Wal-Mart reaps the benefits of its supply chain management by saving time, faster inventory turnover, increased warehouse space and accurate forecasting of inventory levels.

In another case from close home – in remote districts like Gadag chemists had to ensure that medicines are stocked well and can be offered during emergencies. Unfortunately, chemists such as Maranabasari had to wait for an emergency before reaching out to a distributor for life saving drugs, losing precious many hours for medicines to arrive.

Maranabasari found answers to his dilemma in the US army’s Global Combat Support System (GCSS); this is an Enterprise Resource Planning (ERP) commercial off-the-shelf application capable of managing a large volume of business transactions within a single database. It was was originally developed by Anup Akkihal, an Indian born in West Virginia. Maranabasari used it with several other chemists in the district, by paying Rs 100 every month for a software solution that tracks demand, sales and movement of drugs – all on a simple to use handset that does not need any fancy technology. Of course, the chemists had a tough time learning the usage of this technology.  

Akkihal, a post graduate in logistics from the Massachusetts Institute of Technology, found his inspiration to develop the software while working on a US Army project with defense contractor Northrop Grumman during July 2006. While working for the US defense, Akkihal realized that back home this technique could be used for the chemists’ solution of stocking life saving drugs. He along with his team, worked with local chemists like Maranabasari to develop a solution that could solve their problems in a simple, effective way. The solution developed by Akkihal, who sells the software through his firm Logistimo, is now gaining grip and holds potential for solving supply chain management problems faced by many village entrepreneurs in the country, experts say. Logistimo’s solution is finding takers in remote villages and districts of Africa.

Today, the World Health Organization (WHO) uses Logistimo’s technology to track the vaccines for the immunization drive in Tunisia since most regions there are not well connected to internet. It seems in past pipelines were used to send vaccines to remote villages; it was difficult to understand where the vaccines were. Kudos to Logistimo! It works on simple technology and not expensive.

3 PL & 4 PL: Indian firms have started using Third Party Logistics (3PL). Third party logistics providers typically specialized in integrated operation, warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials. These companies offer services that can allow businesses to outsource part or the entire supply chain management function.  Many 3PL companies offer a wide range of services including; inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. Firms opt for 3PL so that they can operate without much baggage; they become leaner by reducing assets and allowing focus on core business processes.

Globally the growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business. The increased awareness and usage of information technology due to revolution in IT services gave way to 3PL firms. One such firm which took the lead in 3PL revolution is Fedex.  Its overnight delivery services changed the logistics format for plentiful firms all over the world. It offered business operations the technique of just-in-time techniques which in turn allowed firms to save investments on warehouses, usage of space and reduce overall business cost. 

3PL industries originated in India after 1990.  The industry was pioneered by global logistics majors as a part of expanding these services to the Indian subsidiaries of multinational companies in automobile, electronics and FMCG sectors. Indian subsidiaries of multinational companies in these sectors took cue from their parent companies and began to outsource a share of their logistics functions to these specialist service providers. Though insignificant in the first few years, Indian 3PL industry is experiencing a rapid growth after year 2000. The number of participants in this industry had grown to be more than 400 by year 2005. The Indian 3PL industry can be divided into three distinct tiers – National Major 3PL companies with nationwide presence, Regional 3PL companies with strong presence in one or two regions, and Small Remote 3PL companies

4PL business is still at budding stage in India; they provide a wide range of value-added services that can range from business process analysis to hand work such as assembly, packaging and configuration besides the core activities of logistics.  4PL companies are hired by firms which engage services of 3PL.  The term “4PL” was actually coined by the consulting group Accenture. In fact, they also hold the trademark to the name 4PL. Accenture defines a 4PL in the following manner: “A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design build and run comprehensive supply chain solutions.”

In 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL. Some large Indian firms in various sectors have invested heavily on logistics whereas sectors such as cement, FMCG, electronics, consumer durables, automobiles, pharma, food processing and the colour & paint sectors are among the chosen sectors which rely heavily on 3PL & 4PL logistics. While multinational logistics firms such as SembCorp, Exel and BAX, have made way into Indian lands couple of Indian firms such as GATI and TVS Logistics are also slowly changing the way products and materials are distributed.

Globally most of the Fortune 500 companies have opted out hiring services of 4PL.  In India, IBM, Dell, Nike and Philips have handed over their logistics operations to 4PLs. Much of the 4PL service includes execution of activities directly or through 3PL service providers. The logistics activities and solutions have started covering compilations of orders, planning the dispatch, physical transportation, in-transit monitoring, confirmation of deliveries, payment to be made to the transporters plus providing MIS to the client and the entire gamut of physical distribution function.

Geographic multiplicity of India needs varied logistics expertise as each region has its own troubles. Logistics posses a main challenge in the growing Indian trade. Along with diverse geographic scenario h a diverse cultural and regional buyer behavior has made logistics operations complicated in India. The buyer behavior in each state varies from the other, coupled with the geographical diversity of each state. Each state requires a tailor-made logistics model. Today, we require multiple solutions logistics companies to suit the nationwide logistics needs. Hope the administration is hearing.

India faces infrastructure limitations which in turn challenges the logistic company’s work also. The congested roadways and heaving ports are resulting in significant delay in movement of goods, affect the performance of 3PL service providers; similarly, lack of sufficient warehousing and specialized storage facilities beyond major cities of the country result in 3PL service providers to restrain from offering warehousing services across the country, hence resulting in their failure to become the complete logistics service providers for clients. Perhaps, allowing these firms to construct their own warehousing facilities in strategic geographic locations and specific regions, could address this problem. If this strategy is adopted by the government then such geographic locations could be designated has warehousing hubs. Over and above, complex tax structures and corruption coupled with erratic bureaucratic control are some other hassles faced by logistics service providers in providing the best of logistics solutions for their clients.

Increased Use of Supply Chain Consulting

Inventory is usually an extremely important aspect of operational costs for many companies and must be managed with the most cost-efficient method possible in order to see profits. Firms today face rough challenges such as whether the firm has supply chain visibility; this structural issue includes the complexity of the product, the nature of the technology the firm uses and at what degree the brand loses its uniqueness and faces challenge of commoditization at each point in the supply network. The second challenge being how much visibility is good visibility; firms are cautious about their supply chain details as these details are of strategic importance. The information can be misused to sabotage a firm’s business plans, and its existence itself. The third challenge being how does a firm behave when it confronts risk?  Firms need to juggle with market changes, new product launches and specific distribution for them, handling marketing channels with a difference for new products and existing channels for older products with a different treatment, sourcing, new acquisitions, credit availability, protecting intellectual property, R&D and its results, shipment security, maintaining cordial relations with suppliers and distributors etc. Supply chains must periodically be assessed and redesigned in response to market changes. In addition, supply chain risks must be identified and quantified.

Firms depend heavily on supply chain consultants these days. The greatest skill of a supply chain consultant is normally the ability to immediately assess inventory costs and put plans in motion to reduce their impact. Supply chain experts typically try to match an inventory management approach that meets the company’s market, industry, customers and its business philosophy. They provide companies with the tools needed to lower their month-to-month carrying charges of inventory. A supply chain consultant may have a degree in logistics or supply chain management or may simply have enough years of experience within logistics and management to be considered an expert in the field. I see a great future for careers in supply chain as managing supply chain professionally is need of the hour!