impact of logistics outsourcing on the profitability · pdf fileprofitability of food...

407
i IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY OF FOOD PROCESSING INDUSTRIES (A STUDY IN MAHARASHTRA) Thesis Submitted to the Padmashree Dr. D. Y. Patil University, Department of Business Management in partial fulfillment of the requirements for the award of the Degree of DOCTOR OF PHILOSOPHY In BUSINESS MANAGEMENT Submitted by GAUTAM TREHAN (Enrollment No.: DYP-PHD 09010) Research Guide Dr G. S. MONGA PADMASHREE DR. D.Y. PATIL UNIVERSITY, DEPARTMENT OF BUSINESS MANAGEMENT, Sector 4, Plot No. 10, CBD Belapur, Navi Mumbai 400 614 November 2012

Upload: hoangnhi

Post on 06-Feb-2018

222 views

Category:

Documents


3 download

TRANSCRIPT

Page 1: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

i

IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY OF FOOD PROCESSING INDUSTRIES

(A STUDY IN MAHARASHTRA)

Thesis Submitted to the Padmashree Dr. D. Y. Patil University, Department of Business Management in partial fulfillment of the requirements

for the award of the Degree of

DOCTOR OF PHILOSOPHY In

BUSINESS MANAGEMENT

Submitted by GAUTAM TREHAN

(Enrollment No.: DYP-PHD 09010)

Research Guide Dr G. S. MONGA

PADMASHREE DR. D.Y. PATIL UNIVERSITY, DEPARTMENT OF BUSINESS MANAGEMENT,

Sector 4, Plot No. 10, CBD Belapur, Navi Mumbai – 400 614

November 2012

Page 2: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

ii

Page 3: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

iii

IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY OF FOOD PROCESSING INDUSTRIES

(A STUDY IN MAHARASHTRA)

Page 4: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

iv

DECLARATION

I hereby declare that the thesis entitled “Impact of Logistics Outsourcing on

the Profitability of Food Processing Industries (A Study in Maharashtra)

submitted for the Award of Doctor of Philosophy in Business Management at the

Padmashree Dr. D.Y. Patil University Department of Business Management is

my original work and the thesis has not formed the basis for the award of any

degree, associate ship, fellowship or any other similar titles.

Place: Navi Mumbai.

Date:

Signature of the Guide Signature of theDirector, Signature of the student

Page 5: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

v

CERTIFICATE

This is to certify that the thesis entitled “Impact of logistics outsourcing on the

Profitability of Food Processing Industries”(A study in Maharashtra)and

submitted by Mr GautamTrehan is a bonafide research work for the award of

theDoctor of Philosophy in Business Management at the Padmashree Dr. D.

Y.Patil University Department of Business Management in partial fulfillment ofthe

requirements for the award of the Degree of Doctor of Philosophy in Business

Management and that the thesis has not formed the basis for theaward

previously of any degree, diploma, associate ship, fellowship or anyother similar

title of any University or Institution.

Also certified that the thesis represents an independent work on the part of

the candidate.

Place:

Date:

Dr. R. GOPAL Dr. G.S. Monga

Signature of the Director, Signature of the Guide

Head of the Department

Page 6: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

vi

ACKNOWLEDGEMENT

I am greatly indebted to the Padmashree Dr. D.Y. Patil University, Department

of Business Management which has accepted me for the Doctoral Program

and provided me with an excellent opportunity to carry out the present

research work.

I am grateful to my guide, mentor, philosopher Dr. G. S. Monga&Dr. R.Gopal for

having guidedme throughout the research span of time and for providing his

constructivecriticism which made me bring my best. I would also like to thank sir

for beingthere at any point of time without considering his own precious personal

time.

I would also like to thank Mr. SalimSethwala Director of Sethwala Foods Ltd, for

sponsoring the Projects & for having supported me throughout the study.

I sincerely thank my wife MrsChitraTrehan& my Mother SmtUrmilTrehan for

providing me the necessary motivation forcompleting this dream project. I also

wish to place on record my sincerethanks to my revered deity and my late father

who have provided me withthe strength and ability to carry this research out of

the best of my ability.

Lastly I also wish to thank all my near and dear ones who have been directly

and indirectly instrumental in the completion of my dissertation.

Place:Signature of the student

Date:

Page 7: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

vii

CONTENTS

CHAPTER

NO

TITLE Page

NO

List of Figures

List of Tables

Executive Summery

1. Introduction 1

1.1 Logistics & Supply Chain 3

1.2 F.D.I. in Logistics 11

1.3 Key issues & Challenges for Logistics Industries 15

2. Literature Review 31

2.1 Gap in the studies 38

3 Purpose of the study & Research Methodology 41

3.1 Purpose of the study 42

3.2 Objectives of the study 43

3.3 Hypothesis 44

3.4 Research Methodology 45

Page 8: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

viii

3.5 Secondary Data 46

3.6 Primary Data 47

3.7 Sampling 48

4. Indian Logistic Industry 62

5. Logistic Outsourcing 77

6. Profitability Facts 85

7. Food Processing Industry 108

8. Tabulation & Statistical Analysis of Data 129

9. Interpretation & Report Writing 164

10. Outsourcing Strategies 198

10.1 Modeling the logistics outsourcing relationship variable

to enhance shippers productivity & competitiveness in

Logistics Supply Chain

199

10.2 Performance Measurement in business process

outsourcing decisions insight from 4 CS

223

11. Future Outsourcing Strategies 247

11.1 Training Future Logistics Managers 248

11.2 The Role of Balanced,Strategic, Cascaded & aligned

performance measurement in enhancing firm

270

Page 9: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

ix

measurement.

12. Challenges & Opportunities for Indian Logistics

Outsourcing Companies.

306

12.1 Keeping a watchful eye on pilferage prevention 307

12.2 Building Warehousing- Key to faster logistics growth 313

12.3 Maritime Transportation 315

12.4 Mega Trends in Air Cargo 330

12.5 Rail Freight in India 334

13. Major Findings 345

13.1. Limitation of the Study 349

14. Conclusions 351

14.1 Recommendations & Suggestions 354

Reference Section 357

Annex.- 1 Questionnaire 358

Annex 2- Bibliography 364

Page 10: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

x

LIST OF FIGURES

List of Figures Page No

Fig1 The Major Forces driving Logistics 19

Fig 1.1 3PLs & 4PLs Service provider operations 26

Fig 8.11 Steps involved in Research 113

Fig 8.1 Job Position 135

Fig 8.2 What level Decision of logistics outsourcing is

taken 136

Fig 8.3 Degree of involvement in decision making 137

Fig 8.4 Percentage of Increase in Total sales volume 138

Fig 8.5 Managers involvement &Development of Total Sales volume in Percentage

139

Fig 8.6 Degree of Involvement & development in total

Sales Volume

140

Fig 8.7 Managers View For outsourcing of outbound

transportation

141

Fig 8.8 Managers view for outsourcing of Pack & Labels 142

Fig 8.9 Managers view for outsourcing of Transportation

Management

143

Fig 8.10 Activity contributes highly competitive advantage 144

Fig 8.11 Activity essential to support managers core

activities

145

Page 11: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xi

Fig 8.12 Activity which performed efficiently compared to

rivals

146

Fig 8.13 Special equipment used by Mangers 147

Fig 8.14 Special Knowledge & Skills 148

Fig 8.15 High cost of outsourcing 149

Fig 8.16 Performance Evaluation 150

Fig 8.17 Difficulties in logistics service 151

Fig 8.18 Opinion of Managers on Perishability 152

Fig 8.19 Impact of SKUs on Logistic Process 153

Fig 8.20 No. of Products in Storage 154

Fig 8.21 Variety of Product Group Influence logistic

Process

155

Fig 8.22 Production Features 156

Fig 8.23 Fluctuationsin output, quality, and quantity 157

Fig 8.24 Yearly Demand Volume 158

Fig 8.25 Demand Uncertainty 159

Fig 8.26 Demand Changes 160

Fig 8.27 Distribution Impact 161

Fig 8.28 Role Of International Customers 162

Fig 8.29 Influence of Distribution (No. of Warehouses) 163

Fig 8.30 Variety of Distribution Channels 164

Fig 8.31 Delivery Frequency 165

Page 12: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xii

Fig 8.32 Order Lead Time 166

Fig 8.33 Time of Distribution size 167

Fig 8.34 Changes in Distribution 166

Page 13: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xiii

LIST OF TABLES

Table 9.1. Job Position 170

Table 9. 2. Logistics outsourcing Levels 170

Table 9.3. Degree of involvement in decision for outsourcing 171

Table 9.4. Risein total sales volumeas per logistic outsourcing activity

171

Table

9.5&9.6

Development of total sales 172

Table 9.7 Growth in sales 172

Table 9.9 Opinion on outsourcing of outbound transportation 177

Table 9.10 View on Packs & Label 178

Table 9.11 Role of sourcing in outbound transportation

179

Table 9.12 Contribution to highly competitive advantage

180

Table 9.13 Impact of essential to support managers core activity

181

Table 9.14 Effect of rivals 182

Table 9.15 Special equipment for the activity 183

Table 9.16 Special Knowledge & skills for the activity 184

Table 9.17 Costly on outsource 185

Table 9.18 Evaluation

185

Table 9. 19 Problems in measurement of performance (logistic service)

185

Page 14: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xiv

EXECUTIVE SUMMARY

Indian Logistic Industry and Outsourcing

Indian logistics industry is expected to grow annually at the rate of 15-20

percent, reaching revenues of approximately $385 billion by 2015.The market

share of organized logistics players is also expected to double to

approximately 12 percent during the same period & a large number of

upcoming SEZs have necessitated the development of logistics for the

domestic market as well as for global trade.

According to the Assocham report, about 55 percent of Indian companies are

outsourcing logistics services, such as supply chain management and

warehousing, which used to be between 10-15 percent 10 years ago. The

concept was initially introduced in the U.S. AND Europe, but India is fast

catching up to increase the efficiency of domestic corporate through efficient

logistics functions. But like with most industries in India, the logistics industry

is also dominated by SMEs. As the business environments starts demanding

improved servicing standards, fast cycle time has become the key factors for

business success, including SMEs. This highlights the critical role of the

logistics industry. In fact, logistics is what connect local trade & is also a part

& parcel of global business.

“The logistics industry in India is growing at 20% as against the world

average of 10% growth in this sector. Even today, the organized sector

accounts for merely 1% of the annual logistics cost, therefore, this sector has

tremendous growth potential. Over the years several large companies & large

Page 15: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xv

express cargo & courier companies have started logistics & supply chain

operations. These companies enjoy the advantage of already having large

asset base and an all-India distribution network. Since logistics service can

be provided without assets, there is growing interest among entrepreneurs to

venture into this business,”informs M.S. Sayad, Vice Chairman AquaLogistics

Limited, a full-scope 3PL (third-party logistics) service provider, delivering

end-to-end solutions in the logistics & Supply chain area. Numbers don’t lie.

The success story of this sector is being written ever since the opening of the

Indian economy in the 1990s. Consider this; India’s logistics sector attracted

investments worth Rs 23,200 crore in first half of 2008, outdoing some of the

major sectors including aviation, metals and mining and consumer durables

among others and today, it has become a full- fledged industry contribution to

the GDP of the country! Indian logistics market is estimated to constitute

mare than 13% of the GDP.

The global logistics industry was valued at US$3.5 trillion in2005, whereas

US logistics industry size was around US $ 900 billion, 25% of the global

logistics industry. However, India’s spending on logistics industry is much

higher than the developed economies like the US (9.5% ) and Japan (10.5%).

Evidently, logistics and logistics management has become an ever-increasing

concern for many industries and is regarded as the single most crucial point,

which can propel business towards success. Today when the production has

stopped yielding whopping gains & when competition has forced companies

to reduce margins, companies are desperately trying to search for areas

Page 16: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xvi

where they can increase profits & cut costs. Logistics is emerging as one

such areas where one can ensure timely delivery and can also directly affect

stock holding.

The importance of logistics and supply Chain Management has increased

manifold since the last few years. From the Mumbai Dabbawalla System that

caters to a huge number of hungry tummies everyday to the kitchen inventory

to transportation of cargo & delicate inventories, logistics & supply chains

have become indispensable toeveryday living.The rampant growth of the

logistics industry points towards its growing significance in business

operations.

Traditionally Indian Logistics Industries:-Traditionally, industry in India has

always viewed logistics as a cost centreand, over the past few decades since

independence most business have always attempted to cut corners in trying to

move their products from the shop floor to the warehouses and distribution

channels and from there on to the end-user. In recent years, however there

has been a welcome change in this kind of thinking and an increasing number

of industries are now beginning to view logistics as a tool toaugment customer

experience and improverevenues. Several large business houses and mid-

sized enterprises now see logistics as a strategic tool, which can lead to

efficient business operations resulting in higher revenues and better

profitability.

The cost of logistics in India is pegged at around 12-13% of the GDP, or

roughly $125 billion. Until very recently, nearly 99% of logistics cost was

Page 17: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xvii

accounted for by the unorganized sector, which consists of owners of less than

five trucks, small warehouse operators, customs brokers, freight forwarders,

and the like. As a matter of fact, 54% of the road transport market was with

operatorsownings no more than a single truck. The organized sector’s

contribution, on the other hand was a tad above 1% This situation served as a

major deterrent to the customer as the small operator was in no position to

offer end-to-end solutions. Also at 13% GDP the logistics cost was much

higher than that prevailing in Europe and the United States ( at around 7-9%

on average), making the service extremely unattractive for the customer.

There has been some improvement in the above statistics, with the entry and

expansion of large players in this area for instance large cargo and transport

firms and courier companies such as Transport Corporation of India, DHL,

TNT, & Blue Dart have captitalised on their existing asset bases and all India

network to start logistics operations. Others, such as Aqua Logistics have used

a mix of organic & inorganic growth to ramp up their business models, In fact

today around 10% of the business is in the hands of a few leading players.

Driven by developments in information and communication technology and

globalization,the outsourcing industry has shown impressive growth in the last

decade. The globalmarket size of the industry has increased from

approximately US$6 billion in FY2000 toalmost US$60 billion in FY2009

(www.nasscom.in). As the spread of outsourcing modelhas increased, new

forms of organization have emerged, known as “outsourcing firms.”

Page 18: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xviii

Food Processing Industry

Meat, Fish and Poultry have been part of human diet since antiquity. As the

civilization advanced, man understood the importance of meat in human

nutrition. Modern Science has unraveled the mysteries of the biochemistry and

the microbiology of Foods of Animal Origin. The knowledge on meat has slowly

started percolating into the public life. As the people are becoming more

Science Conscious, the religious taboo attaché to meat is slowly dwindling.

India has the largest livestock population among the World countries. The

livestock is playing a key role in the Socio – Economic upliftment of the country.

The potential of Indian meat & poultry Industry can be seen from the

phenomenal growth of livestock over the past three decades. The consumption

of meat is on increase in the domestic market. Revenues from the export of

meat, poultry and by products have substantially increased in recent years.

Further, globalization of Indian business created ample opportunities and

potentialities for the export of meat and poultry products. Government of India

has recognized meat, fish and poultry as one of the important sectors in the

food industry.

No research initiative has been undertaken in India that has focused on

Logistics outsourcing & its effect on Food Processing Industry in India. In

recent years, however there has been a welcome change in this kind of

thinking and an increasing number of industries are now beginning to view

logistics as a tool to augment customer experience and improve revenues.

Page 19: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xix

Several large business houses and mid-sized enterprises now see logistics as

a strategic tool, which can lead to efficient business operations resulting in

higher revenues and better profitability.

Objectives of the Research:-

1. To Study the Impact of Logistics Outsourcing on Profitability of

Companies. The Researcher is aiming to study the logistics cost, delivery

time, meeting of order quantity i.e logistics performance does it plays a

key role in profitability of the company.

2. To Study Logistics Outsourcing visa-versa Food Processing Companies

with respect to their Competitive advantage. The researcher is trying to

find out the degree of current practices like Outsourcing of outbound

logistics, outsourcing of pack & labels, Transportation Management,

Inventory Management, & Distribution & network planning.

3. To Study the efficiency of Logistics Outsourcing with context of different

parameters such as Production, Distribution, Sales, etc. Here the

researcher is trying to assess the Numbers of Packaging lines, uncertainty

of production output time, annual demand volume, demand uncertainty &

fluctuation, Numbers of customers, Warehouses, Distribution Varity,

Delivery Frequency, Order Lead time.

4. To study the level of decision making in Logistics Outsourcing has

significant impact on sales volume of the company. For this research work

job position of the managers i.e level of decision making for Logistics

Outsourcing, does it has a significant impact on sales volume of the

Page 20: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xx

company. For measuring decision making & impact on sales volume of the

company. Managers job profile, one or multi factory level, degree of

involvement, & sales volume of last three years is taken into

consideration.

Primary and secondary data sources were used to collect information about

aspects of supply chain and customer satisfaction in Logistics outsourcing in food

Processing businesses. Survey involving personal face- to -face interviews with

both Logistics managers, Finance Managers, directors etc was conducted. Key

participants in Mumbai’s logistics were approach for data. Executives (general

managers, operations managers, ) 992 Managers from logistics companies Food

processing companies were interviewed.

Building the much needed model and explore the bottlenecks and challenges in

the journey ahead for Logistics outsourcing industries. This will include – new

processes and operations that could be considered for outsourcing, highlighting

regulatory implications and overall cost maintenance and of course benefits

achieved by getting into a Profitable situation.

Questionnaires

Questionnaires shall be prepared from the context of Logistics outsourcing i.e.

from a User company and service provider perspectives. Details will be captured

in these questionnaires and further taken up for analysis. The findings from this

exercise will be then considered in the final research report preparation and

“Sample size is one which fulfills the requirements of efficiency,

Page 21: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xxi

representativeness, reliability and flexibility for the research work ,” (Kumar,2008)

That is why the sample of Logistics outsourcing in Food processing Companies

was so selected that they truly and adequately represent the universe otherwise

the results obtained would be misleading. Taking this into account the

researcher interviewed 991 companies in Food processing & logistics

Outsourcing companies across the city of Maharashtra. The size of the

sample was considered to be optimum because it fulfilled the requirements

of representativeness and reliability. Gupta (2005) emphasised that sample

selection and data collection are interwoven and one has an impact on the other.

Sampling Technique of Data collection was Sample Technique where a part of

the universe is studied and the conclusion about the universe is drawn from this

data. In consumer research census is not practical and normal sampling

technique is used for the survey.

Limitation of the Study:-This study was conducted in the city of Mumbai which

is considered to be representative of the Companies Outsourcing Logistics

activities.Companies outsourcing logistics across the country and the sample

frame was determined accordingly at the time of deciding the research design .

However, this research does not cover other metros and hence might not have

captured regional factors affecting CoThe level of decision making depends on

job profile of the managers i.e whether he is logistics managers, financial,

production managers, or Director of the company it has an Positive impact on the

profitability of company.

Page 22: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xxii

2. There is significant association between activities (Outbound transportation,

pack & labels, transportation management, inventory management, distribution

network planning) and job positions of the managers of the companies, i.e

Logistics Managers contribute significantly to the profitability of the company

through competitive advantage.

3. There is significant positive association between manager’s view on efficiency

of important parameters like production, distribution and sales. Production

aspects depends on number of packaging lines, uncertainty of production output

time. At the same time Distribution aspects depends on number of customers

domestics or international, warehouses, channel variety, delivery frequency,

order lead time, & sales & demand fluctuations.

Major Findings of the Research:- The level of decision making depends on

job profile of the managers i.e whether he is logistics managers, financial,

production managers, or Director of the company it has an Positive impact on the

profitability of company.

2. There is significant association between activities (Outbound transportation,

pack & labels, transportation management, inventory management, distribution

network planning) and job positions of the managers of the companies, i.e

Logistics Managers contribute significantly to the profitability of the company

through competitive advantage.

3. There is significant positive association between manager’s view on efficiency

of important parameters like production, distribution and sales. Production

Page 23: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

xxiii

aspects depends on number of packaging lines, uncertainty of production output

time. At the same time Distribution aspects depends on number of customers

domestics or international, warehouses, channel variety, delivery frequency,

order lead time, & sales & demand fluctuations.

Conclusion:-Last couple of years have been packed with several significant

developments for Indian Logistics industry, including the entry of many large

corporate houses and growing acceptance of modern formats. Though Logistics

outsourcing is relatively new in India . It is heartening to note that they have

quickly adopted required processes in their operations.

Given the industry’s changing landscape and emerging challenges, the focus of

Logistics industry players too is changing. They are concentrating on

strengthening the existing operations and assessing options for profitable growth

through enhancing efficiency in Supply chain, embracing appropriate technology,

upgrading skills of employees and are moving towards consolidation and

innovation of processes.

Page 24: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 1 of 384

CHAPTER 1

INTRODUCTION

LOGISTICS INDUSTRIES FDI IN LOGISTICS KEY ISSIUES & CHALLENGES FOR LOGISTICS

INDUSTRIES

Page 25: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 2 of 384

CHAPTER 1

LOGISTICS INDUSTRIES

The health of any modern economy depends heavily on the state of its

infrastructure, more particularly its ability to move finished and semi-finished

factory products & farm produce both within & beyond its borders. A well-

developed & integrated logistics industry, therefore, is critical for a country to post

& sustain healthy economic growth. Efficiency in the supply chain function gives

a competitive edge to industry. Logistics & supply chain management (SCM) are

also assuming increasing importance in modern economies due to the advent of

globalization, as large multinational firms outsource their manufacturing

&distribution functions to more cost effective areas, and also ramp up their

operations on a global scale. The auto industry, for instance is replete with

examples of manufactures such as Volkswagen, Hyundai, Mercedez-Benz

setting up manufacturing bases outside their countries of origin, In such cases,

the supply chains become extremely complex to manage in India one of the first

examples of domestic companies setting up manufacturing bases abroad is that

of Asian Paints, which commissioned factories in regions as diverse as Africa &

the Fiji Islands. It is in this context that outsourcing logistics activities to

experienced logistics service providers (LSPs), also known as third-party logistics

( 3PL or TPL) providers assumes great significance, as manufacturing or

distributing enterprise can derive very efficient & customized logistical support

while themselves focusing on their core organizational activities. Today there are

Page 26: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 3 of 384

a number of large multinational LSPs that offer complete supply chain solutions

that cut across countries. In addition to fundamental logistical activities such as

transportation & warehousing, LSPs also offer a number of value-added services

that include but are not limited to customs clearance, freight forwarding, import/

export management, inventory management assembly & installation, packaging

& labeling, distribution& after sales support & reverse logistics, by outsourcing

logistics companies can leverage the expertise of LSPs while concentrating on

their core competencies.

While the terms logistics & SCM are often used interchangeably, there is a

difference between the two, SCM is largely a strategic function, whereas logistics

is more concerned with the operational aspects of the business. Let‘s briefly take

a look at the evolution of the logistics & SCM function over the past few decades.

1.1 Logistics & Supply Chain

Supply chain & logistics has become an ever-increasing concern for many

industries & is regarded as the single most crucial point, which can propel

business towards success….

What was once considered a highly fragmented & disorganized sector,

logistics & supply chain management has today become one of the key

drivers of India‘s economic growth. According to a report by industry body

Assocham, the Indian logistics industry is set to become a $178 billion

industry by2012, an increase of about 19 percent on the current level and the

outsourcing of third-party logistics business (3PL) in the country could touch $

90 million by 2012, up from the current $58 million.

Page 27: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 4 of 384

Indian logistics industry is expected to grow annually at the rate of 15-20

percent, reaching revenues of approximately $385 billion by 2015.The market

share of organized logistics players is also expected to double to

approximately 12 percent during the same period & a large number of

upcoming SEZs have necessitated the development of logistics for the

domestic market as well as for global trade.

According to the Assocham report, about 55 percent of Indian companies are

outsourcing logistics services, such as supply chain management and

warehousing, which used to be between 10-15 percent 10 years ago. The

concept was initially introduced in the U.S. AND Europe, but India is fast

catching up to increase the efficiency of domestic corporate through efficient

logistics functions. But like with most industries in India, the logistics industry

is also dominated by SMEs. As the business environments starts demanding

improved servicing standards, fast cycle time has become the key factors for

business success, including SMEs. This highlights the critical role of the

logistics industry. In fact, logistics is what connect local trade & is also a part

& parcel of global business.

―The logistics industry in India is growing at 20% as against the world

average of 10% growth in this sector. Having said that, even today, the

organized sector accounts for merely 1% of the annual logistics cost,

therefore, this sector has tremendous growth potential. Over the years

several large companies & large express cargo & courier companies have

started logistics & supply chain operations. These companies enjoy the

advantage of already having large asset base and an all-India distribution

Page 28: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 5 of 384

network. Since logistics service can be provided without assets, there is

growing interest among entrepreneurs to venture into this business,‖informs

M.S. Saved, Vice Chairman Aqua Logistics Limited, a full-scope 3PL (third-

party logistics) service provider, delivering end-to-end solutions in the

logistics & Supply chain area. Numbers don‘t lie. The success story of this

sector is being written ever since the opening of the Indian economy in the

1990s. Consider this; India‘s logistics sector attracted investments worth Rs

23,200 crore in first half of 2008, outdoing some of the major sectors

including aviation, metals and mining and consumer durables among others

and today, it has become a full- fledged industry contribution to the GDP of

the country! Indian logistics market is estimated to constitute mare than 13%

of the GDP.

The global logistics industry was valued at US$3.5 trillion in2005, whereas

US logistics industry size was around US $ 900 billion, 25% of the global

logistics industry. However, India‘s spending on logistics industry is much

higher than the developed economies like the US (9.5% ) and Japan (10.5%).

Evidently, logistics and logistics management has become an ever-increasing

concern for many industries and is regarded as the single most crucial point,

which can propel business towards success. Today when the production has

stopped yielding whopping gains & when competition has forced companies

to reduce margins, companies are desperately trying to search for areas

where they can increase profits & cut costs. Logistics is emerging as one

such areas where one can ensure timely delivery and can also directly affect

stock holding.

Page 29: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 6 of 384

The importance of logistics and supply Chain Management has increased

manifold since the last few years. From the Mumbai Dabbawalla System that

caters to a huge number of hungry tummies everyday to the kitchen inventory

to transportation of cargo & delicate inventories, logistics & supply chains

have become indispensable toeveryday living.The rampant growth of the

logistics industry points towards its growing significance in business

operations.

The onslaught of economic liberalization & globalization ( in the 1990s) has

seen Indian economy opening up to MNCs and many other global business

players. With a population of over one billion & a customer base of nearly 400

million. India is one of the largest markets for consumer & industrial goods

today. While managers, traders, businessmen, have realized the need to be

keep themselves well informed in an increasingly competitive market, the

pressure on the companies to cater to the demands of the customer to make

products and goods available at the right place, at the right time and in the

right quantities is ever mounting. The expansion & outsourcing of

manufacturing & rapid developments in IT have also changed the face of

transport & logistics industry, Integrated logistics & supply chain management

presents an unmatched opportunity for the Global Logistics Providers. The

domestics logistic sector is now focusing on increasing its efficiency aiming to

better supply chains and logistics operations. Companies are now looking for

the ways to better their competency because of the drop in their cost

production. Earlier CEOs rarely considered logistics and supply chain as a

prime area with in the company. But things are clearly changing with many

Page 30: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 7 of 384

corporate taking note of the logistics division & giving it due importance and

benefiting from it as well. Emerging market trends have made leading players

realize the need to create successful system of co-operating companies &

treat the world as one single global market, in order to establish themselves

as one of the few supply chain management companies of the future.

In India, many logistics & courier service providers are offering expertise on

total logistics solutions. Apart from the traditional courier companies who are

the service participants of large integrators, foreign companies too have also

entered the fray claiming a heightened knowledge and understanding of the

complete supply chain. In addition, there are a plenty of clearing & forwarding

agents possessing proficiency in international inbound & outbound. Today,

almost all large global logistics companies have their presence in India,

mainly involved in freight forwarding. The logistics industry in India is evolving

rapidly and it is this ever evolving dynamics of infrastructure, technology &

new types of service providers that is taking the industry forwards. Currently

the impetus is on prospective cost diminution & service level improvement. In

times to come, Logistics would therefore, evolve as a function adapting the

burgeoning communications & escalating computing technology, However,

issues affecting customer satisfaction directly by logistics, importance of

logistics related costs, significance of logistics in the entire supply chain

management, fragmented freight industry, privatization problems, problems of

infrastructure development etc. are some of key areas of concern we have to

grapple with. ‗One of the key challenges faced by this sector is that it‘s a

high-cost, low margin business. Unfair competition with unorganized players,

Page 31: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 8 of 384

who can get away without paying taxes & cutting their costs have added to

the woes of organized logistics companies, Further, even the organized

sector that contributes slightly more than 1% of logistics cost, is highly

fragmented.‘―The existence of the differential sales tax structure is a problem

that prohibits companies like ours from exploring economies of scale. Apart

from the non-uniform structure, Indian logistics companies have to pay

numerious other taxes & face check post harassment from authorities. This

increases the cost of operations & makes it an unattractive business. To add

to it, there is stiff completion from multi-national freight forwarders, who

because of sheer size of their operations in many countries offer low freight

rates which the Indian freight forwarders are unable to do so. The sector also

suffers from the lack of skilled & knowledgeable manpower,‖ opines Saved.

To begin with changing government policies on taxation & regulation of

service providers can be of immense help in augmenting the growth of this

sectors,‖ he adds further. And considering the rapid growth of this sectors at

present, About 110 logistics parks spread over approximately 3,500 acres at

an estimated cost of $ 1 billion are expected to be operational and an

estimated 45 million feet of warehousing space with an investment of $ 500

million is expected to be developed by various logistics companies by 2012.

Western Region: The Logistics Hub Of India

The western region is the logistics hub of India, a fact which is known world-

wide. Ports, the gateways to India‘s International trade by sea handle over

90% of foreign trade. There are 12 Major Ports & 187 Minor/ Intermediate

ports along the 7,517 kms long coast line of the country. Needless to say,

Page 32: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 9 of 384

India is being touted as ‗Destination Future‘ for the logistics service providers

all over the world. Indian players are also gearing up & positioning

themselves differently by providing a wide spectrum of freight & logistics

services. But the true potential and the opportunities that exist need to be

fully assessed. With two-thirds of India‘s total crude production accruing from

offshore, companies in the offshore service providing space are also

witnessing high demand for activities such as logistics support ( through

offshore supply vessels, multi-service vessels, platform supply

vessels,)drilling, construction & maintenance support, diving,

geotechnicalservices & floating production storage & offloading. The Indian

registry has about 90 offshore supply vessels, and several firms have

embarked on fleet expansion plans.

Maritime Transport and marine logistics hence is also a critical infrastructure

for the social and economic development of a country. It influences the pace,

structure & pattern of development. According to the Planning Commission,

India‘s shipping fleet strength will be increased up to 15m GRT by the end of

2011-12, with an estimated investment of US$17.7 billion. The port

throughput will increase up to 1,008m tones, growing at a CAGR of 10.96%

from 2007-08 to 2011-12. Gauging the current trend and efforts, logistics is

going to be one of focus sectors that would drive the industrial development

in the Western Region. Gujarat and Mumbai have emerged as the favorable

destinations to further boost growth and development in the ports and

logistics sectors. Mumbai has emerged as the preferred location for the

development of logistics parks with an investment of approximately $ 200

Page 33: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 10 of 384

million. The development of seven to eight logistics parks are in pipeline on

600 acres around Mumbai. Within Gujarat, the Gujarat Maritime Board (GMB)

has had a major role to play in the development of the ports sector and

marine logistics in the state. The Gujarat Maritime Board (GMB) was set up in

1982 under the Gujarat Maritime Board Act, 1981 as the first autonomous

state board. The GMB manages 40 ports, with the exception of kandla, which

is a major port under the Central government. Of these 40 ports, 11 are

intermediate ports and 29 are minor ports. In 2005-06, kandla alone handled

cargo traffic of 45.9 million tones. The setting up of an agency such as GMB

in Gujarat was found to be necessary to exploit the immense potential for port

and shipping facilities in the state. The Gujarat Maritime Board is perhaps the

only maritime body with an enviable feat, nationally & internationallyboth in

cargo handling & ship breaking activity. The Ship breaking yard at Alang is

among the biggest ship-breaking yards in the world today.

Over the years, the GMB has striven to ease the load on the overburdened

major ports of western India, including Mumbai and kandla, by developing

new ports facilities. In the process state-of-the-art ports have become the

order of the day in Gujarat. Some of these all-weather, direct-berthing, deep-

sea ports represent the country‘s first Greenfield ports to be developed in the

joint sector on BOOT,( Build, Own, Operate and Transfer) basis. The port

sector has been identified as one of the prime catalysts to accelerate and

enhance the industrialization process of the state. The continuous rise in

traffic at the ports of Gujarat is a testimony to the success of the vision of port

sector successfully conceived & assimilated by the state and the GMB.

Page 34: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 11 of 384

According to Helicopter study, a part of an ongoing Port Development of

Gujarat (PODEG) programme conducted by the internationally acclaimed

Dutch consultant, the total handling capacity in the state including the

planned capacities is likely to be around 313 million tones/ year ( including

Kandla & Vadinar) by the year 2015, kandla port also plays a major role in the

country‘s international trade. Having notched up a string of success, it has

emerged as a forerunner, and has carved a niche for itself, by its steady

growth and economy of operations. GMB has a vision for the International

Maritime sector for the year 2020. It is envisaged that the year 2020, will

reveal a very different picture of the port sector, in terms of composition of

cargo, vessel traffic and parcel size of vessels, resulting into an altogether

new definition of port operations, with state-of-art-infrastructure. Due to this

change, many old ports in operation today, may vanish from the maritime

map or become redundant by 2020, if they do not adopt to the

changingrequirement of time. At the same time, many new port sites which

are being developed now will flourish for a long time to come.

1.2 FDI in Logistics

Efficient logistics management would also result in significant material

conservation and better Utilization of infrastructure assets.Logistics is the

retail face of infrastructure and like the retail sector, Indian logistics industry is

dominated by traditional operators. It has evolved so far on its own without

any specific policy props or incentives. Even now, it is managing to attract

considerable attention from private equity funds based on its own inherent

strengths & growing market opportunities.

Page 35: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 12 of 384

Auto majors & modern retail chains have created a new market space for end

to end logistics service providers, who are referred to a third party logistics

providers-3PLP or just 3PL in short. Heightened competition in the domestics

market as the one which is too obvious in the telecom sector is helping the

domestic logistics industry to expand in to areas far beyond transport

management and handling related clearances.Today‘s logistics services go

beyond managing the supply chain & are destined to become a major option

for all kinds of physical business process outsourcing ( PBPO), What is

economically more relevant for the country is that when we attempt to

improve the quality of services, it would automatically help bring down the

transaction costs. In addition, efficient logistics management would also result

in significant material conservation and better utilization of infrastructure

assets. The logistics sector has done well for itself. Although India‘s

infrastructure adequacy is ranked 86 by the World Economic Forum ( WEF),

World Bank‘s logistics performance report gives India an overall rank of 47 in

2010 with a logistics quality & competence rank of 40.Our overall rank would

have been better but for the 52nd rank assigned to customs clearance and the

56th rank given to timeliness. What we must not forget at the same time is the

fact our logistics performance index ( LPI) has slipped from 39 in 2007, Even

as of 2007 one of the key factors which weighted down our LPI is domestic

logistic costs in which the country was ranked 46.The same trends is

reflected in the Enabling Trade Index ( ETI) of WEF. In spite of falling from a

rank 31 in 2009,India‘s logistics competence is still ranked very high at 38 as

compared to the overall ETI of 84 which has fallen from the previous year‘s

Page 36: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 13 of 384

rank of 76. Road and port infrastructure quality ranks have plummeted to 83

and 85. The ranks of our documentary procedures for imports & exports have

also declined to 91.We seem to have moved one notch up only in the case of

airport infrastructure, These ranking certainly do not indicate an absolute fall

in the quality of our performance, Of course we have been making

improvements in a highly competitive global economy we would be required

move faster even for holding on to our place. For attracting FDI in to the

logistics. Senior Advisor J. Jevaseelan States that ―What is economically

more relevant for the country is that when we attempt to improve the quality

of logistics services, it would automatically help bring down the transaction

costs‖.

Infrastructure & Logistics Federation Of India (ILFI).

Sector we must be globally competitive in all areas that have an impact on its

profitability. FDI would come into the Indian logistics primarily because of its

very large market size & future growth potential. The large number of SEZs

and logistic park in various stages of planning or implementation would

certainly be an additional lure. Indian logistics companies have also

demonstrated their competitive capabilities by setting up joint ventures in

other countries. However, What is more important to boost the profitability of

logistics industries and enhance the global competitiveness of the Indian

economy is to work towards removing debilitating factors that are keeping

domestic logistics and transaction costs high.

Logistics costs account for 14% of the value of goods, as compared to 10% in

China. The freight cost in India is about 7% per tone-km while it is 2 and 3.7

Page 37: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 14 of 384

in Canada and Japan. A recent South African study showed that trucks

travelling on average and bad roads experienced an increase in costs

between 684% and 1560% respectively, These clearly show the scope for

bringing down domestic logistics costs. Transport costs account for an

average about 40% of logistics. Another major contributor is the warehousing

cost. Both transport and warehousing costs can also be much higher in the

case of cold chain logistics which also bears an additional cost burden

because of irregularity and unreliability of grid power supply. Continued

shortage have in the past led to overriding policy for increasing the availability

of infrastructure, It is time that we focused our attention equally on quality and

cost, Allour PPP models and bidding processes in the infrastructure sector

must stipulate world class quality parameters and ensure lowest cost to the

end user. It would be a penny wise pound foolish strategy to look at licenses

for infrastructure projects as a source of revenue generation for government.

Apart from urgently improving the quality of roads and de-bottlenecking inter

state movement of goods, the country must have a major focus on rail freight

infrastructure, Railways play a far greater market integration role in larger

countries.

Although Indian Railways does nearly as many passenger-KM as China, it

does only one fifth of China‘s tone-KM. Railways are also far behind in

performance parameters. Freight trains run at average speed of 23.3K.Mph

as against about 100 in Europe and US, It also carries a dead weight of

450kg for every 1000 kg of freight as compared to only 170 kg in the US. Our

efforts to improve freight movement by rail must look beyond a few freight

Page 38: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 15 of 384

corridors, With the rising oil prices and very low carbon footprint of rail freight

we must certainly look at a 50% modal share similar to the US.

On the policy front we would certainly need to make the much required

distinction between infrastructure and logistics. Logistics is not the same as

transportation infrastructure. Development of logistics is not the same as

transportation infrastructure, Development of logistics is not about creating

large infrastructure facilities, but providing custom tailored solutions to meet

specific demands. It is the missing link the last mile solution required to make

major infrastructure projects viable and profitable. But the profitability of the

logistics sector would also depend on how efficient the infrastructure is.

1.3 Key issues & Challenges for Logistics Industries

There are many issues which are regularly raised & discussed with the aim of

highlighting the most important challenges that need to be addressed by logistics

professionals. In recent years there have been very significant developments in

the structure, organization and operation of logistics, notably in the interpretation

of logistics within the broader supply chain. Major changes have included the

increasein customer service expectations, the concept of compressing time

within the supply chain, the globalization of industry- in terms of both global

brands and global markets and the integration of organizational structure.

Issues may be external to logistics, such as deregulation, or may indeed derive

from changes within logistics, such as improved handling or information

technology. It is possible to view these different influences at various points along

the supply chain these factors in relation to

Page 39: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 16 of 384

The external environment

Manufacturing & Supply

Distribution

Retailing

The Consumer

It is worth emphasizing that, aside from external issues and developments in

technology many changes in logistics are largely conceptual in nature whereby

certain aspects of logistics and the supply chain are viewed with a new or

different approach. Many people, especially logistics practitioners may feel that

some of these concepts and approaches are very much like old ideas dressed in

new clothing. To a certain extent this is true; for example, much of the new

process-oriented approach to logistics is an echo of what used to be called ‗work

study‘. The use of flowcharts for analyzing workflows in distribution and logistics

has always been very common What a number of these ‗new‘ concepts and

approaches are achieving is to re-emphasize certain ideas and to rekindle the

fires of enthusiasm for constant reviewand change. As logistics exists in a very

dynamic andever-changing environment, this is probably not a bad development.

Another relevant point is that a number of these concepts are not applicable to

many operations & organizations. This is often due to their size or to their market;

for example, small nationally oriented organizations are usually unaffected by

globalization or supply chain agility. Nevertheless, for large multinational

companies these are very important questions that need to be addressed. The

traditional key drivers of logistics have always been cost versus customer

service, This has not changed as most surveys confirm.

Page 40: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 17 of 384

The External environment:-

One Key influence that has become increasingly important in recent years has

been the development of a number of different economic unions (EU, ASEAN,

NAFTA, etc), Although the reasons for the formation of these unions may be

political, experience has shown that there have been significant economic

changes-most of these beneficial ones.

One of the major consequences is deregulation within these internal markets,

and this has a particular impact on companies logistics strategies, within the

European Union, for example there have been significant advances in, amongst

others:

Transport deregulation;

The harmonization of legislation across different countries;

The reduction of tariff barriers;

The elimination of cross-border customs requirements;

Tax harmonization.

Within logistics, this has led many companies to reassess their entire logistics

strategy and move away from a national approach to embrace a new cross-

border /international structure. There are many examples of companies that have

significantly reduced distribution centre (DC) numbers and associated inventory

and storage costs whilst maintaining or improving customer service.

Page 41: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 18 of 384

Fig:1 The major forces driving logistics

Percentages of Responses

Source: Herbert W Davis & Co (2005)

Supply chain strategy has also been affected by the impact of emerging markets.

The most important are probably India & the Far East, in particular the opening

up of China, which has seen astounding growth in both the supply of and the

demand for many different types of product. There are obvious implications for

logistics regarding the flow of products out of India and the Far East, whether

components or finished goods, and the inward flow of raw materials and finished

goods into these areas. A good solution for many companies is to outsource

these operationsbecause of the complexity of the flows, the difficulty of setting

up in-house operations in these regions and the risk of investing in organizations

0 20 40 60 80 100

Cost

Service

Speed

IT integration

Globalization

other

Series 1

Series 1

Page 42: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 19 of 384

and structures that may not see the growth in supply and demand that is initially

forecast.

Also important is Eastern Europe. Here from a Western European perspective,

the sources and markets do not have the problem of distance with the associated

time constraints and supply chain complexity, Nevertheless there are still some

real issues for logistics because of the limited transport infrastructure and the

problem of initial low levels of supply & demand. So, again there are good

reasons for manufacturers and retailers to avoid the high risk and high cost of

setting up in-house operations, making the outsourcing of these operations a

natural and attractive alternative.

Another factor that has had a particular impact in Europe is the rise in importance

of ‗green or environmental issues. This has occurred through an increasing

public awareness of environmental issues, but also as a result of the activity of

pressure groups. The consequences for logistics are important. They include:

The banning of road freight movements at certain times and days of the

week;

The attempted promotion of rail over road transport;

The recycling of packaging

The ‗greening‘ of products;

The outsourcing of reverse logistics flows;

The design of products to facilitate repair, reuse, recycling and the

minimization of packaging.

Page 43: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 20 of 384

For most cities throughout the world, one very visible external impact is that of

road congestion. The fact of severe traffic congestion may well have a very

negative effect on some of the new concepts in logistics- in particular the idea of

JIT and quick-response system. Allied to this problem is that most forecasts

predict a significant increase in vehicle numbers at a time when, in most

countries, with the exception of China and India, there are very limited road

building programmes. Many Western countries try to reduce congestion through

a combination of road tolls, truck bans access restrictions time restrictions and

usage tax- all of which have an impact on logistics costs & performance. There is

no generally accepted solutions Companies try to alleviate the problem through

strategies such as out of hours deliveries stockless depots and the relocation of

DCs closer to delivery points.

Recent rapid changes and developments in logistics thinking and logistics

information technology have also contributed to another issue that has a

significant impact on logistics- this is the problem of the restricted availability of

suitable management and labour. The need for a strategic view of logistics and

the need for an appropriate understanding of the integrated nature of logistics are

both important for managers who are operating in today‘s supply-chain oriented

networks. Many managers do not have the relevant experience or knowledge

that provides this viewpoint because they have for many years worked in national

rather than international supply chains and also because their focus has

generally been in an operational rather than planning context. This applies to

managers from both in-house and third party operations. And to this the rapid

Page 44: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 21 of 384

changes in technology, & it is understandable why there is such a shortage of

managers with suitably broad knowledge and experience.

This problem is also reflected in the quality of labour available to work in the

many different logistics and distribution functions. In particular, developments in

the tools and technology of operational logistics have meant that the skills

requirements have changed and that the necessary skill levels are much higher

for some logistics jobs. There are also labour shortages in some geographic

areas and for some specific logistics jobs, such as transport drivers.

In the past few years there have been a number of unpredictable and

unexpected events such as natural disasters, terrorism, corporate failures, and

industrial disputes that have resulted in amongst other things, serious disruptions

to supply chain and logistics activities. These events have highlighted the

vulnerability of many supply chains and have shown that there is a risk to many

supply chain and logistics operations that has not been adequately addressed.

Many of these events are not directly related to the supply chain operations that

are affected, for example, in the UK, a rise in the price of fuel for car drivers led

to the blockading of fuel depots, which created a shortage of diesel for delivery

transport, which in turn produced a general shortage of food because it could not

be delivered to shops and supermarkets. There have also been examples of

companies moving to a single source for the supply of a key component only to

find that the supplier becomes insolvent and cannot supply the component and

that production at the company‘s plants is disrupted or halted. Vulnerability has

become more of an issue as the complexity of supply chains has increased

dramatically in recent years.

Page 45: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 22 of 384

Manufacturing and Supply:-

There have been many important development in supply or inbound logistics.

These have resulted from both technological and organizational changes. Within

the context of raw material sourcing and production, these include:

New manufacturing technology (CIM), which can accommodate more

complex production requirements and more product variations.

New supplier relationship, with the emphasis on single sourcing and lean

supply, thus enabling suppliers and buyers to work more closely together.

Focused factories, with a concentration on fewer sources but

necessitating longer transport journeys.

Global sourcing, emphasizing the move away from local or national

sourcing.

Aided by the development of free trade, lower transport costs and fast

communications, Western business have seen the advantages of moving their

manufacturing to lower cost economies. The last 15 years has seen a migration

of factories from the developed world to Asia, South America, and Eastern

Europe, often resulting in the setting up of manufacturing facilities to take

advantage of the low cost workforces in developing countries.

Initially the changes was led by technology manufactures, closely followed by

automotive parts manufacturers and OEMs (Original Equipment Manufacturers),

most of whom saw Great opportunities in the low cost Asian economies.

Consumer goods manufactures have since reviewed their own manufacturing

and supply chain strategies and a number have moved to low cost countries.

Page 46: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 23 of 384

Western European manufacturers have seen Eastern Europe as an opportunity

to reduce cost with only a modest impact on supply chain delivery times, whilst

North American companies have preferred Central America as destination.

This migration of manufacturing has brought with it ever more complex and

lengthy supply chains, requiring more transportation to move the product into

main marketplaces of the world and significantly more co-ordination and

management for both inbound materials and outbound finished goods. Global

manufacturers need to manage & have visibility of all inventory including inbound

materials, raw materials stock, work in progress, finished goods, goods in transit

and service parts and returns. However, they also need to be able to balance the

trade off between origin costs and savings made at destination, They have to

consider all aspects of a product‘s landed cost, including transportation, duty,

order lead time and inventory holding costs. This clearly requires full co-

operations from all partners across the global supply chain.

Increases in product range and characteristics have also affected logistics

requirements. Typical examples include the shortening of product life cycles (

personal computers have about a 6 month life cycle, and mobile phones become

outdated in even shorter periods the extended product range that is expected by

customers and provided by suppliers and the increase in demand for time

sensitive products- especially fresh and prepared foods, These may all pose

added logistics problems with respect to the impact on stock levels and in

particular the speed of delivery required.

Page 47: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 24 of 384

Distribution:-

Fourth Party Logistics has been hailed as the future for supply chain

management outsourcing. Fourth –party logistics is where an external

organization is able to provide a user with an overall supply-chain-wide solution

by incorporating the resources and expertise of any number of third parties to

best effect. The 4PL provider will be involved in both the design and the

management of a client‘s logistics system and will act as a co-ordinator for many

different types of service, which may include distribution information systems,

financial services, etc 4PL service providers can offer a number of enhanced

services which will enable:

A total supply chain perspective;

Visibility along the supply chain;

Measurement along the supply chain ( cost & performance);

Open system;

Technical vision;

Flexibility

Tailored Structures and system.

Accenture have defined a 4PL service provider as ‗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‘.

The main impetus is for the overall planning to be outsourced and that the

complete supply chain operation should be included within the remit of the 4PL.

Page 48: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 25 of 384

Fig 1.1 3PL &4PL Service providers Operations

Source: Bumstead and Cannons ( 2002)

There are a number of different ways in which 4PLs can solve some of the main

problems that users of 3PLs companies have experienced. The major drawbacks

are likely to be the cost of using a 4PL and the loss of control over the supply

chain function within the company. The main advantage are likely to be:

Addressing strategic Failures:

- Minimizing the time & effort spent on logistics by the user;

- A 4PL organization is a single point of contract for all aspects

of logistics;

- The management of multiple logistics providers is handled by a

single organization;

- Allows for provision of broader supply chain services;

- A 4pl organization can source different specialists with best-in-

class credentials.

3PL 4PL

Architect/Intgra

tor

i

Supply Chain Visionary, Multiple Customer relationship

Supply Chain Re-engineering, Project Management,

Service integrator, Continuous innovation

Control

Room

Experienced Logisticians, Optimization engines, Decision

support, Neutral positioning, Continuous improvement

Supply

Chain

IT system, IT infrastructure provision, Real time data

tracking, Convert data to information, provide info to

point of need, Technical support Resource

Provider Transportation, Warehousing, Manufacturing

(Outsourcing), Procurement Service

Page 49: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 26 of 384

Addressing service and cost failures:

- The freeing of the user company‘s capital for core /

mainstream use by selling assets;

- The continuous monitoring and improvement of supply chain

processes, performance and costs;

- The benchmarking of different supply chain processes against

world-class companies;

- The continuous monitoring and reassessment of service level

achievements;

- The development and use of core expertise from all logistics

participants.

Addressing operational failures:

- A new entity makes it easier to eradicate old industrial

relations issues;

- A new entity should enable the transfer of selective personnel;

- A new and more flexible working environment can be

established;

- A new company ‗culture‘ can be created.

Additional benefits:

- Provision of ‗knowledge management‘, ‗The bringing together

and effective sharing of knowledge among the identified

stakeholders‘;

Page 50: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 27 of 384

- Provision of supply chain accountability for achieving desired

performance;

- The provider assumes risk on behalf of the user in return for a

share of the profit.

There is a view that 4PL is a refinement of 3PL, in fact there is a very significant

difference between the two. A 4PL is non asset- based, unlike a 3PL, which is

generally seeking to fill its asset capacity of distribution centres, vehicles, and

freight. Historically, 3PLs have operated vertically across the supply chain

providing services in warehousing, transportation and other logistics activities. In

contrast the 4PL works horizontally across the whole supply chain and uses the

services of 3PLs to provide end-to-end solutions for customers. Typically, the

4PL only owns IT system and intellectual capital and is therefore asset light. This

allowsthe 4PL to be neutral in terms of asset allocationsand utilization, with the

ability to manage the supply chain process, irrespective of which carriers,

forwarders or warehouses are used. Thus, the 4PL does not have to consider

using its own assets, but can take the shipper‘s perspective, using the best

operators for the different logistics requirements. The 4PL focuses on satisfying

and retaining its customer by understanding the complexity of the customer‘s

requirements and providing end-to-end solutions based on sound processes,

which address their customers overall supply chain needs.

One interesting innovations in distribution is the development of logistics or

freight exchanges. These are online transaction system for shippers and carriers

that enable online freight purchasing. Basically they are internet-based trading

mechanisms that facilitate the matching of shipper demand with carrier

Page 51: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 28 of 384

availability. They range in complexity from simple electronic bulletin boards (

these allow shippers and carriers to post their needs, manually compare the two

lists and then contact each other) to sophisticated algorithms (these identify

suitable matches through the filtering and comparison of rates, carrier

performance, service offering and equipment types).

Another very important development in the use of RFID: radio frequency

identification tagging. This technology enables automatic identification through

the use of radio frequency tags, data readers and integrating software. A tag has

a microchip& an antenna that can store and transmit data & it can be fixed to

individual products or unit loads. It can be active ( send a signal) or passive

(respond to a signal). The reader retrieves the data and sends them to the

software, which can then interface with other logistics information systems.

Retailing:-

There have been several trends in the retail sector that have had & will continue

to have an impact on developments in logistics & the supply chain. Many of these

logistics-related changes have emanated from grocery multiple retail sector,

which continues to play a major role in introducing innovative ideas. These

changes have all had an influence on logistics strategies and operations.

One of the most far-reaching implications has been that of inventory reduction

within the retail supply chain, which has evolved from a combination of different

policies. These policies include:

Page 52: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 29 of 384

The maximization of retail selling space; an important retailing policy has

been the move to maximize selling space in store in order to increase

sales opportunities. This has usually been achieved at the expense of

shop stockrooms, leaving nowhere for stock to be held in a shop except

on the shop floor. This can have significant implications for the fast and

effective replenishment of store inventory.

The reduction in DC stock-holding; this has been undertaken in order to

promote cost-saving through reduced inventory levels in the supply chain.

A direct consequence has been to put additional pressure on the accuracy

and speed of inventory replenishment system.

The reduction in the number of stock- holding DC; many companies have

reduced the number of stock- holding depots in their logistics structure as

a result of cost-saving exercises that involve depot rationalization and a

move to stockless depots.

JIT philosophies and concepts; some manufacturing concepts such as

just-in-time have been applied to the retail sector. This has been achieved

through the use of a number of developments in information technology,

particularly electronic point of sale (EPOS) systems, which provide a much

more accurate and timely indication of stock replenishment requirements

at shop level.

The consequences are that stocks and buffers in retails stores have been

reduced or eliminated in favour of the continuous flow of products into the stores.

This necessitates more responsive delivery systems, more accurate information

Page 53: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 30 of 384

and more timely information. Thus logistics operations must perform with greater

efficiency but with fewer safeguards.

The Consumer:

Linked directly with retailing operations is the gradual move into non-store

shopping or home shopping. This phenomenon was initially introduced in the

USA and Europe through the use of direct selling and mail order catalogues.

Home shopping has now achieved ‗breakthrough‘ levels in the grocery sector

and made significant inroads into more conventional retail shopping The means

for such a change have been the widespread use of home computers, automatic

banking and of course the internet, including the improved availability of

broadband. These changes have begun to have a fundamental impact on

logistics. The very nature of the final delivery operation has for home delivery,

altered dramatically, with wide implications for the whole of the supply chain.

It is important to differentiate between home shopping and home delivery (e-

fulfilment) ‗Home shopping‘ refers to the different ways of shopping for and

ordering products from home. ‗Home delivery‘, or e-fulfilment, refers to the

physical delivery of the product.

Page 54: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 31 of 384

CHAPTER 2

Literature Review

A CONCEPTUAL FRAMEWORK OF VULNERABILITY IN FIRM’S INBOUND &

OUTBOUND LOGISTICS FLOWS

DEVELOPING A DECISION-MAKING FRAMEWORK FOR LEVELS OF

LOGISTICS OUTSOURCING IN FOOD SUPPLY CHAIN NETWORK

EVALUATING THE PERFORMANCE OF 3PL ARRANGEMENTS: A

RELATIONSHIP MARKETING PERSPECTIVE

LABELLING OPTIONS OFFER MARKETING, PRODUCTION ADVANTAGES

STUDIES OF TRENDS IN 3PLs USAGE: WHAT CAN WE CONCLUDE

S.C.M.& ITS RELATIONSHIP TO LOGISTICS, MARKETING, PRODUCTION &

OPERATION MANAGEMENT

STRATEGIC LOGISTICS CAPABILITIES FOR COMPETITIVE ADVANTAGE &

FIRM SUCESS

THE EVOLUTION OF SUSTAINABLE COMPETITIVE ADVANTAGE: FROM

VALUE CHAINTO MODULAR OUTSOURCING

GAP IN THE STUDIES

Page 55: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 32 of 384

CHAPTER 2

LITERATURE REVIEW

2.11 A conceptual framework of vulnerability in firms' inbound and

outbound logistics flows

The research done by Svensson, Goran which was published in the

International Journal of Physical Distribution & Logistics

Management32. 1/2 (2002): 110-134.States that the time and functional

dependencies between firms' activities and resources in supply chains. These

dependencies cause vulnerability. The principal objective of that research is

to conceptualize the construct of vulnerability in firms' inbound and outbound

logistics flows. The vulnerability construct of that research consists of two

components: disturbance and the negative consequence of disturbance. The

research was based upon a two-phase process utilizing sequential

triangulation. It was proposed that the vulnerability in the inbound logistics

flows from sub-contractors, and the vulnerability in the outbound logistics

flows to customers, may be measured and evaluated by four principal

dimensions, namely: service level, deviation, consequence and trend. In

addition, a model of inbound and outbound vulnerability scenarios in supply

chains was introduced for teaching and training purposes, as well as to

position and compare the outcome of replication studies of vulnerability in

firms' inbound and outbound logistics flows.

Page 56: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 33 of 384

2.12 Developing a decision-making framework for levels of logistics

outsourcing in food supply chain networks

“Researcher Hsiao, H I; J.G.A.J. van der Vorst; R.G.M. Kemp; S.W.F. (Onno)

Omta.Has written& published in International Journal of Physical

Distribution & Logistics Management” 40. 5 (2010): 395-414, has presented a

decision-making framework for outsourcing levels of logistics activities. These

were: execution level of basic activities (such as transportation, warehousing);

value-added activities; planning and control level of activities (such as

transportation and inventory management); and strategic decision-making level

of activities (distribution network design). Design/methodology/approach - The

research design comprises three stages. Literature review was undertaken to

study outsourcing theories. Successively, case studies on three food

manufacturers were conducted resulting in a framework for make-or-buy

decision. Finally, an exploratory survey was undertaken to examine the

determinant factors for outsourcing the different activities. Findings - Results

indicate that logistics activities at different levels are outsourced for different

reasons. Three main determinant factors are identified: asset specificity, core

closeness and supply chain complexity. This implies that the evaluation of

outsourcing different activities requires insights of three theories, namely

transaction cost, resource-based and supply chain management theory.

Research limitations/implications - The research and resulting framework are

based on three small cases. Furthermore, there are few companies that

outsource higher levels of activities, which limits the statistical assessment of the

survey results. Practical implications - The framework can support the decision-

Page 57: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 34 of 384

making process for outsourcing different logistics activities in food industry.

Originality/value - The key contribution of this paper is that it creates a

comprehensive framework for outsourcing of both basic and advanced logistics

activities specifically for the food industry.

2.13 Evaluating the Performance of Third-Party Logistics Arrangements:

A Relationship Marketing Perspective

“Knemeyer, A Michael ; Murphy, Paul R has published in the. Journal of

Supply Chain Management40. 1 (Winter 2004): 35-51” that by 2005, users of

third-party logistics services may be spending an average of nearly one-third of

their total logistics budgets (compared to 20 percent today) to support 3PL

services (Gooley 2000). Yet, very little research has examined managerial

activities that might influence the performance of these logistics outsourcing

relationships. Over the past several years, the management approach that views

relationships as key assets of the organization has gained increased prominence

in the priorities and practices of many companies (Gruen, Summers and Acito

2000). The current study utilizes this relationship marketing perspective as the

basis for evaluating the perceived performance of third-party logistics

arrangements. In particular, the current study examines the influence of six key

relationship marketing dimensions on a customer's perceptions of their 3PL

provider's performance. In so doing, the article builds on research (e.g., Goldsby

and Stank 2000) that focuses on potential linkages between logistical

performance metrics and managerial activities. The results suggest linkages

Page 58: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 35 of 384

between relationship marketing activities and the perceived performance of the

3PL arrangement.

2.14. Labeling options offer marketing, production advantages

The Researcher “Korolishin, Jennifer published an paper in Beverage

Industry”96. 1 (Jan 2005): 40 that as technology has evolved, beverage

labeling has been transformed from a commodity to a powerful marketing tool

that provides differentiation in a crowded marketplace. There are four main

beverage labeling options - cut-and-stack, full-wrap hot-melt or spot-cold-glued

film or paper labels; roll-fed, usually produced with laminated film constructions;

pressure-sensitive; and shrinkwrap. In choosing a label type and application

method, beverage-makers must consider how established a brand is and its

production volume. Bottle shapes influence label choices, as do product and

packaging color - clear labels are popular in cases where color is among a

product's main features.

2.15. Studies of Trends in Third-Party Logistics Usage:

What Can We Conclude?

“Ashenbaum, Bryan ; Maltz, Arnold ; Rabinovich, Elliot has published an

article in . Transportation Journal”44. 3 (Summer 2005): 39-50,” This article

evaluates the various longitudinal studies of third-party logistics (3PL) usage and

proposes methods and approaches to improve the rigor of future research in this

area. Three well-established methodologies for combining the results of multiple

studies are reviewed (literature reviews, meta-analysis, and repeated survey

Page 59: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 36 of 384

analysis), and then considered in application to the findings of the various 3PL

usage studies since 1991. Beginning with an overview of the results that emerge

from simply combining and comparing the key longitudinal data, the article

moves on to a more detailed analysis of the measurement scales, data collection

methods, and samples utilized in the different 3PL surveys. The article ends with

concrete recommendations for reorienting the ongoing surveys to increase their

rigor and validity, and thus increase their predictive value to both academics and

logistics managers.

2.16. S.C.M. & its Relationship to Logistics, Marketing, Production &

operations Management

“Mentzer, John T; Stank, Theodore P; Esper, Terry L. has published in

Journal of Business Logistics”29. 1 (2008): 31-VII”thatThe renaming of the

Council of Logistics Management (CLM) to the Council of Supply Chain

Management Professionals (CSCMP) ushered in some interesting definitional

dialogue and debate within the practitioner and academic communities. Inherent

in emerging definitions is the notion that SCM encompasses activities

traditionally considered aspects of production, logistics, marketing, and

operations management. Defining SCM in such a broad scope (i.e., a "within"

and "across" functions perspective), while considered by many scholars as the

true representation of the essence of SCM, creates confusion regarding the

appropriate organizational level within a business that is best suited for

managerial decision making regarding the phenomenon. This paper contributes

to the emerging SCM dialogue by highlighting the functional spaces (the "within"

function perspective), relationships, and conceptual overlaps (the "across"

Page 60: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 37 of 384

functions perspective) between marketing, logistics, production, operations, and

supply chain management. By comparing and contrasting the literature-based

conceptual boundaries of each discipline, a framework is proposed that more

clearly captures the essence of the SCM decision making sphere. Managerial

insights and future research implications are presented.

2.17 Strategic logistics capabilities for competitive advantage and firm

Success.

―Morash, Edward A Droge, Cornelia L M ; Vickery, Shawnee K has written

in the. Journal of Business Logistics”17. 1 (1996): 1-22. That Logistics

capabilities can be classified as either supply chain-oriented or demand chain-

oriented. The present research investigates the managerially perceived

importance, actual implementation, and financial impact of some major demand-

oriented and supply-oriented logistics capabilities. The findings show that

demand-oriented logistics capabilitieshave a greater impact on firm

profitability. Inconsistencies between managerially perceived importance and

financial impact suggest the need to anchor and assess logistics capabilities in

the context of firm performance. The research also demonstrates that logistics

capabilities such as customer responsiveness and competing on time can

provide core competencies for corporate strategy.

Page 61: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 38 of 384

2.18 The Evolution of Sustainable Competitive Advantage: From Value

Chain to Modular Outsource Networking

―Busbin, James W ; Johnson, Julie T ; De Coninck, James, has published in

Competition Forum Journal‖ 6.1 (2008): 103-108.That Corporate competitive

strategy was rudimentary until the 1980s. Then advancements in technology and

market globalization introduced rapid changes in competitive strategy

development. Porter introduced the value chain concept, followed by core

competencies, as means by which to develop sustainable competitive

advantage. Recently, advancements in outsourcing are influencing the nature of

competition. Long-standing competitive beliefs about vertical integration and

asset ownership are being called into question. A new generation of competitive

strategies are emerging that bear little resemblance to their predecessors - one

such strategy - "Modular Outsource Networking" is introduced here.

2.19 GAP in the Studies

India spends about 13-14% of its GDP on logistics, due to its diverse geography,

inefficiencies in the SCM and non existence of modernized logistics-related

infrastructure. However, given the country‘s high growth rate, coupled with the

steady rise in India‘s trade levels, there has been an increase in outsourcing of

logistics solutions apart from improvements in supply chain mechanisms. This

has played a crucial role in not only making logistics one of the fastest growing

sectors, but also one of the most lucrative avenues for foreign players to invest

in.Valued at US$110 billion, the Indian logistics sector is expected to touch the

US$200 billion figure by 2020--- a factor which highlights the huge potential that

Page 62: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 39 of 384

the market has to offer to its investor and existing investors who are planning to

build and expand on their existing capacities.

Presently Indian companies outsource about 52% of logistics services and

solutions, Many companies are also increasingly outsourced 3PL business

models with aim to reduce costs and make their services more efficient, About

76% of the Indian logistics sector is primarily handled and managed by the

unorganized service providers.Primarily dominated by small and medium sized

service providers, the Indian logistics industry is highly fragmented with major

players possessing a small market share. The road transportation service

provider segment is completely dominated by small trucking companies and

individual truckers. Transport companies having fleet below 5 trucks account for

over two-thirds of the total trucks owned and operated in India & make up for

80% of revenues.Meanwhile, the air cargo segment has been evolving rapidly in

India over the past few years; it has overtaken the ocean freight and rail freight

markets by expanding at nearly 19% in the last three years, as against 10.3%

growth registered by ocean freight and 9.2% by railways.

India had a trade deficit of $19.6 billion in October 2011, the highest in four

years, as the pace of export growth slackened amid a slowdown in major global

markets. The trade gap was estimated at $93.7 billion during the April-October

period, the first seven months of fiscal 2011-2012, according to the Commerce

Ministry. For majority of the unorganized players in the logistics sector,

outsourcing is constrained due to small scale or decentralized and non-

automated operations. The larger players are increasingly streamlining and

standardizing their internal processes. Currently, very few Indian companies are

Page 63: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 40 of 384

in a position to separate out individual processes that can be outsourced. With

enterprise wide IT systems deployment the outsource ability of activities is

expected to increase. Presently, the low level of outsourcing in logistics sector is

primarily due to low sector maturity. Other restraints for outsourcing are

fragmented market, lack of systems and processes and resistance to outsource,

therefore This research is specific to Logistics Outsourcing.

Page 64: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 41 of 384

CHAPTER 3.

PURPOSE OF THE STUDY & RESEARCH METHODOLOGY

PURPOSE OF THE STUDY

OBJECTIVE OF THE STUDIES

HYPOTHESES

RESEARCH METHODOLOGY

SECONDARY DATA

PRIMARY DATA

SAMPLING

Page 65: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 42 of 384

CHAPTER 3

PURPOSE OF THE STUDY & RESEARCH METHODOLOGY

3.1 PURPOSE OF THE STUDY

No research initiative has been undertaken in India that has focused on

Logistics outsourcing & its effect on Food Processing Industry in India. In recent

years, however there has been a welcome change in this kind of thinking and an

increasing number of industries are now beginning to view logistics as a tool to

augment customer experience and improve revenues. Several large business

houses and mid-sized enterprises now see logistics as a strategic tool, which can

lead to efficient business operations resulting in higher revenues and better

profitability.

Indian manufactures and distributors are generally quite skeptical and / or

unaware about outsourcing logistics. The volume of outsourcing by Indian

shippers is currently is as low as around 10% compared around 50-80% in

Western Europe and the US. The unwillingness to outsource logistics on part of

Indian Logistics Managers may be attributed to skepticism about the possible

benefits, perceived risk, and losing control of sensitive organizational information

and vested interests in keeping logistics activities in-house.

Page 66: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 43 of 384

3.2 Objectivesfor the Study

1.. To Study the Impact of Logistics Outsourcing on Profitability of Companies. The

Researcher is aiming to study the logistics cost, delivery time, meeting of order quantity

i.e logistics performance does it plays a key role in profitability of the company.

2. To Study Logistics Outsourcing vis-a vis Food Processing Companies with respect

to their Competitive advantage. The researcher is trying to find out the degree of

current practices like Outsourcing of outbound logistics, outsourcing of pack & labels,

Transportation Management, Inventory Management, & Distribution & network planning.

3. To Study the efficiency of Logistics Outsourcing with context of different parameters

such as Production, Distribution, Sales, etc. Here the researcher is trying to assess the

Numbers of Packaging lines, uncertainty of production output time, annual demand

volume, demand uncertainty & fluctuation, Numbers of customers, Warehouses,

Distribution Varity, Delivery Frequency, Order Lead time.

4. To study the level of decision making in Logistics Outsourcing has significant impact

on sales volume of the company. For this research work job position of the managers i.e

level of decision making for Logistics Outsourcing, does it has a significant impact on

sales volume of the company. For measuring decision making & impact on sales

volume of the company. Managers job profile, one or multi factory level, degree of

involvement, & sales volume of last three years is taken into consideration.

Page 67: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 44 of 384

3.3 Hypotheses

H01 : Logistics performance does not play a key role in the profitability of the

companies.

H11: Logistics performance plays a key role in the profitability of the companies.

H02 : Logistics Manager do not contribute significantly to the companies‘

competitive advantage.

H 22 : Logistics Manager contribute significantly to the companies competitive

advantage.

H03 : Different aspects like production, distribution, & sales are not

important parameters in creating the efficiency of logistics outsourcing

H33 : Different aspects like production, distribution, and sales are important

parameters in determining the efficiency of logistics outsourcing.

H04 : There is no Impact of Logistics Outsourcing on sales volume of the

Companies.

H44 :There is a positive impact of Logistics Outsourcing on sales volume of the

Companies.

Page 68: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 45 of 384

3.4 Research Methodology

This research study is based on survey of Logistics Outsourcing Companies in

food Processing Companies For the purpose of the thesis both Primary and

Secondary sources of Data were used.

3.1 Figure shows the general steps involved in this research:

Researcher has adopted a descriptive approach, which involves questionnaire

which helps in exploring new areas. Also this approach helps in defining the

scope of enquiry, target audience and the time span. The Research would be

Selection, analysis and statement of the research problem

Formation of research objectives

Literature review

Research Methodology

Conclusion & Recommendations

Page 69: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 46 of 384

conducted through structured empirical analysis. 992 companies small,

medium,& big would be used as source to investigate.

3.5 Secondary Data Collection / Descriptive Survey

Primary and secondary data sources were used to collect information about

aspects of supply chain and customer satisfaction in Logistics outsourcing in food

Processing businesses. Survey involving personal face- to -face interviews with

both Logistics managers, Finance Managers, directors etc was conducted. Key

participants in Mumbai‘s logistics were approach for data. Executives (general

managers, operations managers, ) 992 Managers from logistics companies Food

processing companies were interviewed.

Information collected from secondary data sources included books, magazines,

journals, reports and websites. A systematic review of published reports like

Datamonitor, Euromonitor, KPMG about Logistics outsourcing in India was

conducted. These data that are intended to meet the needs of government

departments and local governments are usually clearly defined, well

documented and of a high quality. Such data is accessible in compiled form, and

are widely used by other organization and individual researchers (Saunders,et

al,2003)

Further, Data on the internet was located using search engines like EBSCO and

online journals of Retailing. The researcher while accessing the secondary data

excluded the data which was not relevant to the researcher‘s objective and

questions. The researcher made a quick assessment of the reliability and validity

of the data by looking at the source of the data. Dochartaigh (2002) refers to this

as assessing the reputation of the source.

The secondary data provide a useful resource with which to compare or set in

context the researcher‘s own findings. However, Bowley points out, that

―secondary data should not be accepted at their face value‖ The reason is that

such data may be erroneous in many respects due to bias, inadequate size of

the sample, substitution, errors of definition , arithmetic errors etc.(Gupta,2005).

Keeping this in mind the researcher ensured that the secondary data used is

Page 70: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 47 of 384

suitable for this research. The suitability of data was judged in the light of the

nature and scope of investigation. The researcher checked the adequacy of the

data in the light of the requirements of the survey.

3.6 Primary Data Collection / Field survey Building the much needed model and explore the bottlenecks and challenges in

the journey ahead for Logistics outsourcing industries. This will include – new

processes and operations that could be considered for outsourcing, highlighting

regulatory implications and over all cost maintenance and of course benefits

achieved by getting into a Profitable situation.

Questionnaires shall be prepared from the context of Logistics outsourcing i.e.

from a User company and service provider perspectives. Details will be captured

in these questionnaires and further taken up for analysis. The findings from this

exercise will be then considered in the final research report preparation and

conclusion.

Research Instruments for Primary data collection are;

1. Interviews using above Questionnaires

2. Emphasis on Findings – What, When, Where and How

3. Enablers – LinkedIn Groups and Contacts, Yahoo and Other Social

Site Contacts

Page 71: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 48 of 384

The questionnaire comprised of questions pertaining to;

General Information

Information related to type of industry

Information related to Organizational Structure

Information related to Regulatory Compliance

Information related to Risks & Strategy

Information related to Operational Principles / Delivery

Excellence

Information related to Growth Initiatives

Information related to Organizational Perception towards

Outsourcing

Information related to Organizational Perception towards Services.

3.7 Sampling

Sample Size

―Sample size is one which fulfills the requirements of efficiency,

representativeness, reliability and flexibility for the research work ,‖ (Kumar,2008)

That is why the sample of Logistics outsourcing in Food processing Companies

was so selected that they truly and adequately represent the universe otherwise

the results obtained would be misleading. Taking this into account the

researcher interviewed 991 companies in Food processing & logistics

Outsourcing companies across the city of Maharashtra. The size of the

sample was considered to be optimum because it fulfilled the requirements

of representativeness and reliability. Gupta (2005) emphasised that sample

Page 72: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 49 of 384

selection and data collection are interwoven and one has an impact on the other.

Sampling Technique of Data collection was Sample Technique where a part of

the universe is studied and the conclusion about the universe is drawn from this

data. In consumer research census is not practical and normal sampling

technique is used for the survey.

Sampling Design

Sampling design is a definite plan for obtaining a sample from a given population.

It refers to the technique that the researcher adopts in selecting items for the

sample.(Kumar, 2008)

Outlining the universe and defining the sample unit : While developing the

sample design the first step undertaken by the researcher was to clearly outline

and dentify the set of objects to be studied. In this case it was the Logistics

outsourcing companies in the city of Mumbai and its suburbs.

Sampling Frame

Sampling frame is the actual set of units from which a sample is drawn, In this

study the sample frame is Logistics Outsourcing Companies in Mumbai. The

researcher took care to ensure that the source list is as representative of the

population as possible. The source list was prepared such that it was

comprehensive, reliable and appropriate. For this purpose the sample frame

was devised after going through the various published reports that described

the various attributes of the formats and enlisted the recognized Logistics

outsourcing Companies in Mumbai. In terms of the consumers ,the researcher

attempted to study customer satisfaction in organized food retail. For this

purpose , the researcher took care and interviewed only those consumers who

Page 73: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 50 of 384

were related to logistics activities. There are basic problems of sampling frames

Some members of the population may not be included in the frame, or the non-

members of the population may get included in the frame and a member of the

population may be surveyed more than once. The frame may list clusters instead

of individuals. We have taken care to overcome the basic problems of missing

elements by extensively reviewing the list of Logistics outsourcing companies in

the city of Mumbai and carefully excluded the non members of the population or

foreign elements in the source list i.e. Further the researcher made certain that

there were no duplicate entries or no member of the population was surveyed

more than once and that frame listed only individuals and not any groups or

clusters.

Sample Justification

Maharashtra was chosen for study because it is the most important economic

and commercial Centre. In addition to this it is among the top 10 preferred

location for Logistics activities is growing parallel with real estate development

in Mumbai.

Probability Sampling

Sampling for this thesis was not haphazard selection. Probability sampling

where every item in the universe has a known chance or probability of being

chosen for the study ; it includes Random sampling and stratified sampling

methods which were used by the researcher.

Page 74: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 51 of 384

Random Sampling

To ensure balanced representativeness of the consumers, the random sampling

was used. According to Gupta (2005),Simple random sampling refers to that

sampling technique in which each and every unit of the population has an equal

opportunity of being selected in the sample, ―personal bias of the researcher

does not influence the selection.‖

This sampling was preferred over other techniques especially convenience

sampling because it may hardly be representative of the population(Gupta,

2005). In comparison, since random sampling is a probability sampling, it

eliminates bias due to personal judgment.

In terms of Logistics Outsourcing sampling, Stratified sampling was used. In this

type of sampling the population embraces a number of distinct categories, the

frame can be organized by these categories into separate "strata." A stratum is a

subset of the population that share at least one common characteristic. ― (Gupta,

2005). According to Shahjahan(2005) the units within each stratum are as

homogeneous as possible. Various Strata are non over- lapping. This means

each and every unit in the population belongs to one and only one stratum.

This method could be used because the population could be partitioned into

smaller sub groups of population, each of which is homogeneous according to

the particular characteristic of interest. Stratified sampling is considered to be

appropriate for this study because it reduces sampling error and also the

Variability within strata is minimum while Variability between strata is maximum .

C.J Grohman has rightly pointed out that this type of sampling balances the bias

Page 75: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 52 of 384

of deliberate selection‖ (Gupta,2005) Further it was found to be representative of

the population: Since the population is first divided into various strata and then a

sample is drawn from each stratum there is a little possibility of any essential

group of the population being completely excluded. In addition to it being

representative it was also considered to be more accurate (Gupta, 2005) and the

division of the population into relative homogeneous sub –groups leads to

administrative convenience(Shahjahan,2005)

Stratified Sampling

While applying Stratified sampling , the Logistics Outsourcing Companies were

sub divided or stratified into mutually exclusive groups and included all items in

the universe. After this a simple random sample was then chosen independently

from each group. Here the base of stratification was the size of the Companies.

The researcher created strata‘s for the purpose of this study viz. So that Logistics

Outsourcing decisions taken in relation to increase in Profit.

Response Rate

Response rate is calculated by the number of individuals who respond and

complete the questionnaire divided by the total number of individuals contacted

as given below:

Response rate:

Number of individuals who respond and complete the questionnaireX100

Total number of individuals contacted

Response rates are strongly affected by the method of data collection. In

general, the more interaction between the potential respondents and the

Page 76: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 53 of 384

researcher, the higher the response rate. (daa.com.au)The researcher collected

the data using face to face interviews. A total of 991 respondents were

approached

According to Gupta (2005) Generally, the highest response rates in surveys

based on random samples are achieved when personal face to face interviews

are conducted with the respondent. For this purpose the researcher conducted

face –to face interviews

In order to improve the responses , the researcher had a short covering letter

which focused on the importance of the study and the respondent‘s reply. The

questionnaire was short and easy to complete. The researcher tried to increase

the trust by displaying the official documents and stationery demonstrating it as

an academic research work.

The researcher ensured that the questions were not ambiguous , had clear

instructions and asked only what was necessary. In the beginning, before starting

the data collection, the researcher phoned, emailed or personally met the

logistics outsourcing executives to inform about the interview and set it up. The

person approached were part of the target population

Questionnaire Description

In this research work questionnaire used was specifically designed for this

survey. Questionnaire is a data collection tool in which each person is asked to

respond to the same set of questions in a pre determined order (deVaus,2002).

To gain insights into the supply side and to understand the operations of

organized food, before formulating questionnaire, key officials responsible for

Page 77: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 54 of 384

modernization and experts from various economic and distribution research

centers in the city were met. Since the intention was to gain an understanding of

the relevant issues, the interviews typically involved a great deal of probing and

exchanges.

In accordance with the topic of research and the purpose of testing hypothesis, a

questionnaire was prepared which included aptly worded questions with proper

relevance and emphasis on the data desired for the purpose of the investigation.

The role of questionnaire is to ensure a structured interview across all subjects.

It is an important element in the success of data collection . The survey through

questionnaire was administered by the interviewer through face- to- face

interview.

For the thesis one sets of questionnaires were prepared. One for the Logistics

Outsourcing Companies in Food processing Companies

Further, the questionnaire can be broadly categorised into 2 divisions:

The two sets of questions

1.Classification Data and

2. Questionnaire Data

Classification Data on profile of Respondents : Consists of questions which

include general preliminaries This was done to get a perspective on distribution

of profile of consumers.

For the questionnaire data, the researcher opted for a structured interview

because a structured interview is one in which each subject or respondent is

Page 78: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 55 of 384

asked a series of questions according to a fixed and a prepared interviewing

schedule. Semi structured interview was avoided as it could mean different

things to different people. (Brace, 2004)

―Questions applying identification and description of the respondents should

come first followed by major information questions.‖ The sequence of the

questions was considered carefully in terms of the purpose of the study and the

persons who will supply the information. Further, the questions were arranged in

a logical order so that a natural and spontaneous reply to each was induced.

The questionnaire administered to the consumer consisted of 12 statements to

be rated on a 7 point rating scale where 1 meant very low and 7 meant very high.

The purpose of a rating scale is to allow respondents to express both the

direction andstrength of their opinion about a topic. Typically, market researchers

prefer respondents to make adefinite choice rather than choose neutral or

intermediate positions on a scale. For this reason, a scale without a midpoint is

preferable, provided it does not affect the validity or reliability of the responses.

(Garland, 1991)

The number of the questions included depended on the objective and scope of

the investigation: (Gupta,2005) .

Reliability Test

The questionnaire was further tested for Cronbach Alpha α reliability to test the

internal consistency of the items. According to Aiken,(2003) This is a general

Page 79: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 56 of 384

formula for estimating the reliability of a test consisting of items on which

different scoring weights may be assigned to different responses.

Reliability refers to the consistency of scores obtained by the same person when

re-examined with the same test on different occasions or with different sets of

equivalent items or under variable examining conditions.

SPSS was used to analyze the data. In this research, Cronbach Alpha reliability

coefficient for the consumer questionnaire was found to be 0.740 which is within

the acceptable range. (George and Mallery, 2003 )

Overcoming Error

In order to overcome bias in the selection process, the researcher drew the

sample entirely at random. Due to a large sample size, the researcher had to

take care of both sampling as well as non sampling errors.Cape, Lorch and

Piekarski (2007) shows how drop out is a function of length of questionnaire, as

respondents become bored andfatigued. To overcome the danger of

respondents continuing reluctantly till end providing potentially unreliable data,

the researcher ensured only relevant questions were asked and kept the length

of the questionnaire in mind while designing the questionnaire.

The researcher took care that the inclusion of data was from within the

population only thereby reducing the fear of overcoverage. Further, data was

collected from consumers in the retail store to minimize the error and ensure that

sampling frame included all the relevant elements in the population and

overcome the problem of undercoverage.

Page 80: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 57 of 384

Foddy (1994:17) emphasised that the questions must be understood by the

respondent in the way intended by the researcher and the answer given by the

respondent must be understood by the researcher in the way intended by the

respondent. To address this concern and in order to overcome the issue of

measurement error, the researcher clarified the question wherever necessary.

The researcher was cautious of making value judgements. Further, during the

interview, the interviewer took care to never show any expression of surprise,

agreement, disagreement or criticism when the respondent was answering the

questions asked so that the interviewee ‗s responses are not influenced

Respondents were encouraged to give frank and honest responses, they were

assured that their identity and the identity of their organization would be

protected.

The researcher obtained as much information as possible about the objectives in

order to maximize the value of the study. For this the researcher tried to give an

honest indication of the time commitment involved as this is an important concern

of individuals deciding whether to participate or not. The researcher explained

briefly what the survey is about and its purpose. In addition to this , the

researcher also outlined to what use the findings will be put to.

Respondents were assured that all the information given as part of the survey

will be treated in strictest confidence. The researcher assured them that under

nocircumstances information on an individual retail outlet will go beyond the

academic project. The researcher also emphasized that any findings of the

survey will only be made available in the form of aggregate results, so that it will

Page 81: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 58 of 384

be made impossible to identify the replies of any individual firm. Further, Data

entry was verified and rechecked in order to reduce processing error. Data

specification was adequate and consistent with respect to objective of the survey.

The researcher informed and took appointments to ensure that the retailers

participating in the survey were contacted at the time convenient to them.

Pre-testing the Questionnaire & Pilot Study

The questionnaire should be pre-tested with a group before using it with a larger

sample. The advantage of pre-testing is that the shortcomings of the

questionnaire are avoided.(Saunders et.al,2003) It also helped researcher get an

idea about the extent of non-response likely to take place.

The researcher undertook a pilot survey. ―The pilot survey is particularly useful

for uncovering problems with the questionnaire document.‖ (Gupta,2005,

Kumar,2008) It has allowed the researcher to test the acceptability of the

questionnaire to the target sample. The acceptability of the survey in terms of the

length of the questionnaire or the time commitment required of the respondents

was also tested.

Relating questionnaire to Research objectives

The researcher constructed and used the questionnaire to facilitate the

respondents to give the best information that they had. Questionnaire was

designed to collect data that was required to answer the objectives of the study

as objectively as possible while minimizing the likelihood of error occurring at any

stage in the data collection and analysis process.

Page 82: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 59 of 384

Approach to Recording Data

The researcher overcame the possibility of ‗ mixing up data from different

interviews and not completing each questionnaire at the time it took

place‘(Ghauri and Gronhaug,2002) by insisting on answering all questions by the

respondent and compiling the data as soon as it was recorded.

A full record of the interview should be compiled as soon as possible after it has

taken place (Healey,1991;Robson,2002.) The researcher adhered to this and

tried to capture the exact nature of the explanation provided as well as general

points of value particularly in the area of consumer satisfaction from the

interaction with the respondents.

The Time period of the Study

The researcher started collecting the data in 2009. The pilot study was

undertaken in 2009 and 2010. The primary data collection was completed by

December 2010.The researcher would like to add that recent secondary and

tertiary source of literature were included in the literature review.

Profile of the Respondent

Classification of the profile of respondents: The Classification of the respondent

was based on job position i.e Logistics Manager, Financial manager, production

managers, Director.

At what level decision of logistics outsourcing is taken i.e. one factory level or

Multi-factories level and their involvement in decision making of logistics

outsourcing.

Page 83: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 60 of 384

Analysis of Data

The responses observed from each of the items in the questionnaire were

scored and tabulated into a master sheet. The statistical tools included Person

Chi-square, Likelihood Ratio and Linear-by-Linear association has been applied

to draw logical conclusions. The analysis was done using SPSS. In addition,

based on wide industry experience, worksheets were tabulated using Matrix

Analysis. As part of this method, two key variables were selected that could

impact desired outcome. A two-dimensional matrix was prepared, labeled one

axis with first variable and the other axis with second variable. Along each axis,

all possible subtopics for each variable were listed. Drew lines from each axis so

that ―cubes‖ are formed, representing the combination of one variable from each

axis. Then each variable was subdivided into elements. From each cube of the

matrix, considered how elements could be combined and contribute to an

innovative solution.

Interpretation & report Writing:-

The analyzed data were finally interpreted to draw the conclusions and reported

with the objective of the study in view.

Limitations of the Study

1. This study was conducted in the city of Mumbai which is considered to be

representative of the Companies Outsourcing Logistics activities .Companies

outsourcing logistics across the country and the sample frame was determined

accordingly at the time of deciding the research design . However, this research

Page 84: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 61 of 384

does not cover other metros and hence might not have captured regional factors

affecting Companies outsourcing Logistics Activities.

2. Researcher has assumed that the information provided by the Logistics

Executives and managers is transparent and accurate. However there can be

constraints while sharing information by the Logistics executives & Managers for

general and academic survey. Hence more accurate information can be gathered

only if such survey is commissioned by large Outsourcing Companies for their

own use.

3. The literature search and review was dependent upon the availability and access

to research information on the subject in India. It must be acknowledged that as

organized logistics outsourcing is in fledgling state and hence not many

research projects in this field has been conducted and consequently only limited

authentic published work is available and a source for secondary data.

4. It must be mentioned that in an academic research work of this nature only

illustrative factors affecting Logistics Outsourcing research hypothesis could be

included in the survey. To get deeper insight about the holistic picture of

companies Logistics outsourcing many more specific parameters needs to be

included.

Page 85: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 62 of 384

CHAPTER 4

INDIAN LOGISTICS INDUSTRIES

SIZE & SHAPE OF THE INDUSTRIES

COMPLEX INTERSTATE TAX STRUCTURE & COMPLIANCE

3 PLs AN INTEGRATED APPROACH TO LOGISTICS

Page 86: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 63 of 384

CHAPTER 4

Indian Logistics Industries

Traditionally, industry in India has always viewed logistics as a cost centre and,

over the past few decades since independence most business have always

attempted to cut corners in trying to move their products from the shop floor to

the warehouses and distribution channels and from there on to the end-user. In

recent years, however there has been a welcome change in this kind of thinking

and an increasing number of industries are now beginning to view logistics as a

tool toaugment customer experience and improverevenues. Several large

business houses and mid-sized enterprises now see logistics as a strategic tool,

which can lead to efficient business operations resulting in higher revenues and

better profitability.

Globally, the size of the logistics industry is placed at $3.5 trillion, with most of

the large players operating out of Western Europe. However the biggest market

in the US and it account for about 33% of the total global market size, although

China‘s share in global trade has rising rapidly, In India, the industry is still in the

nascent stage of development, with an estimated size of about $125 billion for

Financial Year 2009-10. However, a robust domestic manufacturing sector,

coupled with an increasing number of MNCs seeking to outsource their

manufacturing function to this country or set up base here, strong focus on the

infrastructure sector, of which logistics from a core, in successive policy

announcements, and simplification of the complex indirect tax structure are seen

as some of the key drivers that will catapult the logistics industry into big league.

Page 87: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 64 of 384

India‘s container trade has been growing at around 15 per cent over the past five

years. That means the logistics services business will be growing at a multiple of

the box trade, probably around 20 per cent and more per year. The growth in

demand presents significant opportunities for the logistics industry as also

challenges.

Yet, the Indian logistics industry faces a number of roadblocks, the chief among

them being low demand due to high operational costs poor infrastructure,

government regulations, a complex tax structure and an industry dominated by

the unorganized sector. These factors in turn have led to a situation where

despite the huge interest by both players and investors very little investments

have flowed into the industry- this when 100% FDI is allowed in all services

coming under its purview, save and except airtransport and air cargo services.

Some of the key issues that the industry in India faces today.

4.1 Size & shape of the Industries

The cost of logistics in India is pegged at around 12-13% of the GDP, or roughly

$125 billion. Until very recently, nearly 99% of logistics cost was accounted for by

the unorganized sector, which consists of owners of less than five trucks, small

warehouse operators, customs brokers, freight forwarders, and the like. As a

matter of fact, 54% of the road transport market was with operators ownings no

more than a single truck. The organized sector‘s contribution, on the other hand

was a tad above 1% This situation served as a major deterrent to the customer

as the small operator was in no position to offer end-to-end solutions. Also at

13% GDP the logistics cost was much higher than that prevailing in Europe and

Page 88: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 65 of 384

the United States ( at around 7-9% on average), making the service extremely

unattractive for the customer. There has been some improvement in the above

statistics, with the entry and expansion of large players in this area for instance

large cargo and transport firms and courier companies such as Transport

Corporation of India, DHL, TNT, & Blue Dart have captitalised on their existing

asset bases and all India network to start logistics operations. Others, such as

Aqua Logistics have used a mix of organic & inorganic growth to ramp up their

business models, In fact today around 10% of the business is in the hands of a

few leading players.

Business Dynamics

Logistics is a high-cost, low-margin business, making it very unattractive for the

unorganized player, as he invariably faces unfair competition from unorganized

players, who can get away without paying taxes and following operating norms

stipulated in the Motor Vehicles Act such as Utility of drivers & vehicles, volume

& weight restrictions. Secondly, there are issues of economies of scale in Indian

logistics, given that there is a high degree of fragmentation even within the

organized sector.

4.2 Complex interstate Tax structure& Compliance

Another factor that contributes to the lack of scale economies is the non-uniform

sales tax structure. This problem has been mitigated to some extent through with

the introduction of Value Added tax VAT which was implemented in 2005 & the

proposed GST regime is expected to provide further fillip to the industry. Having

said that the logistic service provider (LSP) today has to deal with a host of other

Page 89: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 66 of 384

taxes such as octroi & goes through considerable trouble transport ting goods

across state borders, stopping at multiple check posts and complying with

varying documentation requirement of different states.

A study conducted by Indian Institute of Management ( IIM-C) says the truck on

Indian road loses 24-48 hours on average in complying with paper work &

formalities at different check posts en route to a destination. It says Fuel worth

$2.5 billion is spent on a waiting at check posts each year. A vehicle that costs

$30,000 pays $7,500 per annum in the form of various taxes, which include the

excise duty on fuel.

Awareness

Indian manufactures and distributors are generally quite skeptical and / or

unaware about outsourcing logistics. The volume of outsourcing by Indian

shippers is currently is as low as around 10% compared around 50-80% in

Western Europe and the US. The unwillingness to outsource logistics on part of

Indian shippers may be attributed to skepticism about the possible benefits,

perceived risk, and losing control of sensitive organizational information and

vested interests in keeping logistics activities in-house.

International Freight Movement

Foreign freight forwarders offer stiff competition to their Indian counterparts in the

areas of international freight movement. Multinational firms are able to capitalize

on their size and operations in many countries to offer low freight rates and

extend credit for longer periods. Indian freight forwarders, on the other hand

Page 90: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 67 of 384

because of their smaller size and lack of access to cheap capital, are not able to

match the same, Moreover, clients of MNCs often want to deal with a single

service provider and especially for FOB (Free on Board) shipments specify the

freight forwarders, which most of the time happen to be the multinational freight

forwarders.

Poor physical Infrastructure

Poor physical and communications infrastructure is another deterrent to

attracting investments in logistics sector. According to a CII report, the country

loses as much as $65 billion due to inefficient supply- chain system despite the

retail sector being in the high-growth mode. It points out that since Independence

only 20 percent capacity has been added to the railway network but the traffic

has increased tentimes. The reportsadds that the sector is expected to touch

$879 billion by 2018, but if its supply-chain system‘s challenges are not

addressed, its growth could get hampered.

A Mc Kinsey study paints a grimmer picture and says India‘s waste in logistics

could cross $100 billion by the year 2020. The reports says while logistics

infrastructure spend has tripled from $10 billion in 2003 to an estimated amount

$30 billion this year, the country‘s network of roads, rail and waterways will be

insufficient as freight movement increases about threefold in the coming decade.

It recommends an integrated and coordinated approach in which the

development of each mode- railways, waterways and roads is matched to the

needs and existing assets are better utilized. An IIM-C reports says road

transportation accounts for more than 60% of inland transportation of goods and

Page 91: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 68 of 384

highways that constitute 1.4% of the total road network, carry 40% of the freight

movement by roadways. Slow movements of cargo due to bad road conditions

multiple check posts and documentation requirements, congestion at seaports

due to inadequate infrastructure, bureaucracy, red-tape and delay in government

clearances, coupled with unreliable power supply and slow banking transactions,

make it difficult for exporters to meet the deadlines for international customers.

To expedite shipment, they have to book as airfreight, rather than seafreight,

which adds to the costs of shipments making them uncompetitive in international

markets. Moreover many large shipping liners avoid Indian ports for long

turnaround times due to delays in loading/ unloading and hence Indian exporters

have to resort to transshipments at ports such as Singapore, Dubai and

Colombo, which adds to the costs of shipments and also delays delivery.

Inadequate IT Support

Low penetration of IT and lack of proper communications infrastructure also

results in delays and lack of visibility and real-time tracking ability. Unavailability

and absence of a seamless flow of information among the constituents of LSPs

creates a lot of uncertainty, unnecessary paperwork and delays and lack of

transparency in terms of cost structures and services delivery for example, a

shipper has to pay a higher freight rate if it cannot ensure return load. At present

there is no real-time process by which a shipper may know about the availability

of trucks and going rates at the destination market. Therefore it has to pay more

had the market information been available to both the shippers and the service

provider, the service providers cost structure would have been transparent to the

shipper and it would have ended paying the actual market rate. Another example

Page 92: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 69 of 384

would be that LTL ( Less than Truck load) shipments cost more than FTL ( Full

Truck load) shipments. Now when a shippers books a LTL shipment it has no

idea about the status of its shipments after it leaves the warehouse at the origin

and before it reaches the warehouse at the destination. The service provider may

still convert this LTL shipment into a FTL shipments at its own warehouse before

delivering at the destination so the shippers ends up paying LTL rates for a FTL

shipment. Had there been visibility during delivery, this problem would not have

occurred.

Service Tax

Service tax levied on logistics service fees may make outsourcing costly and

outweigh the possible benefits.

Human Resourses

The IIM-C report points to a general lack of skilled and knowledgeable manpower

in the logistics sector. It says management graduates do not consider logistics as

a prime job. To improve the status of the industry, service providers have to

move beyond the level of brokers and truckers to attract and retain talent.

What the Future Holds

Even today, the bulk of India‘s manufactured exports consist largely of traditional

industries such as garments and other textile products, handicrafts & other labour

intensive goods in which the value addition at each step of manufacture is

marginal, As a result, therefore imports largely consist of raw materials that are

used to make these products. Moreover it is the domestic market and not the

Page 93: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 70 of 384

overseas market, which accounts for a larger share of the revenues in the

manufacturing sector, so the emphasis on high-end & sophisticated logistics

solutions is not so pronounced. In certain sectors such as processed food

exports, a great deal of importance is given to the logistics function and there is

considerable emphasis on timely delivery of perishable goods. Machine tools &

electronics exports are other examples of industries in which timely logistics

support and efficient supply chain management system assume a high degree of

criticality. However this same thinking does not apply to the bulk of goods

exported from or imported into the country. As mentioned earlier, traditionally,

Indian businesses are prone to cutting corners and treat logistics merely as a

means to move goods from one place to another and this iswhere the small

operator thrives as he is able to provideeconomical, albeit inefficient and

insufficient service to small cost conscious enterprise.

All this is about to change, however as the economy grows and attract more and

more large multinationals to move in and set up manufacturing and distribution

bases in as a result of this the small manufacturer will be forced to start vying

with the MNC for a domestic market that was hitherto his alone, In other words,

as the dynamics of manufacturing and distribution change there will be an

increasing need for more reliable, seamless supply chain solutions that offer real-

time visibility along the pipeline, It is in this context that the need for integration

assumes greater significance as now even domestic manufacturers and

distributors will start seeking one-step shop solutions that will augment the value

of their expenditure incurred in getting their merchandise to the market place.

Page 94: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 71 of 384

And the logistics industry itself will move to subsequent level of competitiveness

as the demands for efficiency from the manufacturing sector increase.

Bottom Line

Despite the issues highlighted above, India‘s logistics industry is set to take the

big leap forward to growth, The economy is booming and was the only one part

from China to have withstood the onslaught of the global meltdown that started in

2008. There is a marked shift in the industrial profile of the country as well, with

pharmaceuticals, cement, metals, and FMCG, among others beginning to

acquire greater prominence in the manufacturing sector. These industries, along

with retail which is seeing the entry of multinationals such as Wal-Mart, and the

ramping up of Indian business such as the Future Group are being perceived as

the leading contributors to economic growth going forward. It is companies that

belong to this set of industries, and which are eyeing non-conventional logistics

solutions such as inventory management, reverse logistics, distribution, labeling

and packaging that will dictate the way the logistics industry moves from hereon.

4.3:3PL: An integrated approach to logistics

On the decade and a half after liberalization first touched the economy, India has

emerged as a force to contend with in the world economic scenario while the

country was posting a GDP growth of 9% in the years preceding the global

recession it held firm even in the fact of the meltdown on the back of a robust

services sector, and a growing manufacturing sector, We are still behind China in

terms of the manufacturing sector‘s contribution to the Gross Domestic Product

while the sector accounts for about 45% of China‘s GDP that figures in India is

Page 95: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 72 of 384

still around 20%. However the sector is assuming increasing significance in

terms of its ability to cater to both a growing domestic market and the exports

segment. This growth represents significant opportunities as well as challenges

for the logistics industry in India.

Need for Integrating Logistics Function

The key components of logistics in India include transportation, warehousing,

freight forwarding and other value-added functions such as information

technology and MIS of these industries have traditionally outsourced

transportation and freight forwarding functions while internally managing

warehousing and MIS.

However, Indian industries are increasingly finding it a challenge to manage their

supply chain to reach all parts of the country given the diversity in the various

regions, population and infrastructure conditions in India. Today the top priority of

Indian manufacturers is to ensure a consistent presence of their products across

maximum possible sectors of a vast domestic retail network consisting of more

than three million outlets and an even more complex international market. In the

present day, the most effective way for organizations to achieve this is to focus

on their core strategy of manufacturing, while outsourcing the entire distribution

function to a LSP who offers the entire gamut of supply chain services in a

seamless manner. This is where the third-party logistics services provider comes

in.

Page 96: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 73 of 384

SO, What is 3 PL

Third Party Logistics (3PL) refers to a single logistics service provider who

manages the entire logistics functions of a company. The services offered by a

3PL organization include but are not limited to:

Transportation

Warehousing

Customs clearance

Freight forwarding

Import-export management

Inventory control

Assembly and installation

Packaging and labeling

Distribution and after-sales support

Reverse logistics

Management Information systems

3PL as a distribution concept has its roots in Western Europe and North America

where service providers in this domain emerged to relieve manufacturing

enterprises from huge logistics costs apart from the trouble of dealing with

several small-time LSPs each of whom invariably had the expertise to manage

just one or two of the functions mentioned above. In other word, The 3PL

provider offered end-to-end logistics solutions and took over the entire headache

of ensuring last mile delivery of the customer‘s manufactured output. The

concept proved to be a great success and quickly gained popularity with 3PL

Page 97: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 74 of 384

firms moving from offering basic logistics services such as warehousing and

transportation initially to adding several other value added services ranging from

packaging to supply chain planning as business dynamics became more

complex.

3PL Industries in India

3PL made its way into India in the 1990s, with global logistics players extending

these services to Indian subsidiaries of multinationals in automobile, electronics

and FMCG, these subsidiaries took the cue from their foreign parents and began

to outsource their logistics functions to these specialist service providers though

small in the first few years 3PL in India witnessed rapid growth after year 2000.

However at $ 60 million currently, it is miniscule compared to Western Europe,

US and Japan, where the use of 3PL constitutes around 40%, 50% and 80%

respectively of the total logistics cost, Despite this the Indian market is full of

opportunities with the huge emphasis being given infrastructure development

like ports, roadways and railways. The 3PL industry is estimated to reach $90

million by 2012 according to an Assocham study, which states that around 55%

of Indian companies are outsourcing logistics services such as supply chain and

warehousing compared with10-15% a decade ago,another estimate is much

more optimistic & states that improving infrastructure and focus on core business

operations will yield total revenue of $4 billion by the same year.

An IIM Calcutta estimate pegs 3PL growth in India at over 20% compared to the

average global growth rate of 10%. Business houses such as Reliance, the Tata

group & Mahindra and Mahindra have already entered logistics business, Initially

Page 98: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 75 of 384

these companies formed divisions to handle internal logistics but sensing the

potential of the market they have started offering logistics solutions to other

Indian firms and have already turned these logistics divisions into profit centres.

Some large express cargo courier companies such as Transport Corporation of

India Ltd (TCIL), Gati, Safexpress and Blue Dart have also started offering 3PL

services. Owing to the large asset base and distribution networks that are

already put in places it was just a matter of time for these companies to venture

into the logistics business.

Motivation

The key reasons for this expected surge are :

Globalization of sourcing, manufacturing and distribution leading to greater

complexity of material movement.

Increasing competition, which is forcing companies to became more

responsive and reduce inventories as a means of cutting costs

Resource constraints that require companies to focus on their core

manufacturing or new product development activities.

Introduction of value-added tax (VAT) and the launch of goods and

services tax (GST) will greatly reduce the number of warehouses

manufacturers are expected to maintain across the country. This in turn

will provide a great boost to integrated logistics services.

Page 99: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 76 of 384

New Trends in 3PL

Technological advancements and the corresponding increase in supply chain

function and communications have given rise to a relatively new model for third-

party logistics operations- the ―non-asset based logistic provider.‖ Non-asset

based provider perform functions such as consultation on packaging and

transportation, freight quoting, financial settlement, auditing, tracking, customer

service and issue resolution, However they don‘t have their own any physical

distribution assets such as trucks, warehouses, trailers and the like, Such service

providers typically have a team of domain experts with accumulated freight

industry expertise and information technology assets. They fill a role similar to

freight agents or brokers but maintain a significantly greater degree of hands-on

involvement in the transportation of products.

Page 100: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 77 of 384

CHAPTER 5

LOGISTICS OUTSOURCING

DEFINING LOGISTICS OUTSOURCING

Page 101: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 78 of 384

CHAPTER 5

LOGISTICS OUTSOURCING

Defining Logistics Outsourcing

Driven by developments in information and communication technology and

globalization, the outsourcing industry has shown impressive growth in the last

decade. The global market size of the industry has increased from approximately

US$6 billion in FY2000 to almost US$60 billion in FY2009 (www.nasscom.in). As

the spread of outsourcing model has increased, new forms of organization have

emerged, known as “outsourcing firms.”

Outsourcing firms are distinctive organizations which exist with the sole objective

of being providers of outsourcing services and activities to client firms. These

firms can be defined as “higher capability firms that provide determined non-

strategic activities or business processes or human resources, necessary

for the manufacture of goods or provision of services, by means of

agreements or contracts with client organizations, with the aim of

improving the clients’ competitive advantage” (Sharda, 2008). Outsourcing

firms have steadily grown not only in terms of number but also in scope of

services provided. Almost 82% of large firms in Europe, Asia and North America

have outsourcing arrangements, and almost 51% of them use offshore

outsourcing firms(Gottfredson, Puryear & Phillips, 2005). With their growth, the

bargaining position of these firms has changed too. Their tremendous growth and

success has led some to labelthem as the ―oil barons of 21st century‖ (Greco,

1997; Logan, 2000).

Page 102: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 79 of 384

The current economic downturn, however, has thrown up some serious

challenges foroutsourcing firms. It has dampened demand in the global markets

which has translated into lesser number of new contracts and tightening budgets

from existing clients. Competition has intensified amongst outsourcing firms as a

result of which smaller players are being squeezed out by their larger

competitors. To add to this, there is renewed resistance against outsourcing in

large export markets such as US and UK due to rising unemployment. Despite

these challenges, the outlook for outsourcing firms is still optimistic. The global

outsourcing industry grew at a rate of 12% in 2007-08 and 14.8% in 2008-09,

which was highest among all technology related segments (www.nasscom.in).

This trend is expected to continue, and the worldwide outsourcing market is

projected to grow at a CAGR of11.9% to reach $181 billion by 2012

(www.nasscom.in). The economic crisis has forced clients to outsource more

processes due to greater need for operational efficiency, reduced complexity and

more standardization besides controlling costs. Recession has also exerted

pressure on outsourcing firms to explore new sectors and new markets (Frost&

Sullivan, 2009), thereby creating new business opportunities in the outsourcing

industry. It is estimated that the Asia Pacific outsourcing market will grow from

US$13.7billion in 2008 to US$20.3 billion in 2011, and the majority of this

revenue will be generated from India, Philippines, Malaysia and China (Frost &

Sullivan, 2009). Analysts believe that amongst these main growth markets, India

is best poised to blaze along the outsourcing success trail (Frost & Sullivan,

2009; India Knowledge@Wharton, 2008).

Page 103: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 80 of 384

In order to take advantage of these new opportunities, outsourcing firms will have

to gea up. Leading researchers believe that outsourcing companies can stay

afloat during the crisis, and perhaps even get ahead, by offering ―core‖ services

and replacing transaction oriented client relationships with strategic partnerships

aimed at helping businesses transform themselves in the current economic

environment (India Knowledge@Wharton,2008). Other experts think survival for

outsourcing firms will depend on the continuation of their existing strategies

(India Knowledge@Wharton, 2008). Some industry analysts assert that

outsourcing firms will have to move up the value chain through a strategy of

offering more data services to foreign clientele (Frost & Sullivan, 2009). Yet

others believe that outsourcing firms will have to diversify not only in terms of

geographies, verticals and service lines, but will also have to enhance focus on

domestic markets to derisk their business and tap in local growth opportunities

(www.nasscom.in). It appears from this debate that strategy, now more than

ever, will determine the difference between nsuccess and failure of outsourcing

firms.

In principle, the issue of whether to outsource such logistics functions as

transportation, warehousing, and order processing is a variation on the traditional

"make-or-buy" decision. Make-or-buy is really a short hand term for the crucial

decision of how a firm obtains goods and services. If the company determines

that the open market is the best source for a particular component or support

service, then the firm should buy the itemor service. If the company decides that

the part or function should be supplied by company employees, then the term

has taken the "make" choice. As the name implies, formal make-or-buy analysis

Page 104: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 81 of 384

began in a manufacturing context.' where the question is whether a product's

component parts should be bought from a supplier or produced in-house. Both

operations management" and purchasing texts' routinely treat this decision as a

cost minimization issue. One compares the supplier's quotet o internal costs and

chooses the less expensive alternative. Perceived differences in quality, delivery

reliability, responsiveness, and similar issues are sometimes quantified, but often

these non price issues are treated separately. Recently, students of

manufacturing have begun to investigate the importance of the component make-

or-buy decision to overall manufacturing strategy and competence,''

Management scholars have also pointed out that the make-or-buy decision can

have corporate strategy implications since employment levels, asset levels, and

core competencies are involved. A number of companies have used Total Cost

of Ownership (TCO) procedures to incorporate non price considerations into the

make/buy decision,'' We believe that TCO is an excellent starting point for

analyzing logistics outsourcing issues. However logistics, especially finished

goods distribution, is vitally concerned with external customers and services,

rather than internal customers and products. Since logistics deals with services

rather than parts, any outsourcing analysis must account for managing a third-

party process from initial loading to final delivery. !n contrast, component

outsourcing involves inspection costs at a point in time, often at the supplier's

shipping dock or the factory's receiving dock. Logistics' focus on external

customers entails data gathering over time both third-party performance and

customer satisfaction. Buyers managing component outsourcing receive direct

feedback from a single source: the manufacturing function hey supply.

Page 105: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 82 of 384

In the field of logistics numerous works have been published (Sohail & Sohal,

2003) resulting in a host of definitions for the concept of logistics (Masson-

Franzil, 2003) and the outsourcing phenomenon (Tage, 2000). In these articles

(e.g., Colin & Paché, 1988; Halley, 1999; Paché1994;Samii, 2000), logistics is

presented as a combination of physical and informational flows.

We thus define logistics as the management and control of physical and

informational flows, either by internal means or by outsourced means along a

chain from the input to the output encompassing all the operations of transport,

stock, manufacturing, packaging, distribution and so on carried out for the

customer‘s satisfaction and in optimised performance conditions for the

company.

Logistics has evolved through several stages. Seen as a supportive function in

the 1960s, it slowly became a strategic function in the mid-1980s (Jones and

Riley, 1985) with the emergence of the concept of Supply Chain Management

(SCM), among others. SCM is a fashionable logistic strategy. Stock and Lambert

(2001) define it as a component of eight businesses: customers' relationship

management, customer service management, demand management, order

fulfilment, manufacturing flow management, procurement, product

development/commercialization and returns. SCM is dealt with in many Anglo-

Saxon works, such as those by Bowersox (1997), Christopher (1998) or Larson

and Hallodorson (2002).

At the theoretical level, the concept of outsourcing has been dealt with in many

research works which have given numerous and varied definitions (Masson-

Franzil, 2005). The concept has often been mentioned as a synonym of other

Page 106: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 83 of 384

and older notions, such as subcontracting, although they refer to other situations.

We can mention here the influence of Barreyre‘s portent works (1968) on

‗subcontracting‘. He defines it as ‗the action through which an economic agent

entrusts another economic agent with the production of a good destined to be

part of the combination of the final product of the subcontracting agent in

question‘. In the 1970s, subcontracting practices were rather restricted to the

production of goods. However, in the 1990s, their range of application came to

encompass such functions of the company as supportive or administrative ones

which had been unheard of in terms of outsourcing (Parrotin & Loubère, 2001).

The decision of outsourcing has thus become a strategic action showing that

firms aim at refocusing on their core activities or at looking for skills they do not

have outside the company.

The increasing number of research works on outsourcing has led to some kind of

stabilization of the concept today. Barthélemy (2001, p. 7-8), in his research work

on outsourcing strategies, clearly distinguishes outsourcing from subcontracting,

downsizing and reengineering by defining it as ―the fact to entrust a supplier or

an external provider with an activity and its management rather to carry it out in-

house‖. According to the author, three crucial elements characterize outsourcing:

1) The activity used to be carried out by the outsourcer, 2) The outsourced

activity usually goes together with an assets transfer, 3) The relationship

between the outsourcer and the provider usually runs on the middle or long term.

As for logistics outsourcing several synonyms are often used: ―outsourcing‖,

―third partylogistics‖ or ―contract logistics‖ (Larson & Kulchitsky, 1999). Reviewing

the definitions pointing at this concept (e.g., Langley, Dobrey, & Newton, 1997;

Page 107: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 84 of 384

Lieb, 1992; Lieb, Millen & Van Wassenhove, 1993; Lieb & Randall, 1996; Murphy

& Poist, 1998; Tage, 2000; Virum, 1993) allowed us to define logistics

outsourcing as the fact of entrusting all or part of the logistic chain, whose

activities were previously performed in-house, to an external supplier on the long

run, with a potential transfer of resources and with an objective of performance.

This definition, including a strategic dimension thus makes outsourcing different

from the concepts of subcontracting, contracting out and so on which are often

considered close or equivalent to it. According to Tage (2000: 113), it

―presupposes that several characteristics are fulfilled before the relationship

between buyer and seller‖ such as ―a certain duration, joint efforts to develop

further cooperation, a customerization of the solution, together with a fair sharing

of benefits and risks‖.

Beyond some conceptual and semantic differences of opinion, it seems more

interesting to note that these practices are in keeping within the paradigm of

intercorporate relationships incurred by the restructuring of economic activities.

Faced with the pressure of uncertainty and their environment, firms have

transformed and new structures combining flexibility and dynamism have sprung

up. Outsourcing practices have thus emerged as hybrid cooperation forms

situated along a continuum between the market and the hierarchy.

Page 108: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 85 of 384

CHAPTER 6

PROFITABILITY FACTS

A Study of the Dairy Industry in India

Impact on profitability

Page 109: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 86 of 384

CHAPTER 6

PPROFITABILITY FACTS

Determinants of Small‐Scale Farmer inclusion in Emerging

Modern Agrifood Markets:

6.1 A Study of the Dairy Industry in India

Summery

In response to structural transformations taking place in the Indian dairy sector

mainly inprocessing segment this article examines determinants of market

channel choices of milk producers based on a survey of 390 farm

households in 2007. It also attempts to investigatewhat impacts these market

channel choices may have on farmers‟ income and technologyadoption. A

two‐stage multinomial logistic model is employed to investigate determinants

andeffects of market channel choices of milk producers. While modern marketing

channels haveemerged in the Indian dairy sector, the traditional sector is still

dominant. Farmers sell nearly85 per cent of milk to traditional channels. The

share of the modern organized sector isgrowing but at a slow pace. The

dominance of the traditional channel is an indication of avery competitive and

cost‐effective traditional market in linking producers and consumers. Itis possible

that high transaction costs also act as a barrier. However, issues of hygiene

andquality of milk being sold through traditional channels require attention.

Results indicatethat small dairy farmers and the poor are mostly excluded from

modern private sectorchannels. Household‟s socio‐economic variables (farm

Page 110: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 87 of 384

size, age and education) areimportant determinants of marketing channel choice

in the case of the modern privatesector. Large farmers have better opportunity to

participate in modern private channels.

Market infrastructure such as road, provision of veterinary services, distance

from milkcollection centre, markets, milk collection centers, price risks, etc. have

significant effect onfarmers‟ marketing choices. thateducation, membership of

producers‟ association/cooperatives, provision of veterinaryservices, and farm

size have significant impact on cooperative marketing channel farmers‟income

while in the case of modern private sector, education and price risk have

significantimpact on income.

In 1991, the government of India liberalized its markets leading to fundamental

changes inthe agri‐food sector. The structural adjustment and stabilization

programmes substantiallyreduced controls and state interventions in the

agricultural sector and encouraged andfacilitated foreign direct investment (FDI).

This resulted in new investments in some sectorsof the Indian agri‐food system,

particularly in food processing and retail distribution. Sincethen, rapid changes

have taken place in the structure and governance of agri‐food markets,including

consolidation, institutional, organizational, and technological transformation,

andmultinationalization. These changes are occurring very rapidly in many

developing countriesand are bringing rapid changes in the organizational,

institutional and technologicalpractices all the way ―upstream‖.Some agribusiness

and food processing companies, often as part of their own restructuring,have

introduced modern procurement systems like contract relationship with farmers

toprovide basic inputs in return for guaranteed and quality supplies and

Page 111: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 88 of 384

distribution strategiesthat have impacted institutional, organizational and

technological aspects of the agri‐foodsupply chain. The modern supply chains

provide both new opportunities (price and volumestability) and new challenges

(quality and food safety standards, continuous supply). Socioeconomicfactors

(income, population, tastes, and preferences) on the demand side andsupply

side factors such as trade liberalization, privatization, and modernization of

agroprocessingand retailing sectors are major drivers of changes.There have

been growing concerns on the likely impacts of these changes on

smallholderproducers in developing countries. Modern retail chains, particular

supermarkets, havebeen emerging in many developing countries since the early

90s (Reardon, et. al., 2005;Balsevich, et. al., 2006). Changes have also occurred

in food processing, wholesaling, andprocurements (Reardon and Timmer, 2007).

Previous studies show that increase insupermarkets could have serious

distributional impacts in the downstream of the marketchain. Studies in Latin

America, Central and Eastern Europe, Mexico, Brazil, and Kenyasuggest that

mainly large and wealthy farmers benefit from the rise of demand for

highvalueagriculture and emergence of supermarkets (Reardon and Timmer,

2007; Berdegué, et.al., 2005; Schwentesius, et. al., 2002, Dries and Swinnen,

2004, Hu, et. al., 2004 ). Because ofthe high transaction costs involved with

dealing with millions of small farmers anddifficulties in ensuring quality and food

safety, supermarkets prefer to deal with large andbetter‐off farmers. As a

consequence, there could be possible adverse consequences forsmall, poor

farmers (Reardon and Timmer, 2007).Very few studies have been done in India

on the impact of supermarkets and marketingchains on production and marketing

Page 112: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 89 of 384

at farm level. Some recent studies have providedanecdotal evidence of

smallholder producer participation in modern market channels (Joshi,et. al.,

2007, Sharma, 2007; Birthal, et. al., 2007). However, these studies are in scope

ongeographical coverage, commodities, and market channels. Some household

survey basedstudies in other developing countries provide mixed evidence.

Some studies have shownthat modernization has benefited largely large farmers

and excluded smallholder producers.On the other hand others indicate that

modernization indeed can have a positive impact onsmallholder producers.

This article contributes to the literature on farm‐level impact of changing market

structuresin the dairy sector in India. This objective is: what has been response

of smallholderproducers and processors to changing modern dairy supply chains

in India? morespecifically:

What are determinants of smallholder dairy farmer participation in modern

supply chains? Key hypotheses to be tested include: small and poor

producersare often excluded from modern market channels; market

infrastructure,incentives, and risks have significant impact on farmers‘

marketing decisions andchoices; and institutional factors such as farmers‘

associations facilitateparticipation in modern marketing chains.

What is the impact of participation on farmers‘ income, production,

technology choices, etc.? Major hypotheses to be tested include: there are

significant impacts of farmers‘ marketing choices on their income, scale of

operation/herd size, and technology adoption. The results presented in

this articler are based primarily on interviews with key personnel in the

organized private, public, and cooperative and unorganized milk

Page 113: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 90 of 384

processing and marketing sector and data from a survey of 390 dairy

producers. The dairy sector in India provides an interesting picture for

different reasons. First, India is the largest producer of milk, contributing

about 15 per cent of world milk production (MoA, 2006). However, the

organized dairy industry accounts for less than 15 per cent of the milk

produced and less than 1 per cent in global trade for dairy products.

Second, the per capita supply of milk in India is low compared with world

average and nutritional requirement, creating opportunity as well as need

to strengthen the dairy sector from nutritional point of view. Third, given

the low level of processing, several players are making forays into the

dairy market. New players include global majors such as Danone,

LandoLakes, and Kraft Foods. Among the existing players, besides

Nestle, Coca‐Cola, Pepsico, Reliance Retail, Bharti, etc. intend to enter

into the liquid milk market, while the cooperatives‐GCMMF (Amul) and

NDDB (Mother Dairy)‐are looking at the possibilities of entering global

markets to improve profit margins. Furthermore, the combination of lower

milk supplies in neighboring markets in South and South East Asia and

the Middle‐East and the implementation of regional and free trade

agreements also provide growth opportunities for the Indian dairy sector.

Changing Structure of Indian Dairy Sector

Before 1991, dairy processing was controlled by the government through

licensing and wasmainly reserved for cooperatives. About 117,575 dairy

cooperative village societies,involving about 12.4 million farmer members (out of

Page 114: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 91 of 384

which 3.2 million are women), hadbeen organized by March 2006 to supply milk

to processing firms. Beginning 1991, as part ofdomestic economic reforms and

commitments to WTO, the dairy sector was liberalized in aphased manner. On

the supply side, the sector was deregulated and trade was

increasinglyliberalized. Following decontrol, many private players entered the

market and set up milkprocessingfacilities, mostly in milk surplus areas. Some of

the private sector plants alsoadopted the cooperative model by creating informal

contracts with local farmers andproviding inputs and services to farmers.

However, in 1992 because of pressure from theindustry, some restrictions were

brought back under the Milk and Milk Products Order(MMPO 1992). Another

major development was the removal of restrictions on import andexport of dairy

products in mid 90s.These changes have had major impacts on the structure of

milk production and upstreamsegments of the dairy value chain. The number of

private milk processing plants increasedfrom 250 in 1996 to 403 in 2002 (about

10 per cent increase per year), while that ofcooperative milk processing plants

increased from 194 to 212 (nearly 1.5 per cent increaseper year).

In contrast, the number of plants under government milk schemes,

governmentowned,and mother dairies) declined from 65 in 1996 to 63 in 2002

(Sharma and Singh, 2007,MoA, 2006). The installed capacity in the private

sector has increased from 24.4 millionlitres per day in 1996 to 32.4 million litres

per day in 2002 (about 5.4 per cent increase peryear). In the cooperative sector,

installed capacity increased from 24.2 million litres to 28.3million litres per day

during the same period (2.9 per cent increase per year). However,cooperatives

witnessed an increase in average installed capacity per plant from 125 000litres

Page 115: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 92 of 384

per day in 1996 to 134 000 litres in 2002. Average installed capacity of

governmentownedplants and mother dairies increased from 112 000 litres per

day to 193 000 litres perday between 1996 and 2002. In private sector plants, a

marginal decline in average capacityper plant (from 98 000 litres to 80 000 litres

per day) was witnessed. The possible reason forincrease in installed capacity in

cooperatives and government plants could be their longpresence in the sector

and strong backward linkages with milk producers to have consistentsupplies of

raw milk. In case of the private sector, most of these players are new entrantsand

are not willing to make big investments at first go owing to lack of assured supply

of rawmilk.Bowing to pressures from different quarters, the government amended

MMPO in March2002 and removed all restrictions on setting up new milk

processing capacity. In addition, itallowed foreign direct investment (FDI) in the

dairy sector in the early 2000s. The new policyfully exposed the Indian dairy

sector to market forces. The milk processing and marketingsector witnessed

significant expansion and new investments in the 2000s. The number ofmilk

processing plants in the private sector increased from 403 in 2002 to 493 in 2006

(5.6per cent increase per year), while the number of cooperative milk processing

plantsincreased from 212 to 246 (nearly 4 per cent increase per year) during the

same period. Incontrast the number of plants under the other category

(government milk schemes,government owned plants and mother dairies)

declined from 63 in 2002 to 50 in 2006.Installed capacity in the private sector

increased from 32.4 million litres per day in 2002 to46.1 million litres per day in

2006 (about 7 per cent increase per year). In the cooperativesector, installed

Page 116: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 93 of 384

capacity increased from 28.3 million litres to 36.6 million litres per dayduring the

same period (4.8 per cent increase per year).

At the national level, the number ofdairy processing plants increased from 678 in

2002 to 789 in 2006 and installed capacityincreased from about 73 million litres

per day to 98 million litres per day in 2006.Recently, many national and global

players have evinced interest to enter the sector and areexpected to make huge

investments. Reliance plans to procure milk directly through itscollection centre

networks mostly in Punjab (high potential state) and is likely to expandoperations

to Rajasthan and Andhra Pradesh. Existing players such as Amul, Nestle,

andMother Dairy are also planning capacity expansions. However, the question

which isbothering policy makers and other stakeholders is: Will the entry of

corporates guaranteebalance between market forces and societal concerns in

rural India? There is also a fear thatforeign and domestic retail biggies and

modern supply chains will push a large section offarmers, in particular

smallholder producers out of the market as they mostly fail to meetthe quality

threshold requirements. Transaction costs are also high in coordinating

suppliesfrom a large number of small producers. Small farms are also

constrained financially formaking investments in infrastructure and post‐harvest

activities. Currently the organizedsector accounts for about 30 per cent of total

milk marketed, making the sector much moreattractive to new entrants. With the

entry of new players, the share of the organized sectoris expected to almost

double in the next one and a half decades (Sharma and Singh, 2007).Given this

scenario, the timing for entry of retail biggies and other dairy companies and

theirimpact particularly on smallholder producers, who form the backbone of the

Page 117: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 94 of 384

sector, isworth studying.It is evident from the results of meso‐report (Sharma and

Singh, 2007) that restructuring ofindividual dairy industry segments, mainly in

production, procurement and processing, isoccurring in simultaneous and

interdependent ways, albeit at different rates and in differentways across states.

The study identified challenges facing primary producers and theireconomic

organizations in negotiating market access conditioned by liberalization and

modernization include technological, organizational and financial demands

placed on smallscalefarmers. The study pointed out that it is important to analyze

changes in procurementpatterns for milk as a result of the recent policy changes

and also know whether large scaleproducers have cost advantages and higher

efficiency that will lead to the displacement ofsmallholders under a liberalized

market. In order to investigate some of these issues microlevelstudy was

undertaken in four states, namely, Punjab, Haryana, Uttar Pradesh andGujarat,

which have strong presence of modern (coops and private) as well as

traditionalsector are major restructuring in agrifood markets is taking place in

these states.

Using a sample of milk producing households, a market participation model is

estimated toexplain why some households engage in a particular marketing

channel while others do not. If we also focus on identifying factors that

significantly increase the level of participation inmodern supply chains by

households.To study the impact of changing market structure on market channel

choice, scales ofoperations in milk production, livelihoods, and welfare of rural

households, one needs asample containing a sufficient number of households

representing various scales of operations geographical regions, and market

Page 118: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 95 of 384

channels. In selected 390 households in nine districts of four leading milk

producing states, namelyGujarat, Haryana, Punjab, and Uttar Pradesh having

well developed infrastructure and a mixof milk marketing channels.

Milk Marketing Channels

In India, all forms of marketing channels exist in the dairy sector. These include

modern/organized (cooperatives and private dairy plants) and

traditional/unorganizedsectors comprising marketing of liquid milk and traditional

products such as locallymanufactured ghee (butter oil), paneer (cottage cheese),

and indigenous products likesweets. In 2004‐5 out about 40 million tonnes of milk

(48 per cent of total production) wasretained in the villages itself and 44 million

tonnes were (52 per cent) sold in urban areas.Out of 44 million tonnes of

marketed surplus, the share of the organized sector(cooperatives and private

sector) is small (30 per cent). A large portion (about 70 per cent)of milk continues

to be marketed through traditional channel(s).Depending on the involvement of

market intermediaries in marketing of milk from producerto consumer, major

marketing channels. Thepredominant traditional marketing channel is from

producer to milk vendor/trader toconsumer. However, some farmers also sell milk

directly to consumers in the village itself ornearby villages. Milk marketing

cooperatives, is another marketing outlet available tomember‐producers.

Cooperatives are owned by members ‐ milk producers, who participatein the

cooperatives with the principle of ―one member, one vote‖, independent of the

levelof their investment, ownership of shares, and volume of milk supplied.

Cooperativestransfer their entire income to farmers, after taking out operating

expenses. Farmers aregiven a minimum procurement price for milk on a butter

Page 119: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 96 of 384

fat and solid‐not fat (SNF) basis. Inthe case of traditional channels, milk vendors

pay for milk mostly on a butter fat basis (inmany cases a flat rate irrespective of

fat content) with little or no consideration for thenonfat solids content. The

organized private sector also procures milk directly from farmers.The share of the

private organized sector is small but is increasing owing to the liberalizationof the

dairy sector.However, downstream restructuring has not penetrated into farm

procurement. Farmers‘milk marketing channels in the study area are still

dominated by the unorganized sector.Nearly two‐thirds of milk is marketed

through traditional supply channels, while modernchannels, which include

cooperatives and private companies, account for about 36 per cent(Figure 3).

The share of the cooperative sector has increased marginally from 22.2 per

centto 22.6 per cent between 2002 and 2006, while the share of the organized

private sector hasincreased marginally from 14.4 per cent to 14.7 per cent. As

the traditional sector handlesthe largest share of unprocessed milk marketed in

India, the entities that process and sellfluid milk to consumers in each

region/state varies. For example, most of the milk producedin the northern region

flows from dairy farms to traditional channels, while in the westernregion dairy

cooperatives procure and process most of the milk and distribute to

consumersthrough retail outlets. The share of cooperatives in the selected states

varies from less than5 per cent in Haryana and Uttar Pradesh to as high as 72

per cent in Gujarat; the share ofthe traditional sector varies from nearly 10 per

cent in Gujarat to over 90 per cent in UttarPradesh and that of the organized

private sector is highest in Punjab and lowest in Gujarat.The results of the micro

Page 120: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 97 of 384

household study on milk marketing channels support the findings ofthe

meso‐level analysis (Sharma and Singh, 2007).

In the traditional sector, milk vendors/traders handle the largest volume, implying

that smallmilk traders are more effective in procuring and marketing milk from

smallholder dairyproducers. However, despite health risks associated with

consumption of unhygienicunprocessed milk and dairy products marketed

through traditional channels, the traditionalsector is still predominant. The

number of intermediaries has a bearing on both producerand consumer milk

prices. It is expected that shorter the channel more likely consumerprices will be

lower and the producer will get a higher return. However, milk producers maynot

necessarily benefit from a short marketing chain, modern channels may be

paying thefarmer almost the same price as traditional channels. However,

farmers sometimes preferselling milk to milk vendors because factors such as

prompt payments (sometimes inadvance) and inaccessibility to formal market

outlets such as producer cooperatives ororganized private milk processing units.

The biggest disadvantage of traditionalchannels/milk vendors is lack of quality

control and frequent adulteration of milk with waterand other chemicals.

There is growing consumer awareness of food safety and quality issues.

Demand for milkand dairy products is increasing in the country due to rising per

capita income, changingdietary patterns and lifestyle, and demographic changes.

This explains why, following theliberalization of the dairy industry, the share of

modern channels (cooperatives and private)has been on the increase.

Page 121: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 98 of 384

Channel Participation and Growth for Smallholder Producers

In order to analyze the effects of participation in modern dairy channels on the

growth of Small holder farmers, it was analyze changes in herd size and breed

upgradation over theperiod 2002‐06. As indicated earlier, this is the period during

which all restrictions on entryof the private sector in milk processing including

milk shed area concept were abolished. Weinclude two size dimensions ‐ number

of dairy animals and milk output volume ‐ and on upgrading dimension ‐ share of

improved breeds and milk yield.The statistics of growth indicators and

upgradation over the period 2002‐2006. In both channels there is a shift towards

larger herds with a higher percentage of more productive crossbred cows. The

average herd size is highest (11.2 animals) in modern

private channel farms, followed by traditional channel farms (7.2 animals) and

cooperatives(6.4 animals). The share of improved crossbred cows has increased

in all channel farms but increase is highest in the case of cooperative channel

farmers. Average productivity peranimal has increased by about 5 per cent in all

three types of farms, while in the case of buffaloes yield increase is higher in

modern private and traditional channel farms. Increasei n productivity is higher in

the case of cows compared to buffaloes. This implies that farmers have started

replacing low‐producing traditional breeds with high‐yielding cross bred animals

because of availability of the breeding services.

Milk output volume has increased in all farm types; it increased more in

traditional channel farms, followed by organized private channel farms and

cooperatives. Although average marketed surplus has increased for all farmer

types, it increased more for dairy farmers in the cooperative channel, followed by

Page 122: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 99 of 384

traditional and modern private channels. Cow milk price has increased by 28.7

per cent in the case of traditional channel farmers while buffalo milk price has

increased by about 12 per cent. There has been a moderate increase in milk

prices but is higher in the case of the private sector than cooperatives.

Factors affecting Market Channel Choice

Milk producers use different market channels for their output. They sell to

traditional channels such as milk vendors/traders, sweetshops, directly to

consumers, village dairy cooperative society milk collection centres, and milk

collection centres of organized private sector dairy plants. The largest share of

milk is sold to traditional channels comprising mainly milk vendors, while sale to

modern chains (cooperatives and private) is low but increasing. Farmers may

use more than one market outlet but in different degrees and perhaps for

different purposes.

Market access is not uniform across different categories of households because

of different transaction costs (distance to roads, markets, towns, transport

facilities, etc.) to market participation, risks associated with prices and contract

arrangements, human capital (age, education, gender, extension, training),

physical capital (number of dairy animals, farm size, farm assets), and financial

capital (income from crop and off‐farm income). Geographical markets may

likewise be differently integrated into the local/national/global economy because

of spatial difference in costs of commerce, in the degree of competition among

market channels or both. In general the farmer first decides to participate in the

market when it is profitable to do so, and then decides on how much to sell and

Page 123: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 100 of 384

to which channel. The above factors affect profitability by affecting marketing

costs.

Transaction Costs

In general, we expect that farmers with lower transaction costs are more likely to

participate in modern channels and sell higher quantities. Thus we expect

farmers having easy access to milk collection centres, living near roads, markets,

towns, and having better transportation facilities to participate in modern markets.

Smallholder producers face high transaction costs, and this reduces the

opportunity of participation in modern markets. Given the transaction costs

encountered when using the input and output markets, a solution for the

individual farmers would be to cooperate with other farmers for various farm

activities. Indeed the advantage of organizing farmers into groups is widely

acknowledged in the literature. The advantages comprise the reduction of

transaction costs in accessing input and output markets and strengthening of the

negotiation power of the farmers.

Human Capital We expect age to be negatively associated with modern market participation, as

older households tend to have more subsistence production activities and are

risk averse. Education and extension are expected to have a positive impact on

market participation since both enhance the skills and ability to meet food safety

and quality requirements of modern channels and better utilize market

information, which may reduce marketing costs and make it more profitable to

participate in modern market channels.

Page 124: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 101 of 384

Physical Capital

We hypothesize that larger the farm, greater the probability that the grower will

opt for the modern channel. Physical assets such as land, herd size, and farm

assets may have an indirect positive impact by enabling farmers to overcome

credit constraints, where land can be used as collateral for getting institutional

credit for adopting improved technologies that increase productivity and

profitability.

Financial Capital

Financial capital is expected to have mixed impacts. For example credit for dairy

activities is expected to have positive impact, while that given for crop farming

and other activities mayraise the opportunity cost of dairy production, hence

reducing participation in modern markets. Other assets that we hypothesize to be

important in participating in modern market channels include sources of off‐farm

income to serve as risk management mechanism to balance the initial risk of

selling to a traditional channel and providing finance for working and investment

capital.

Conclusions

Dairy Market Restructurings

While modern marketing channels have emerged in the Indian dairy sector, the

traditional sector is still dominant. Farmers sell nearly 85 per cent of milk to

traditional channels. The share of the modern organized sector is growing but at

a slow pace.

Consistent with the findings of the local meso study, the rapid restructurings of

down stream dairy processing and to some extent wholesale and retail markets

Page 125: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 102 of 384

have not penetrated into farm procurement. Overall, milk sold directly to modern

channel accounts for less nearly 15per cent of the marketed surplus. The

dominance of the traditional channel is an indication of a very competitive and

cost‐effective traditional market in linking producers and consumers. It is possible

that high transaction costs also act as a barrier. However, issues of hygiene and

quality of milk being sold through traditional channels require attention.

It was found that there was no significant difference between modern dairy

channels and traditional dairy channels in terms of herd size, milk output volume,

and price as well as in terms of upgradation with respect to improved breeds and

productivity. However, it was found that relative growth in terms of output volume

outstripped relative growth in upgradation .This indicates that farmers have been

able to make efficient and effective use of new technologies and management

practices as well as scaling up herd size.

Determinants of Farmers’ Marketing Choices

Small dairy farmers and the poor are not excluded from cooperatives but are

excluded from modern private sector channels. There is evidence of herd size

affecting the farmer‘s choices of selling their produce to modern channels. In

case of cooperatives, large farmers are opting out and shifting to either the

modern private sector or the traditional sector as they receive price incentives for

large supplies. Large farmers have better opportunity to participate in modern

private sector channels .Age and education are important determinants of

marketing channel choice in the case of the modern private sector. Young and

more educated farmers have better chances of inclusion in the modern private

sector channel. Market infrastructure such as road, provision of veterinary

Page 126: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 103 of 384

services, distance from milk collection centre, markets, milk collection centres,

price risks, etc. are found to have significant effect on farmers‘ marketing

choices.

Impacts of Marketing Restructurings and Marker Channel Choices on

Farmers

The result show that education, membership of producers‘

association/cooperatives, provision of veterinary services, and herd size have

significant impact on cooperative marketing channel farmers‘ income while in the

case of modern private sector education and price risk have significant impact on

income. For traditional market channel farmers, dairy income is significantly

determined by price riskand herd size. Modern market channel farmers have

higher dairy income than traditional channel farmers, which is explained by

higher yields obtained by modern channel farmers but they receive lower prices

than traditional market channel farmers.

6.2. Impact on Profitability

“At war with rising Fuel Cost Pressures” With fuel prices touching all-time

highs, logistics companies are working towards devising solutions & mechanisms

to reduce operations costs & implement innovate methods to streamline available

resources. Banking on technology & efficient use of the available resources,

companies have been able to curb the increasing logistics for the time being.

How companies will manage the evident rising cost pressure in the long run,

however, remains to be seen.

Fuel accounts for 50-60% of the total logistics cost and any increase in fuel

prices tends to directly impact the logistics sector. Amid this, petrol prices have

Page 127: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 104 of 384

been increased steeply by the Centre from May 2012. This price fluctuation has

directly impacted the logistics sectors in its different formats. Commenting on the

impact Abhisek Chakraborty, Executive Director, DTDC Courier & Cargo Ltd,

avers, ―Fuel price definitely has an impact on our business, as we use an

extensive ground transportation network. We also depend on the aviation sector,

for many of our Air Express products, which are also affected by the increase in

fuel prices. Moreover, it results in regional & national trunk route prices going up,

which directly hits our bottomline‖

Though traditional warehousing companies have been hit by this price

fluctuation, some have not been directly affected. Elaborating on the same,

Aditya Bafna, Executive Director, Shree Shubham Logistics Ltd ( SSLL),

highlights, ―Being an agri-logistics company, we are not directly affected by fuel

price hike. Generally, an increase in thecost is passed on by the depositors to the

end consumers. Hence, we are not linked or affected with the increase or

decrease in fuel price, as we do not provide transportation services‖.

Passing the Cost: A Solution ?

Though many companies have increased their prices, many have been working

inwardly to sort our operational issues that were creating huge cost burdens. The

fuel price pressure has resulted in such companies relooking at their operating

cost sheets and working out innovative as well as conventional solutions to tackle

the increasing cost pressure. Chakraborty asserts, ―We make an effort to limit the

impact of such price hike by relooking at our operational footprint and finding

ways to further optimize our resources by reorganizing or restructuring our

operations. However, when fuel hike crosses a certain mark, we are left with no

Page 128: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 105 of 384

choice but to pas on a share of it to the customer. A common practice in Express

Industry is to apply a fuel surcharge that is charged to the customers and varies

with the fuel price increase.‖ At SSLL, various initiatives like controlling cost on

account of transportation by ensuring all the services including weighing, grading,

testing, & certification, packaging & distribution, storage ( dry & cold), disposal

services through electronic platform, export trading & retail opportunities are

completed under one roof, to avoid multiple handling of stocks. In addition, the

company is working with NCDEX, one of the leading commodity exchanges,

where they have launched fungible contracts that is traded both in spot & future

(market simultaneously) & vice, versa, thereby avoiding cost to transportation &

loading & unloading of commodities. SSLL is also creating awareness among

those farmers, who are unaware of the commodity grading & proper standards of

delivery mechanism, and is helping them reduce transit cost by providing all agri-

logistics services under one roof. When it comes to innovation in curbing cost,

DTDC is a step ahead. Chakraborty stated, ―The nature of our business offers no

significant scope for the use of alternate fuels. We have switched over to CNG

for many of their vehicles. CNG not only works out as a relatively cheaper fuel

option, but also helps get better mileage. Moreover, its price tends to fluctuate

less and it is environment friendly.‖ On reducing cost for the last mile, heads, our

ground transportation network is dependent on all traditional modes of

transportation. However, a significant portion of our local deliveries managed by

DTDC‘s channel partners are being done on bicycles. This last-mile delivery

initiative of the channel partner network helps control costs.‖

Page 129: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 106 of 384

Technology: The Cost Saver

With companies working on internal processes and operations, technology has

also been widely used to curb repeat costs. Bafna asserts, SSLL has a

scientifically upgraded cold storage system with updated technology, they use

polynum insulation in all their warehouses, which helps maintain the temperature

and thus protects and preserves the stocks, thereby ensuring its quality. They

have NCDEX accredited warehouses, which provide depositors, like traders,

farmers and agri-retail sellers, the opportunity to sell their produce directly on the

exchange platform, this in turn reduces the cost of transportation and ensures

that they fetch a better price.

At DTDC overall strategy to cope with the fuel price hike has been to reduce the

overall mileage they clock. Technology plays a vital role in implementing it as

their fleet vehicles are now GPS enabled this helps them track & optimize

consumption, routes and curtail wastage, many consumables such as stationery

and office supplies are linked to fuel cost, so they try to optimize their

consumption within the organization. Additionally to further reduce the cost of

shipping most of these items, they have decentralized the purchase process &

switched over to a local purchase & distribution mechanism monitored by their

SAP technology.

All these measures have helped the company bear the price rise, for now. As per

experts structured and systematic methods of management need to be adopted

by logistics companies, Besides reduction of transaction & networking costs will

also help partially bear the burnt. Though increase in the fuel price has prompted

companies to identify the missing links and create internal cost cutting points,

Page 130: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 107 of 384

further increase in fuel cost will start directly affecting the cash registers of

logistics companies. It remains to be seen on which path the Indian logistics

industries is headed on cost graph in the long run with the continuous streak of

fuel price hikes in the backdrop.

Page 131: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 108 of 384

CHAPTER 7

FOOD PROCESSING INDUSTRIES

PROMOTING FOOD PROCESSING INDUSTRIES

Page 132: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 109 of 384

CHAPTER 7

FOOD PROCESSING INDUSTRIES

Processing Industries

Meat, Fish and Poultry have been part of human diet since antiquity. As the

civilization advanced, man understood the importance of meat in human nutrition.

Modern Science has unraveled the mysteries of the biochemistry and the

microbiology of Foods of Animal Origin. The knowledge on meat has slowly

started percolating into the public life. As the people are becoming more Science

Conscious, the religious taboo attaché to meat is slowly dwindling.

India has the largest livestock population among the World countries. The

livestock is playing a key role in the Socio – Economic upliftment of the country.

The potential of Indian meat & poultry Industry can be seen from the phenomenal

growth of livestock over the past three decades. The consumption of meat is on

increase in the domestic market. Revenues from the export of meat, poultry and

by products have substantially increased in recent years. Further, globalization of

Indian business created ample opportunities and potentialities for the export of

meat and poultry products. Government of India has recognized meat, fish and

poultry as one of the important sectors in the food industry.

Consumer's outlook is changing towards quality meat and meat products. The

challenges before the Indian meat and poultry Industry are disease control in

livestock, improvements in hygienic status of meat, effective recovery and

effective utilization of by products and value addition to meat. To achieve these

targets, knowledge base human resource is imminent and assumes greater

Page 133: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 110 of 384

significance during production, processingpreservation and distribution of animal

foods. There is a dire need for exposing the personnel engaged in the meat and

poultry industry to the modern meat processing concept and methods available in

the R & D Institutions in India.

Meat Fish & Poultry Technology

Livestock is an important segment in the Indian agriculture from the point of its

contribution to the Gross National Product (GNP) as well as the employment

potential in rural areas. Livestock sector contributes at current prices Rs.1,

30,233 cores (milk group Rs 90,538 crores and meat group Rs 20,856 crores) as

output to total agriculture (1999- 2000). A survey in rural India by National

Sample Survey Organization (NSSO) of the Government of India highlighted that

livestock activities were preferred by over 90 % of small cultivator and wage-

earning farmhand (non-cultivator) households, as a source of supplementary

income. Animal husbandry farming systems can contribute significantly in the

rural upliftment through providing (1) higher and more stable income, (2) more

opportunities for gainful employment and (3) food products. People are becoming

more aware of the nutritional value of livestock products (milk, meat, poultry and

eggs). Organization and development of livestock sector in rural land would meet

the local needs, urban requirements and export demand. Thus, livestock sector

will boost up the socio-economic status of the country.

The Government of India has recognized meat, fish and poultry sector as one of

the important food industries. New economic policies created ample enterprise

opportunities for business community and challenges for the researchers in

Page 134: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 111 of 384

meat,fish and poultry sector in India in recent years. Certain multinational

companies of repute areactively engaged in meat and poultry business in India

and they are channelizing their marketing outlets to international markets. The

scope o for small and medium entrepreneurs is equally good to cater to the

needs of people in domestic market. New industrial policy has depended the

windows to the international trade house to enter into Indian market. To meet the

above challenges, meat, fish and poultry sector need to be strengthened in rural

areas with a view to reach the benefits of the industry to the rural poor and

weaker sections.

Improved methods of production, processing, packaging and preservation,

HACCP (Hazard Analysis and Critical Control Points) concept, GMP (Good

Manufacturing Practices), Chilling, Freezing, IQF (Individual Quick Freezing),

Irradiation, Modern processing techniques, Emulsion technology, High pressure

technology, Fermentation, Hurdle technology and MAP (Modified Atmospheric

Packaging) are gaining importance in improving quality, safety and value addition

to meat, fish and poultry.

Production of meat and poultry

India has the largest livestock population in world. Goat, sheep, poultry, pigs,

cattle, buffaloes and poultry are the major meat animals. India possesses 3600

registered traditional slaughter houses, 20 modern abattoirs, 220 meat

processing plants under MFPO and 7 pork processing units.Goat, sheep, poultry

and pigs are mainly slaughtered for domestic consumption. Meat from cattle and

buffaloes is mainly for export. Slaughter takes place in licensed slaughterhouses

Page 135: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 112 of 384

and clandestine slaughter is also prevalent. Estimate put the red meat production

in India at 4.3 million MT .The increase in meat productionover the past 16 years

is around 45 %. Cattle and buffaloes, though not reared for meat production, are

brought for slaughter after the completion of their much or, draught period. With

partial ban on cow slaughter, buffaloes are emerging as prospective meat

animals and they occupy a place of prominence in meat production. The per

capita availability of red meat is 4.0 kg per person per year and is very low as

compared to developed countries.Subsidized programs and incentives given by

government in recent years for development of sheep, goat and buffalo, are the

indications of emerging organized meat production on a sound footing. Rabbit,

quails, turkeys and ostrich are emerging as important sources of meat. New

business scenario in India has tremendous impact on Indian meat industry. It is

estimated that meat production will be 7.0 million tons by 2010 AD and 10.0

million tons by 2015 AD as against the demand of 13.0 million tons by 2010 AD

and 16.0 million tons by 2015 AD. This emphasizes the need to augment the

production of meat through increased rearing of animals. The buffalo meat has

demand in the export market too.

Poultry industry is well organized in India. There has been a phenomenal

increase in poultry production in the past three decade India is the fifth largest

egg producer in the world The annual egg production is 44 billion and poultry

meat production is 1.59 million tones. The annual growth rate of production of

eggs and poultry meat is 4.8 % and 10.0 % respectively. India ranks 5 in egg

production and 15 in poultry meat production in the world. Eggs and poultry meat

are the well- accepted sources of animal protein. Almost 75 % of eggs and

Page 136: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 113 of 384

chicken meat are consumed in urban and semi-urban areas. Bulk of the

commercial poultry farms is located in cities,urban and semi-urbanareas. The

national per capita availability of eggs is 35 and in urban areas and it is as high

90 - 100 in metro cities, while in rural areas it is barely 10 - 12. Poultry meat is

high in protein, low in fat, low in cholesterol and provides vitamins and trace

elements. Per capita availability of poultry meat is 521g.

Modernization of abattoirs and meat processing plants:

The quality of meat produced in the existing slaughterhouses is far from

satisfactory, unhygienic and carries high levels of microbial contamination.

Though Indian way of cooking kills many of the micro organisms in meat, cross-

contamination of the products eventual‖ occurs under the prevailing conditions of

meat handling. Recovery of by-products is poor in the existing slaughterhouses.

Enormous quantities of by-products are wasted. It is therefore necessary to

improve the conditions in the slaughterhouses or to establish small sized or

medium sized modern or semi-modern abattoirs in metro cities, urban, semi-

urban and rural areas and also bring improvements in meat handling practices,

recovery and effective utilization of by-products and waste treatments for

pollution control.

Processed and convenience products these are the prepared products (ready-to

cook, ready-to-eat and ready-to-serve) or the products that may require less time

for preparation. They provide convenience to the consumers. It is an exciting

area for enterprise. A quantum of 30,000 MT of processed meat products valuing

around Rs. 50 crores is produced annually in the country. The trend for

Page 137: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 114 of 384

consumption of processed meat products is increasing in domestic market.

Export of processed meat products is also increasing. New export policies

contemplated would boost up the export of processedmeat products to various

countries. The processed products include sausages, ham, bacon and canned

products. Traditional products such as tandoori chicken, kabab, tikka, meat fry,

meat curry, kheema, biryani, meatballs, korma and pickles are consumed in large

quantities in the country. These products will find a place in export market for

ethnic groups. Consumers‘ outlook has changed in traditional meat preparations.

They need these products in convenient form. Thus kitchen products are being

transformed into market oriented convenient product in the years to come.

Recently fast food restaurants are mushrooming in urban and metro cities in

India.

Indian processed and traditional products are becoming popular in the fast food ‗-

―restaurants. Nirula‘s Pizza King and Whimy in New Delhi, Pizza Hut, Open

House, Hasty Tastes, Snowman, Sterlings and MacFast Foods in Mumbai,

Quabila and Touch in Hyderabad and Venky‘s Fast Foods, Pune are of the

popular mega fast food restaurants. The changing scenario in public like more

women going for work, wife and husband working, changes in life styles, desire

of younger generation for new tastes, small families, single person living alone,

migration of people from rural to urban and metro cities and the need of travelers

have increased the demand for processed and convenient meat and poultry

products. Further multinationals like McDonalds and Pepsi are coming in a big

way to establish fast food restaurants to market meat product

Page 138: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 115 of 384

The demand for the processed products is around 5 lakh MT in domestic market.

Export market is also bright for processed meat products. The outlets for

domestic market are fast food restaurants, cafeterias, hotels, airline, star hotels

and railways. Cost is the main constraint for popularization of processed and

convenience products. This can be solved by using cheaper meats, tough meat,

trimmings, vegetables and cereals for product development. Diversification to

frozen meat products (ready-to cook, ready-to-serve and marinated) is a new

facet and these products are easily accepted in export market. Some of the

processes and technologies developed at CFTRI would benefit entrepreneurs

and consumers and improve the meat business in India. There is a good

potential for processed meat products in the years to come.

Export of meat and meat products: Meat and meat products worth of around

Rs.1318.48 crores was exported during 2001-02 from India (Table 6). Frozen

buffalo meat is a major export item. The major importing countries are Malaysia,

UAE, Oman, Kuwait, YAR, Saudi and Bahrain. The country has exported animal

casings valuing Rs. 9.63 crores during 2001-02 to Netherlands, Spain, Japan,

Portugal and Germany. Bone based products worth of Rs. 50 crores and skins,

hides and leather worth of more than Rs. 10,000 crores are exported annually.

Acceding to Ministry of Commerce, the potential for export of buffalo meat will be

of the order of Rs. 10,000 crores. Construction of export oriented modern

abattoirs with quality assurance systems is essential for production of hygienic

meat to meet international specifications.

Meat packaging: Most of the meat sold in India is in unpacked form. Meat is

packed only in some organized meat factories, in Bacon factories and in export

Page 139: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 116 of 384

houses. There is an urgent need to bring awareness among met seller and

butchery community on the importance of packaging. Consumer forums should

insist on the sale of packed meat. Meat packaging plays a vital role ‗in marketing

and preservation of meat and meat products. The main purpose of packaging is

to protect the meat products from microbial contamination, light, oxygen and any

physical damage. A good packaging makes the products more appealing to the

consumer and provides longer shelf life to the product Simple packaging systems

(such as LDPE or shrink package) might be quite useful for domestic market.

Modern packaging systems like vacuum packaging, modified atmosphere

packaging (MAP) will boost up the export market.

By-products and wastes: Effective recovery and utilization of by-products is the

lifeline of the industry. This would not only reduce the cost of production and give

better economic returns to the producers but also reduce the problems of

pollution and health hazards. This is only possible if the infrastructural facilities

are improved in the existing abattoirs and scientific techniques are followed. By-

products constitute to an extent of 45 - 55 % of animal slaughter. Around 3.0

million tons of raw by-products annually fetch revenues more than Rs. 800

crores. The by-products are blood, head, legs, hide and skins, intestines,

stomachs, horn and hoof, glands lungs, liver, heart, oesophagus , tongue,

trachea, kidneys, testes, ovaries etc. Conditions in abattoirs are unsatisfactory.

Poultry slaughter also generates enormous quantity of by-products. By-products

are not fully utilized. It is estimated that there is a loss of 15 - 20 % due to non-

utilization and under-utilization of various valuable by-products. If scientific

methods of processing are advocated in abattoirs, better quality of skins and

Page 140: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 117 of 384

hides would be available to the leather industry. There are many by-products that

have medicinal values.

Each abattoir may not be able to afford its own processing unit. Therefore, by-

product collection from a number of abattoirs becomes necessary in order to

obtain economic quantities of inputs adequate to feed a processing plant.

Further, by-products are often wasted in rural areas due to lack of collection

facilities and ignorance of meat handlers on the value of by-products. It is

therefore necessary to establish rural and urban regional centre‘s for processing

of by-products. Conversion of by-products into value-added products is an

exciting area for fetching better economic returns. A few examples of value-

added products are leather goods, gelatin, casings, neat foot oil, catgut,

hemoglobin, insulin, hormones, enzymes, vitamins, collagen sheets, bone meal,

bone ash, blood meal, brushes etc. The wastes can be conserved by

inexpensive techniques such as ensilage and incorporated into animal feeds.

Modern biotechnological approaches would go a long way to convert by-products

and wastes into high value products.

Marketing :-There is no well integrated marketing system for meat and meat

products in India. The main reasons are monopoly of meat trade, lack of

coordination between production of meat and demand, too many middlemen in

the trade and inefficient management of slaughterhouses by municipalities.

Establishment of meat corporations would improve the marketing system so that

the consumers would get the quality meat and meat products at reasonable

prices. The improvements should centre around (1) organization of selling live

animals, (2) primary, secondary and tertiary processing, (3) transport, (4) storage

Page 141: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 118 of 384

and (5) retail sale. Human resource development: Meat industry is emerging as

one of the important food processing industries in India. Consumers are

becoming conscious of quality of meat and meat products, the right type of

manpower are vital for production of wholesome and safe meat and meat

products. It is imperative to develop appropriate manpower for handling

operations (butchers, operators, processors, supervisors and managers). The

personnel, viz., need to be exposed to scientific techniques and modern meat

processing methods to boost up the quality of meat and meat products. The

levels of training are to be designed depending on the needs of the industry.

Training facilities are available at CFTRI, Mysore, IVRI, Izatnagar and Veterinary

colleges.

Machinery and equipment : The machinery play vital role in the production of

hygienic meat. These machinery include equipment, instruments and tools. The

equipment for small sized units is at minimal. There is a need for organized

machinery set up for capacities of 100 large animals and 1000 sheep / goats per

shift per day. There is a great deal of mechanization in slaughterhouses

worldwide. The auxiliary machinery e.g. power hoist conveyor system, effluent

treatment plant, pump, chilling, blast freezer, frozen storage are indigenously

available. A few machinery e.g. power splitting pneumatic skinning knives and

brisket saw are to be imported. This sophisticated equipment can also be

manufactured in the country provided enough demand is there.

The improvements that the industry needs are (1) Improvements in the hygienic

status of slaughterhouses, fish processing units and poultry processing units

through modern or semi-modern systems by the application of modern

Page 142: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 119 of 384

processing methods, (2) Modern technologies in improving the eating quality of

meat and poultry, (3) Meat packaging and transport, (4) Methods to control

spoilage of meat and poultry, (5) Technology packages for processed meat and

poultry products, (6) Development of technologies for traditional products, (7)

Modern preservation methods for domestic and export market, (8) Recovery and

utilization of by-products by appropriate technologies, (9) Recycling of wastes

from slaughterhouses and poultry processing units and (10) Human resource

development.

Processing for Future

A special Reporton Ministry of food processing Industries- government Of India

Strengthening Infrastructure

“There has been a quantum jump in the fund allocation for the llthplan schemes including the scheme for

infrastructure development”.

The total plan allocation for 10thPlan was Rs.650.00 crore out of which Rs.

180.00 crore was earmarked for infrastructure development, whereas total fund allo-

cation for llth Plan Scheme is Rs. 4,031.00 crores out of which Rs. 2,613.00 crores is

earmarked for infrastructure development schemes. The scheme has three

components and break-up component wise of fund allocation is as follows:

1 Megha Food Park Scheme - 1575.00 crore

2. Modernization Abattoirs - 828.00 crore

3.Integrated Cold Chain Facilities- 210.00 crore

Page 143: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 120 of 384

As a result of concerted efforts and focused approach the food processing sector is

growing at an average rate of approximately 13.5% per annum. The level of processing

has gone up by about 4% from existing 6% to 10% and value addition by 10% from 20% to

30%.

MEGA FOOD PARK

In the llth Plan, the government has approved a new scheme to establish 30 Mega

Food Parks (MFP) in the country with a view to provide farm proximate state-of-the-art

infrastructure along the supply chain for food processing sector in the country on a

pre-identified cluster basis with a strong backward and forward linkage and to provide

value addition of agricultural commodities including poultry, meat, dairy, fisheries

etc.in a demand driven manner. Theseparks will be owned, operated and

maintained by a Special Purpose Vehicle (SPY) which would be a body corporate

consisting of individuals, firms, companies, banks/financial Institutions, farmer groups,

NGOs.

Pattern of Assistance

Government or government undertakings, etc. The government will provide financial

assistance in the form of grant @ 50% of project cost excluding land component in

general areas and 75% in difficult areas subject to a maximum of Rs. 50.00 crores.

Government has approved 10 such parks to be taken for assistance in the 1st phase in

the States of Andhra Pradesh, Assam, Jharkhand, Karnataka, Maharashtra, Punjab,

Tamil Nadu, Uttar Pradesh, Uttarakhand and West Bengal.

Page 144: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 121 of 384

Programme Management

Considering the complexities of the scheme, the ministry would engage a Program

Management Agency (PMA) to provide management, capacity building, coordination

and monitoring support. For meeting the cost of the above and also other

promotional activities by the Ministry, a separate amount, to the extent of 5% of the

overall grants available, is earmarked. The project component for the purpose of eli-

gibility under this scheme would consist of the following components:

Core processing Facility

1. Farm proximate collection centers (PCC) and primary processing

centers (PPC) which will have cleaning, grading, sorting and packing

facilities (including equipments) dry warehouses, specialized cold stores

including pre-cooling chambers, ripening chambers (including equipments),

reefer vans, mobile pre-coolers, mobile collection vans etc.

2. The Central processing centers (CPC) with buildings for common

facilities like testing laboratory (including equipments),

and packing facilities (including equipments), dry warehouses,

specialized storage facilities including controlled atmosphere

chambers, pressure ventilators, variable humidity stores,

pre-cooling chambers, ripening chambers etc. (including equipments), cold chain

infrastructure including reefer vans, packaging unit, irradiation facilities, steam

sterilization units, steam generating units, food incubation cum development centers,

etc. 3. The above mentioned facilities are only illustrative and exact nature of the

Page 145: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 122 of 384

facilities may vary from project to project based on specific requirements. However, it

is expected that at least 50% of the project cost (ex- eluding land) would be towards

creation of above mentioned core processing facilities.

Factory Building

It will consist of standard factory sheds for Micro and Small Enterprises (MSEs) which are

built on a maximum of 10 per cent of the area of CPC as part of plug and play facilities for

MSEs.

Enabling basic infrastructure:

It will include roads, drainage, water supply, electricity supply including captive power

plant, effluent treatment, telecommunication lines, parking bay including traffic

management system, weighbridges etc. Enabling infrastructure should be commensurate /

proportionate to support core activities. Non-core infrastructure: It will consist of support

infrastructuresuch asadministrative buildings, training center (including equipments), trade

center/display center, creche, canteen, workers hostel, offices of service providers,

labour rest and recreation facilities, marketing support system, etc. However, the cost of

non-core infrastructure facilities not exceeding 10% of the project cost, would be eligible for

grant purpose Project implementation expenses: This would include cost of hiring the

services of domain consultants by the SPVs for preparation of DPRs, supply chain

management, engineering/designing and construction supervision etc.

Land:

Land for the project shall be purchased / arranged by the SPY The registered value

of such land would be taken as contribution/ share of the SPY The government grant shall

Page 146: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 123 of 384

not be used for procurement of land and will be 50% of non-land component of the project.

Although the projects are expected to be formulated by the SPVs based on the felt

needs, the projects with greater emphasis on establishment of core processing facilities

and thereby directly enabling the establishment of food processing units would be given

preference.

Present Status:

Final approval has been accorded to 6 SPVs to establish MFPs at Chittoor in Andhra

Pradesh, Ranchi in Jharkhand, Haridwar in Uttarakhand, Nalbari in Assam,

Dharmapuri in Tamil Nadu and Jangipur in West Bengal. 1st tranche of 1st installment of

grants-in-aid has been released to four SPVs.

Cold Chain

To encourage setting up of cold chain facilities hi the country, Ministry of Food

Processing Industries (MFPI) has a plan scheme for cold chain, value addition and

preservation infrastructure during the llthplan to provide financial assistance to project

proposals received from public / private organizations The scheme envisages financial

assistance in the form of grant-in-aid @ 50% of the total cost of plant and machinery and

technical civil works in general areas and 75% for North Eastern Region and difficult

areas subject to a maximum of Rs.10.00 crore. Ministry has accorded approval to 10 cold

chain projects during 2008-09 in Maharashtra, Bihar, Tamil Nadu, Rajasthan, Karnataka,

Uttarakhand, West Bengal, Andhra Pradesh, Gujarat and Haryana. Most of the projects

are now nearing completion are ready for operationalization.

Page 147: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 124 of 384

Abattories

Setting up of new abattoirs/modernization of existing abattoirs is a scheme targeting

infrastructure for meat processing industry. It aims to upgrade qualitative and quantitative

capacities of abattoirs, which will be linked, with commercial processing of meat, both

for domestic consumption and exports. Main objectives of scheme are scientific/hygienic

slaughtering, less painful treatment of animals/minimizing transportation of animals,

better byproduct utilization/value addition, providing chilling facility to prevent microbial

activity in meat, better hygiene, safety and retail cold chain management and better

forward linkage facilities for finished meat and meat products.

Based on detailed discussion with stakeholders, industries and States

Governments, the scheme has been modified to induct private capital, better technology

and backward and forward linkages. The Scheme is aimed at reducing huge wastages

and ensuring better valuerealization forthe farmers. The Scheme would lead to reviving

of the agricultural sector by making the returns higher for farmers and meat processing

entrepreneurs. This would also lead to large employment opportunities particularly in

the rural areas.

Financial Assistance

Financial assistance (grant-in-aid) would be provided at 50% and 75% of cost of plant

&machineries and technical civil work in general and difficult areas respectively, subject

to maximum of Rs. 15 crores for each project. Technical consultancy fee @ 5% of grant

provided to meet cost of engaging Technical Consultancy firms at apex level to assist the

Ministry.

Page 148: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 125 of 384

Physical Progress

The Ministry is proposing, to upscale the earlier approved Scheme for Setting up of Abat-

toirs by setting up 40 new abattoirs and modernizing 110 existing abattoirs. Project

management agencies have been engaged to constantly monitor the projects. Based

on their evaluation and recommendation further installments are made by the ministry.

The Ministry has approved the proposal for taking up 10 abattoirs all over the country.

The initial 10 projects, for which 1st installments have been granted by the Ministry are

in an advanced stage and other projects would also be implemented gradually which

would benefit a large number of meat workers/ food processing entrepreneurs.

7.1 Promoting Cold Chain

Ministry of Food Processing Industries (MFPI) has launched a scheme for Cold Chain, Value

Addition and Preservation Infrastructure in the country during 11 thfive year plan, with the

objective of providing integrated and complete cold chain and preservation infrastructure

facilities without any break, from the farm gate to the consumer. The scheme envisages linking

groups of producers to the processors and market through well-equipped cold chain

infrastructure.

Under this scheme, Ministry has approved 10 (ten)cold chain projects during 2008-09 in

different states. Depending upon the nature of the project, each cold chain unit may have

components such as collection centre / minimal processing centre at the farm level and this

centre is to have facility for weighing, sorting, grading waxing, packing, pre-cooling, cold storage,

normal storage and IQF; mobile pre-cooling vans and reefer trucks; distribution hubs with multi

product multi chamber C A / MA cold storage /Variable Humidity Chambers, Packing facility, CIP

Fog treatment, IQF and blast freezing. Irradiation facilities / projects has been approved on stand-

Page 149: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 126 of 384

alone basis under the scheme. These projects are set up by individuals or group of entrepreneurs

with business interest in cold chain solutions and also by those who manage supply chain.

In order to have the effective monitoring of these projects, MFPI intend to engage a multi

skilled professional Agency to carry out con-current evaluation of the cold chain projects

assisted by MFPI during 2008-09. In this connection, Ministry of Food Processing Industries

have invited Expression of Interest from interested Project Management Consultants (PMCs)

empanelled with MFPI to provide professional services for Mega Food Park/cold chain Projects.

To encourage setting up of cold chain facilities in the country, Ministry of Food Processing

Industries (MFPI) has a Plan Scheme for Cold Chain, Value Addition and Preservation

Infrastructure duringthe 11 thPlan to provide financial assistance to project proposals received

from public / private organizations for cold chain infrastructure development. The scheme

envisages financial assistance in the form of grant-in-aid @ 50% of the total cost of plant and ma-

chinery and technical civil works in general areas and 75 % for North Eastern Region and difficult

areas subject to a maximum of Rs. 10.00 crore.Ministry has accorded approval to 10 cold chain

projects during 2008-09 in each of States i.e. Maharashtra, Bihar, Tamil Nadu, Rajasthan,

Karnataka, Uttarakhand, West Bengal, Andhra Pradesh, Gujarat and Haryana. MFPI's scheme is

project specific, not State specific". MFPI has assisted 18 cold storage / cold chain projects during

2006-07,2007-08,2008-09 and 2009-10.The scheme for Cold Chain, Value Addition and

Preservation Infrastructure (including Packaging Centre and Irradiation Centre) have the

following components:

Minimal Processing Centre at the farm level and this centre is to have facility for

weighing, sorting, grading waxing, packing, pre-cooling, cold storage, normal storage

and IQF, mobile pre-cooling vans and reefer trucks, distribution hubs with CA

Page 150: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 127 of 384

chambers/cold storage /Variable Humidity Chambers, Packing facility, CIP Fog treat-

ment, IQF and blast freezing, to avail financial assistance, any two of the components,

from (a), (b) or (c) above will have to be setup by the applicants. Considering the functional

nature of the facility, Irradiation facility can be treated as a stand alone one for the

purpose of availing grant.

Physical and Financial Targets:

An allocation of Rs.150 crore has been provided for the year 2009-10 for the

infrastructure scheme, of which the present integrated cold chain project proposal is one of

the components. The scheme has received overwhelming response due to its inherent

features and also its appropriateness to extend shelf life and maintain quality. In

response to the scheme, this Ministry has received 56 expressions of interests as on

31.3.09, for setting up of integrated coldchain facilitiesincluding irradiation facilities from different

States. Out of 56 proposals, 10 integrated cold chain; value addition and preservation

infrastructure projects have been approved during the financial year 2008-09 and Rs. 9.68

crore has been released. The fund requirement for the year 2009-10 is estimated to be

Rs. 86.00 crore for implementation of integrated cold chain projects for 10 existing cold

chain proposals. Out of this, Rs.66.00 crore is required for committed liabilities towards 10

projects approved during 2008-09 and Rs. 20 crore is for the new projects being taken up

during 2009-10.

Objectives:

The objective of the scheme is to provide integrated and complete cold chain and preservation

infrastructure facilities without any break, from the farm gate to the consumer. Pre-cooling

facilities at production sites, reefer vans, and mobile cooling units also need to be assisted under

Page 151: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 128 of 384

the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be

set up by individuals or groups of entrepreneurs with business interest in cold chain solutions and

also by those who manage supply chain. They will enable linking groups of producers to the

processors and market through well equipped supply chain and cold chain.

Salient features:

The scope of components of Integrated Cold Chain, Value Added Centre, Packaging

Centre and Irradiation Facilities to be broadened to allow flexibility in project

planning.

To provide integrated and complete cold chain facilities without any break, from the farm

gate to the consumer, Pre-cooling facilities at production sites, reefer vans, and mobile

cooling units also need to be assisted under the Integrated Cold Chain facilities projects.

Stand alone facilities, except irradiation facility will not be considered for assistance.

Horticulture produce also to be included for support under Integrated Cold Chain Fa-

cilities.

Value addition Centres may also include infrastructural facilities including multi-line

processing / collection centres, etc. for horticulture including organic produce, marine,

dairy, meat and poultry, etc. » Irradiation facilities may also cover warehousing, cold

storage facilities etc. for storage of raw material and finished products for efficient

utilization of the facility.

Page 152: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 129 of 384

CHAPTER 8

TABULATION & STATISTICAL ANALYSES OF DATA

Page 153: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 130 of 384

CHAPTER 8

TABULATION & STATISTICAL ANALYSES OF DATA

Result and Analysis

Fig 8.1 Job Position

Source primary data (questionnaire)

Comments:- A Research reveal that 75% of the Managers are Logistic

Managers,18% are others Managers, 6% are the Financial Managers and 1%

Director’s were surveyed.

75%

6%

1%18%

DISTRIBUTION OF JOB POSITION

Logistics Manager

Financial manager

Director

Other

Page 154: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 131 of 384

Fig 8.2 What level Decision of logistics outsourcing is taken

Source primary data (questionnaire)

Comments:- It is clear from the survey that 91% of the decision is being

taken at Multi-factories level and 9% of the decision are being taken at one

Factory level.

9%

91%

DISTRIBUTION OF LOGISTICS OUTSOURCING LEVELS

One Factory level

Multi- Factories level

Page 155: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 132 of 384

Fig 8.3 Degree of involvement in decision making

Source primary data (questionnaire)

Comments:-76% of the Managers are moderately involved in decision

making Process, 11% of the managers are not involved, 9% are little bit

involved, and 4% are highly involved in Decision making Process.

4%

76%

9%11%

0

10

20

30

40

50

60

70

80

Highly Moderately Little Bit Not Involved

DISTRIBUTION OF DEGREE OF INVOLVEMENT IN DECISION FOR

OUTSOURCING

Page 156: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 133 of 384

Fig8.4 Percentage of Increase in Total sales volume

Source primary data (questionnaire)

Comments:- The increase in total sales volume according to logistics

outsourcing activity reveals that there is 10-20% volume contribute 85-90%

at one factory & Multi Factory Level, and greater than 40% is contribute

10% at One Factory level, while 3-4% at Multi-Factory Level.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<9 10-20 21-30 31-40 >40

INCREASE IN TOTAL SALES VOLUME ACCORDING TO LOGISTICS OUTSOUCING

ACTIVITYOne factory level Multi- Factories level

Page 157: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 134 of 384

Fig 8.5 Managers involvement &Development of Total Sales volume in Percentage

Source primary data (questionnaire)

Comments:- It can be observe from the graph that 96-98% of Logistics

Managers are involved in increasing 10-20% of the total sales volume, at

the same time, 64% of Financial Managers are involved in increasing 10-

20% of total sales volume. Interestingly 99% of Director’s contribute

increase 31-40% of total sales Volume.

0%

20%

40%

60%

80%

100%

<9 10-20 21-30 31-40 >40

DEVELOPMENT IN TOTAL SALES VOLUME

Logistics Manager

Financial manager

Director

Other

Page 158: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 135 of 384

Fig 8.6 Degree of Involvement & development in total Sales Volume

Source primary data (questionnaire)

Comments- It was seen that 10-20% are highly involved in development of

total sales volume i.e 23% while 98-99% are moderately involved in

development of 10-20% of total sales volume, 80% are little bit involved in

development of 10-20% total sales volume and 64% are not involved.

0%

20%

40%

60%

80%

100%

<9 10-20 21-30 31-40 >40

DEVELOPMENT IN TOTAL SALES VOLUME

Highly

Moderately

Little Bit

Not Involved

Page 159: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 136 of 384

Fig 8.7 Managers View For outsourcing of outbound transportation

Source primary data (questionnaire)

Comments:- When asked about Managers views for outsourcing of

Outbound Transportation, It was seen that 99% of the Directors were

undecided, and at the same time 99% of the Logistics and Financial

Managers were Agreeing about the Outsourcing of Outbound

Transportation.

0%

20%

40%

60%

80%

100%

Disagree Undecided Agree

MANAGERS VIEWS FOR OUTSOURCING OF OUTBOUND TRANSPORTATION

Logistics Manager

Financial manager

Director

Other

Page 160: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 137 of 384

Fig 8.8 Managers view for outsourcing of Pack & Labels

Source primary data (questionnaire)

Comments:- It is Seen that 98% of the Logistics Managers are agreeing for

outsourcing of pack & Labels, 37% of Financial Managers are disagreeing

for outsourcing of Packs & Labels and 96% of the Directors are undecided

about outsourcing of Packs and Labels.

0%

20%

40%

60%

80%

100%

Logistics Manager

Financial manager

Director Other

MANAGERS VIEWS FOR OUTSOURCING OF PACK & LABELS

Disagree

Undecided

Agree

Page 161: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 138 of 384

Fig 8.9 Managers view for outsourcing of Transportation Management

Source primary data (questionnaire)

Comments:-It is Seen from graph that 96% of Logistics Managers are

views for outsourcing of Transportation Management, 64% of the Financial

Managers, 99% of the Directors & 80% belonging to others Category are of

view for Outsourcing of Transportation Management.

0%

20%

40%

60%

80%

100%

Logistics Manager

Financial manager

Director Other

MANAGERS VIEWS FOR OUTSOURCING OF TRANSPORTATION MANAGEMENT

Disagree

Undecided

Agree

Page 162: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 139 of 384

Fig 8.10 Activity contributes highly competitive advantage

Source primary data (questionnaire)

Comments:-The above graph reveals that 98% of Directors 90% of

Logistics Managers, 37% of Financial Managers, and 40% of others

considered Distribution Network Planning as the activity which contributes

highly to competitive advantage.

0%

20%

40%

60%

80%

100%

ACTIVITY CONTRIBUTES HIGHLY COMPETITIVE ADVANTAGE

Logistics Manager

Financial manager

Director

Other

Page 163: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 140 of 384

Fig 8.11 Activity essential to support managers core activities

Source primary data (questionnaire)

Comments:- It is seen from the above graph that 99% of the Directors care

of opinion that Packaging & Labels is essentials to Support Managers core

activities, 87% of Logistics Managers are of opinion that Inventory

Management is Essential to support managers core activities.

0%

20%

40%

60%

80%

100%

ACTIVITY ESSENTIAL TO SUPPORT MANAGERS CORE ACTIVITIES

Logistics Manager

Financial manager

Director

Other

Page 164: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 141 of 384

Fig 8.12 Activity which performed efficiently compared to rivals

Source primary data (questionnaire)

Comments:- The above findings reveals that 82% of Logistics Managers,

18% of Financial Managers Considered Outbound Transportation activity

which they performed efficiently compared to rivals, while 98% of Directors

are of View Inventory Management as the activity which they performed

efficiently as compared to rivals.

0%

20%

40%

60%

80%

100%

ACTIVITY WHICH PERFORMED EFFICIENTLY COMPARED TO RIVALS

Logistics Manager

Financial manager

Director

Other

Page 165: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 142 of 384

Fig 8.13 Special Equipment Used By Managers

Source primary data (questionnaire)

Comments:- The Graph reveals that 99% of Directors says that they have

invested heavily on equipments to conduct Outbound transportation, at the

same time the 92% of Logistics Managers considered the Inventory

Management as the activity in which they have invested heavily.

0%

20%

40%

60%

80%

100%

MANAGERS SPECIAL EQUIPMENT TO CONDUCT THE ACTIVITY

Logistics Manager

Financial manager

Director

Other

Page 166: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 143 of 384

Fig 8.14 Special Knowledge & Skills

Source primary data (questionnaire)

Comments:- The above graph reveals that 89% of Logistics Managers says

that they have acquired special Knowledge & Skills to perform Outbound

transportation activity, while 98% Directors are of opinion that for Inventory

Management they have acquired Special Skills & Knowledge.

0%

20%

40%

60%

80%

100%

SPECIAL KNOWLEDGE & SKILL TO PERFORM THIS ACTIVITY

Logistics Manager

Financial manager

Director

Other

Page 167: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 144 of 384

Fig 8.15 High Cost of Outsourcing

Source primary data (questionnaire)

Comments:- The above points out that 98% of the Directors are of opinion

that Packs & Labels is the Costly activity to Outsource while 91% of

Logistics Manager are of opinion that Transportation Management is the

costly activity to outsource & 54% Of Financial Managers are of opinion

that Outbound Transportation is the Costly activity to outsource.

0%

20%

40%

60%

80%

100%

COSTLY TO OUTSOURCE THIS ACTIVITY

Logistics Manager

Financial manager

Director

Other

Page 168: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 145 of 384

Fig 8.16 Performance Evaluation

Source primary data (questionnaire)

Comments:- The above graph suggest that 99% of the Directors take

precise measure for evaluating Packs & Labels activity while 90% Logistics

Managers take precise measure for evaluating the performance of

Transportation Management.

0%

20%

40%

60%

80%

100%

THE PRECISE MEASURE FOR EVALUATING THE PERFORMANCE THE ACTIVITY

Logistics Manager

Financial manager

Director

Other

Page 169: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 146 of 384

Fig 8.17 Difficulties in Logistics Service

Source primary data (questionnaire)

Comments :- The above graph reveals that 98% of directors, and 90% of

Logistics Managers are of opinion that in Inventory Management they find

difficulty in Measuring the Performance.

0%

20%

40%

60%

80%

100%

DIFFICULT TO MEASURE THE PERFORMANCE OF LOGISTICS SERVICE

Logistics Manager

Financial manager

Director

Other

Page 170: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 147 of 384

Fig 8.18 Opinion of Managers on Perishability

Source primary data (questionnaire)

Comments:-The above finding reveals that 74% of the Managers

Moderately agree that perish ability of the end product complicates the

logistics process, at the same time 16% of the managers strongly agree

that perish ability of the end product complicates the logistics process.

1% 4% 5%

74%

16%

MANAGERS VIEW TO PERISH ABILITY OF END PRODUCT COMPLICATES THE LOGISTICS PROCESS

Strongly Disagree

Undecided

Agree

Moderately Agree

Strongly Agree

Page 171: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 148 of 384

Fig 8.19 Impact of SKUs on Logistic Process

Source primary data (questionnaire)

Comments:-The above graph reveals that 78% of Managers Moderately

agree that Logistics process is effected with number of SKUs, While 9% of

the managers strongly agree that Logistics process is effected with

number of SKUs.

3%

5%5%

78%

9%

MANAGERS VIEW THAT THE LOGISTICS PROCESS IS EFFECTED WITH NUMBER OF SKUS

Strongly Disagree

Undecided

Agree

Moderately Agree

Strongly Agree

Page 172: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 149 of 384

Fig 8.20 Numbers of Products in Storage

Source primary data (questionnaire)

Comments:- The above findings reveal that 75% moderately agree & 8%

strongly agree that the variety of product in storage condition complicate

the logistics process.

2% 3% 4%

8%

75%

8%

MANAGERS VIEW THAT THE VARIETY OF PRODUCT IN STORAGE CONDITION COMPLICATE THE LOGISTICS

PROCESS

Strongly Disagree

Disagree

Undecided

Agree

Moderately Agree

Strongly Agree

Page 173: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 150 of 384

Fig 8.21 Variety of Product Groups Influence Logistic Process

Source primary data (questionnaire)

Comments:- The above findings states that 73% of managers strongly

agree that the logistics process is affected with number of product group,

while 13% Moderately agree and 10% agree that the logistics process is

affected with number of product group.

2% 2%

10%

13%

73%

MANAGERS VIEW THAT THE LOGISTICS PROCESS IS AFFECTED WITH NUMBER OF PRODUCT

GROUP.

Strongly Disagree

Undecided

Agree

Moderately Agree

Strongly Agree

Page 174: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 151 of 384

Fig 8.22 Production Features

Source primary data (questionnaire)

Comments:-The above finding reveals that 96% of directors, 50% of

Managers from other groups, 37% of Financial Managers and4% of

logistics Managers are undecided about production Characteristics, i.e.

Number of Packaging line complicates the logistics process, and 96 % of

logistics Managers Strongly agree or Clear of Production Characteristics

i.e. Number of Packaging line complicates the logistics process.

0%

20%

40%

60%

80%

100%

MANAGERS VIEWS ON PRODUCTION CHARACTERISTICS (NO. OF PACKAGING LINE)

Logistics Manager

Financial manager

Director

Other

Page 175: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 152 of 384

Fig 8.23 Fluctuations in output, quality, and quantity

Source primary data (questionnaire)

Comments:-The above findings reveals that 98% of Directors disagree on

production Characteristics i.e. uncertainty in Output, Quality, & Quantity

complicates the logistics process, while 90% of Logistics Managers

moderately agree on production Characteristics i.e. uncertainty in Output,

Quality, & Quantity complicates the logistics process.

0%

20%

40%

60%

80%

100%

MANAGERS VIEWS ON THE PRODUCTION CHARACTERISTICS (UNCERTAINTY IN

OUTPUT, QUALITY & QUANTITY)

Logistics Manager

Financial manager

Director

Other

Page 176: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 153 of 384

Fig 8.24 Yearly Demand Volume

Source primary data (questionnaire)

Comments:- The above graph states that 94% of Logistics Managers, 50%

of Financial managers moderately agree that annual demand sales

complicates the management of Logistics process, while 98% of directors

Strongly agree that annual demand sales complicates the management of

Logistics process.

0%

20%

40%

60%

80%

100%

MANAGERS VIEWS ON SALES/ DEMAND CHARACTERISTICS (ANNUAL DEMAND VOLUME)

Logistics Manager

Financial manager

Director

Other

Page 177: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 154 of 384

Fig 8.25 Demand Uncertainty

Source primary data (questionnaire)

Comments:-The above finding reveals that 92% of Logistics Managers 98%

of directors moderately agree that demand uncertainty complicates the

logistics process, while 56% of Financial managers strongly agree that

demand uncertainty complicates the logistics process.

0%

20%

40%

60%

80%

100%

MANAGERS VIEWS ON SALES/ DEMAND CHARACTERISTICS (DEMAND UNCERTAINTY)

Logistics Manager

Financial manager

Director

Other

Page 178: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 155 of 384

Fig 8.26 Demand Changes

Source primary data (questionnaire)

Comments:- The above findings reveals that 97% of Directors,57% of

Financial Managers, 33% of Managers belonging to other groups are of

view that Demand fluctuation complicates the logistics process. While 85%

of Logistics Managers Strongly agree that Demand fluctuation complicates

the logistics process.

0%

20%

40%

60%

80%

100%

SALES/ DEMAND CHARACTERISTICS(DEMAND FLUCTUATION)

Logistics Manager

Financial manager

Director

Other

Page 179: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 156 of 384

Fig 8.27 DistributionImpact

Source primary data (questionnaire)

Comments:- The above finding reveals that 96% of Directors are undecided

that Numbers of customers complicates the logistics process, 86% of

Logistics Managers moderately agree that Numbers of customers

complicates the logistics process, while 30% of financial Managers agree &

56% of Financial Managers Strongly agree Numbers of customers

complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (NO. OF CUSTOMERS)

Logistics Manager

Financial manager

Director

Other

Page 180: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 157 of 384

Fig 8.28Role of International Customers

Source primary data (questionnaire)

Comments:- The above finding reveals that 97% of Directors, 36% of

Financial Managers 7% of logistics Managers agree that Numbers of

International Customers complicates the Logistics process. While 86% of

Logistics managers, 36% of Financial managers moderately agree that

Numbers of International Customers complicates the Logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (NO. OF INTERNATIONAL CUSTOMERS)

Logistics Manager

Financial manager

Director

Other

Page 181: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 158 of 384

Fig 8.29 Influence of Distribution (No. of Warehouses)

Source primary data (questionnaire)

Comments:- The above findings reveals that 90% of Logistics

Managers,97% of Directors and 17% of Financial managers agree that

numbers of warehouses complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (NO. OF WAREHOUSES)

Logistics Manager

Financial manager

Director

Other

Page 182: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 159 of 384

Fig 8.30 Variety of Distribution Channel

Source primary data (questionnaire)

Comments:-The above graph reveals that 99% of Directors,16% of Financial

managers,12% of Logistics managers agree that Distribution channel verity

complicates the logistics process, while 89% of logistics managers

strongly agree that Distribution channel verity complicates the logistics

process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (DISTRIBUTION CHANNEL VARITY)

Logistics Manager

Financial manager

Director

Other

Page 183: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 160 of 384

Fig 8.31 Delivery Frequency

Source primary data (questionnaire)

Comments:-The above finding reveals that 99% of Directors, 98% of

Logistics managers ,17% of Financial managers Moderately agree that

Delivery frequency complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (DELIVERY FREQUENCY)

Logistics Manager

Financial manager

Director

Other

Page 184: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 161 of 384

Fig 8.32 Order Lead Time

Source primary data (questionnaire)

Comments:-The above graph reveals that 99% of Directors disagree that

order lead time complicates the logistics process, 97% of logistic

managers 15% of Financial managers moderately agree that order lead time

complicates the logistics process, while 70% of financial managers agree

that order lead time complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (ORDER LEAD TIME)

Logistics Manager

Financial manager

Director

Other

Page 185: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 162 of 384

Fig 8.33 Time of Distribution Size

Source primary data (questionnaire)

Comments:- The above graph reveals that 98% of Directors, 16% of

financial managers moderately agree that Distribution size time

complicates the logistics process, 87% of Logistics managers strongly

agree that Distribution size time complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (DISTRIBUTION SIZE TIME)

Logistics Manager

Financial manager

Director

Other

Page 186: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 163 of 384

Fig 8.34 Changes of Distribution

Source primary data (questionnaire)

Comments:- The above finding reveals that 98% of Directors, 85% of

Financial managers agree that uncertainty of distribution, time, quality &

quantity complicates the logistics process, while 88% of Logistics

managers moderately agree that uncertainty of distribution, time, quality &

quantity complicates the logistics process.

0%

20%

40%

60%

80%

100%

DISTRIBUTION CHARACTERISTICS (UNCERTAINTY OF DIST. TIME, QUALITY& QUANTITY)

Logistics Manager

Financial manager

Director

Other

Page 187: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 164 of 384

CHAPTER 9

INTERPRETATION & REPORT WRITING

Page 188: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 165 of 384

CHAPTER 9

INTERPRETATION & REPORT WRITING

H01: There is no positive significant correlation between level of decision

making & impact on sales volume of the company.

H1: There is positive significant correlation between level of decision

making & impact on sales volume of the company.

Level of decision making depends on job profile of the managers i.e

weather he is logistics manager, Financial, or Production Managers or

Director of the company &weather they has a impact on the sales volume

of the company.

Table 9.1. Job Position

Job Position Percent Logistics Manager 75.0

Financial manager

6.0

Director 1.0 Other 18.0 Total 100.0

Table 9. 2. Logistics outsourcing Levels

Logistics outsourcing Levels

Percent

One Factory level 9.0 Multi- Factories level 91.0 Total 100.0

Page 189: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 166 of 384

Table 9.3.Degree of involvement in decision for outsourcing

Degree of involvement

Percent

Highly 4.0 Moderately 76.0 Little Bit 9.0 Not Involved 11.0 Total 100.0

Table 9.4.Rise in total sales volume as per logistic outsourcing activity

Increase in total sales volume (2009-2011)

Logistics outsourcing Levels

Total

One factory level

Multi- Factories level

<9 2.2% 2.0% 10-20 88.9% 90.1% 90.0% 21-30 3.3% 3.0% 31-40 2.2% 2.0% >40 11.1% 2.2% 3.0% Total 100.0% 100.0% 100.0%

Chi-Square Tests

Value

Exact Sig. (2-sided) P-Value

Pearson Chi-Square 2.863a .629 Likelihood Ratio 2.696 .629 Fisher's Exact Test 3.383 .629 Linear-by-Linear Association 0.962b .342

Page 190: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 167 of 384

NOTE :CACULATED P-VALUE <0.05 INDICATES THE SIGNIFICANT ASSOCIATION Test suggests that there is no significant impact of logistics outsourcing on development in sales volume.

Table 9.5.DEVELOPMENT OF TOTAL SALES

Increase of total sales volume Logistics outsourcing Levels

Mean Std. Deviation

Std. Error Mean

One factoey level 17.3333 16.11676 5.37225 Multi- Factories level 13.5055 7.69180 .80632

Development of total sales volume

t-test for Equality of Means t Sig. (2-

tailed) Mean Difference

Std. Error Difference

95% Confidence Interval of the Difference Lower Upper

Equal variances assumed 1.260 0.211 3.82784

3.03698

-2.19894

9.85462

Equal variances not assumed

0.705 0.500 3.82784

5.43243

-8.60507

16.26075

Above t test reveals that there is no significant difference in mean developments of sales volume between the given Logistics outsourcing levels.

Page 191: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 168 of 384

Table 9. 6 DEVELOPMENT IN TOTAL SALES Development of total sales volume Mean Std.

Deviation

Std. Error

95% Confidence Interval for Mean

Minimum

Maximum

Lower Bound

Upper Bound

Logistics Manager

12.0133 5.08706 .58740 10.8429 13.1838

10.00 50.00

Financial manager

26.6667 16.63330

6.79052 9.2111 44.1222

15.00 60.00

Director 40.0000 . . . . 40.00 40.00

Other 15.7778 11.46635 2.70264 10.0757

21.4799 4.00 45.00

Total 13.8500 8.71707 .87171 12.1203 15.5797

4.00 60.00

ANOVA Sum of

Squares Mean Square

F Sig. P -Value

Between Groups

1989.319 663.106 11.504 .000

Within Groups 5533.431 57.640 Total 7522.750

Test reveals that there is significant difference in the mean development of total sales volume between the job positions of the managers.

Page 192: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 169 of 384

Table 9.7 Development in total sales volume code

Job Position(% within Job Position) Total Logistics Manager

Financial manager

Director Other

<9 11.1% 2.0% 10-20 97.3% 66.7% 72.2% 90.0% 21-30 1.3% 16.7% 5.6% 3.0% 31-40 100.0% 5.6% 2.0% >40 1.3% 16.7% 5.6% 3.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% Chi-Square Tests Value Asymp. Sig.

(2-sided) Exact Sig. (2-sided)

Pearson Chi-Square 71.936a .000 .001 Likelihood Ratio 26.121 .010 .001 Fisher's Exact Test 36.083 .000 Linear-by-Linear Association

2.356b .125 .118

Above Test reveals that there is highly significant impact of Job profile of managers on development in sales volume.

Table 9.7Growth in Sales

Development in total sales volume code

Decision making of outsourcing Total Highly Moderate

ly Little Bit Not

Involved <9 18.2% 2.0% 10-20 25.0% 98.7% 77.8% 63.6% 90.0% 21-30 25.0% 1.3% 9.1% 3.0% 31-40 25.0% 11.1% 2.0% >40 25.0% 11.1% 9.1% 3.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Page 193: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 170 of 384

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 56.620a .001 Likelihood Ratio 35.556 .000 Fisher's Exact Test 41.040 .000 Linear-by-Linear Association

.032b .915

Test reveals that there is highly significant impact of involvement of manager‘s

decision, for logistics outsourcing on development in sales volume.

Table 9.8

Development of total sales volume Mean Std.

Deviation

Std. Error

95% Confidence Interval for Mean

Minimum

Maximum

Lower Bound

Upper Bound

Highly 35.0000 12.90994 6.45497 14.4574 55.5426 20.00 50.00

Moderately 11.6974 2.43869 .27974 11.1401 12.2546 10.00 25.00

Little Bit 21.3333 17.31329

5.77110 8.0252 34.6415 10.00 60.00

Not Involved

14.9091 12.33251

3.71839 6.6240 23.1942 4.00 45.00

Total 13.8500 8.71707

.87171 12.1203 15.5797 4.00 60.00

Page 194: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 171 of 384

ANOVA Development of total sales volume Sum of

Squares Mean Square

F Sig.

Between Groups

2657.801 885.934 17.482 .000

Within Groups 4864.949 50.677 Total 7522.750

Test reveals that there is highly significant difference in the mean development of total sales volume between the given degrees of decision making of logistics outsourcing.

Conclusion :- H1 Hypothesis is accepted, From the above test it has been proved that level of decision making depends on job profile of the managers. i.e. weather he is logistics manager, Financial, or Production Managers or Director of the Company they have an impact on the sales volume of the company.

Page 195: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 172 of 384

H02: Logistics Managers do not contribute significantly to the Companies

Competitive advantage.

H2: Logistics Managers contribute significantly to the Companies

Competitive advantage.

The focus on the Managers on the Logistics Managers on outsourcing of

the various activities like Outbound transportation, Packs & Labels,

Transportation Management, Inventory Management, & Distribution of

Network Planning.

Table 9.9OPINION ON OUTSOURCING OF OUTBOUND TRANSPORTATION

Views for outsourcing of outbound transportation

Job Position Total Logistics Manager

Financial manager

Director Other

Disagree 11.1% 2.0% Undecided 100.0% 22.2% 5.0% Agree 89.3% 33.3% 27.8% 74.0% Moderately Agree

6.7% 16.7%

22.2% 10.0%

Strongly Agree 4.0% 50.0%

16.7% 9.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 69.994a .000 Likelihood Ratio 49.504 .000 Fisher's Exact Test 52.814 .000 Linear-by-Linear Association .087b .797

Page 196: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 173 of 384

Managers views for outsourcing of outbound transportation

Job Position Total Logistics Manager

Financial manager

Director Other

Disagree 11.1% 2.0% Undecided 100.0% 22.2% 5.0% Agree 100.0% 100.0% 66.7% 93.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 44.588a .020 Likelihood Ratio 28.551 .000 Fisher's Exact Test 29.132 .000 Linear-by-Linear Association 26.269b .000

Tests reveal that there is significant association between manager‘s views to outsourcing outbound transportation and their job positions in the company. i.e managers at higher posts are more agreed to outsourcing of outbound transportation.

Table 9.10VIEWS ONPACK & LABEL

Managers Views For Outsourcing Of Pack

& Levels

Job Position Total Logistics Manager

Financial manager

Director Other

Disagree 1.3% 33.3% 5.6% 4.0% Undecided 2.7% 100.0% 5.6% 4.0% Agree 96.0% 66.7% 88.9% 92.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Page 197: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 174 of 384

Chi-Square Tests Value Exact Sig. (2-

sided) Pearson Chi-Square 39.599a .002 Likelihood Ratio 14.865 .008 Fisher's Exact Test 18.842 .003 Linear-by-Linear Association

1.935b .197

Test reveals that there is significant association between manager‘s views to

outsourcing of pack & labels and their job positions in the company. i.e managers at higher posts are more agreed to outsourcing of Pack & labels.

Table 9.11ROLE OF SOUCRCING IN OUTBOUND TRANSPORTATION

Managers view for outsourcing of transportation management

Job Position Total Logistics Manager

Financial manager

Director Other

Disagree 2.7% 16.7% 11.1% 5.0% Undecided 16.7% 11.1% 3.0% Agree 97.3% 66.7% 100.0% 77.8% 92.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 14.861a .099 Likelihood Ratio 12.870 .015 Fisher's Exact Test 17.595 .006 Linear-by-Linear Association

5.309b .022

Fisher‘s test shows that there is significant association between manager‘s

views to outsourcing of transportation management and their job positions in the company. i.e managers at higher posts are more agreed to outsourcing of transportation management.

Page 198: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 175 of 384

Table 9.12 CONTRIBUTES TO HIGHLY COMPETITIVE ADVANTAGE Activity contributes highly competitive advantage

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

5.3%

11.1% 6.0%

Pack & Labels 1.3% 16.7% 11.1% 4.0% Transportation Management

1.3% 16.7%

22.2% 6.0%

Inventory Management 2.7% 33.3% 11.1% 6.0% Distribution Network Planning

89.3% 33.3% 100.0% 44.4% 78.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Fisher's Exact Test 35.877 .000

The test shows that there is significant association between Activities and Job positions of the managers of the company.

Page 199: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 176 of 384

Table 9.13IMPACT OF ESSENTIAL TO SUPPORT MANAGERS CORE ACTIVITIES

Activity essential to support your core activities

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

2.7% 16.7%

5.6% 4.0%

Packaging & Labels 100.0% 16.7% 4.0% Transportation Management 9.3% 33.3%

27.8% 14.0%

Inventory Management 86.7% 16.7%

11.1% 68.0%

Distribution Network Planning

1.3% 33.3%

38.9% 10.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig. (2-

sided) Pearson Chi-Square 81.175a .000 Likelihood Ratio 62.809 .000 Fisher's Exact Test 65.666 .000 Linear-by-Linear Association 1.831b .178

The test shows that there is significant association between essential activities and Job positions of the managers of the company.

Page 200: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 177 of 384

Table 9.14EFFECT OF RIVALS

Activity which performed efficiently compared to rivals

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

85.3% 16.7%

5.6% 66.0%

Packaging & Labels 2.7% 16.7% 22.2% 7.0% Transportation Management 2.7% 33.3%

16.7% 7.0%

Inventory Management 5.3% 16.7% 100.0% 33.3% 12.0% Distribution Network Planning

4.0% 16.7%

22.2% 8.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 59.215a .000 Likelihood Ratio 56.038 .000 Fisher's Exact Test 60.797 .000 Linear-by-Linear Association

33.927b .000

The above statistical test shows that there is significant association between efficiently performed activities and Job positions of the managers of the company.

Page 201: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 178 of 384

Table 9.15SPECIAL EQUIPMENT FOR CONDUCT THE ACTIVITY

Special equipment to conduct this activity

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

100.0% 22.2% 5.0%

Pack & Labels 4.0% 33.3% 44.4% 13.0% Transportation Management 1.3%

5.6% 2.0%

Inventory Management 92.0% 50.0% 27.8% 77.0% Distribution Network Planning

2.7% 16.7%

3.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 68.151a .001 Likelihood Ratio 50.254 .000 Fisher's Exact Test 54.946 .000 Linear-by-Linear Association

44.319b .000

The above statistical test shows that there is significant association between activities and Job positions of the managers of the company.

Page 202: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 179 of 384

Table 9.16 Special Knowledge&Skill for the activity

Special knowledge & skill to perform this activity

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

86.7% 16.7%

5.6% 67.0%

Pack & Labels 2.7% 33.3% 8.0% Transportation Management 2.7% 16.7%

27.8% 8.0%

Inventory Management 1.3% 16.7% 100.0% 22.2% 7.0% Distribution Network Planning

6.7% 50.0%

11.1% 10.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Table 9.17 Coston outsource this activity

Costly to outsource this activity

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation 5.3% 50.0%

5.6% 8.0%

Pack & Labels 16.7% 100.0% 11.1% 4.0% Transportation Management

85.3% 16.7%

33.3% 71.0%

Inventory Management 1.3% 16.7% 16.7% 5.0% Distribution Network Planning

8.0%

33.3% 12.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Page 203: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 180 of 384

Table 9.18Evaluation

The precise measure for evaluating the performance the activity

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

16.7% 3.0%

Pack & Labels 4.0% 100.0% 27.8% 9.0% Transportation Management 88.0%

27.8% 71.0%

Inventory Management 4.0% 50.0%

16.7% 9.0%

Distribution Network Planning

4.0% 50.0%

11.1% 8.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Table 9. 19 Problems of measurement of performance(logistics service)

Difficult to measure the performance of logistics service

Job Position Total Logistics Manager

Financial manager

Director Other

Outbound Transportation

1.3% 33.3%

33.3% 9.0%

Pack & Labels 2.7% 33.3% 4.0% Transportation Management

33.3% 6.0%

Inventory Management 88.0% 100.0% 5.6% 68.0% Distribution Network Planning 8.0% 33.3%

27.8% 13.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Page 204: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 181 of 384

Conclusion:- The above statistical test shows that there is significant

association between activities and Job positions of the managers of the

company therefore we accept H2 Hypothesis. i.e Logistics Managers

contribute significantly to the Companies Competitive advantage.

H0.3: Different aspects like Production, Distribution, Sales are not important

parameters of the efficiency in Logistics Outsourcing.

H3: Different aspects like production, Distribution, & sales are important

parameters of the efficiency in Logistics outsourcing.

Production aspects depend on Numbers of packaging lines, Uncertainty of

Production output time. At the same time Distribution aspects depends on

Number of customers Domestics or International, Warehouses, Channel Variety,

Delivery frequency, order lead time, & sales and demand Fluctuations.

Managers View to Perish ability of end product complicates the logistics process Views Percent Strongly Disagree 1.0 Undecided 4.0 Agree 5.0 Moderately Agree 74.0 Strongly Agree 16.0 Total 100.0

Page 205: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 182 of 384

Managers view that the Logistics process is effected with number of SKUs Views Percent Strongly Disagree 3.0 Undecided 5.0 Agree 5.0 Moderately Agree 78.0 Strongly Agree 9.0 Total 100.0

Managers view that the variety of product in storage condition complicate the logistics process Views Percent Strongly Disagree 2.0 Disagree 3.0 Undecided 4.0 Agree 8.0 Moderately Agree 75.0 Strongly Agree 8.0 Total 100.0

Managers view that the logistics process is affected

with number of product group.

Managers Views Percent Strongly Disagree 2.0 Undecided 2.0 Agree 10.0 Moderately Agree 13.0 Strongly Agree 73.0 Total 100.0

Page 206: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 183 of 384

Table 9.20 Managers view on production Management Characteristic (No of package line)

Managers views on Production characteristics (No. of packaging line)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 5.6% 1.0% Moderately Disagree

16.7%

1.0%

Disagree 1.3% 16.7% 33.3% 8.0% Undecided 5.3% 33.3% 100.0% 50.0% 16.0% Agree 4.0% 33.3% 5.0% Moderately Agree 1.3% 5.6% 2.0% Strongly Agree 88.0% 5.6% 67.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests

Value Exact Sig. (2-sided)

Pearson Chi-Square 95.294a .020 Likelihood Ratio 80.879 .000 Fisher's Exact Test 90.482 .000 Linear-by-Linear Association 52.235b .000

The above statistical tests reveal that there is significant association between

manager‘s views on number of packaging line and their job positions.

Page 207: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 184 of 384

Table 9.21 Managers view on production Characteristics (Uncertainty in time, quality& quantity

Managers views Production characteristics (Uncertainty in output, quality & quantity)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 16.7% 3.0% Disagree 1.3% 16.7% 100.0% 27.8% 8.0% Undecided 4.0% 50.0% 5.6% 7.0% Agree 5.3% 16.7% 33.3% 11.0% Moderately Agree 89.3% 16.7% 70.0% Strongly Agree 16.7% 1.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 97.236a .010 Likelihood Ratio 71.689 .000 Fisher's Exact Test 76.962 .000 Linear-by-Linear Association

40.070b .000

The above statistical tests reveal that there is significant association between manager‘s views on Uncertainty in output, quality & quantity and their job positions.

Page 208: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 185 of 384

Table 9.22Managers view on sales/ Demand Characteristics(Annual Demand Volume)

Managers views on Sales/ Demand characteristics(Annual demand volume)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 5.6% 1.0% Moderately Disagree 16.7% 5.6% 2.0% Disagree 1.3% 16.7% 4.0% Undecided 2.7% 16.7% 11.1% 5.0% Agree 4.0% 16.7% 27.8% 9.0% Moderately Agree 92.0% 50.0% 27.8% 77.0% Strongly Agree 100.0% 5.6% 2.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 95.933a .010 Likelihood Ratio 48.446 .000 Fisher's Exact Test 61.856 .000 Linear-by-Linear Association 21.460b .000

The above statistical tests reveal that there is significant association between

manager‘s views on Sales/ Demand characteristics (Annual demand volume)

and their job positions.

Page 209: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 186 of 384

Table 9.23 Managers view on Sales / Demand Characteristics (Demand Characteristics)

Managers views on Sales/ Demand characteristics(Demand uncertainty)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 5.6% 1.0% Disagree 1.3% 22.2% 5.0% Undecided 5.3% 16.7% 33.3% 11.0% Agree 4.0% 33.3% 16.7% 8.0% Moderately Agree 89.3% 100.0% 22.2% 72.0% Strongly Agree 50.0% 3.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 97.073a .010 Likelihood Ratio 64.054 .000 Fisher's Exact Test 69.223 .000 Linear-by-Linear Association

33.507b .000

The above statistical tests reveal that there is significant association between manager‘s views on Sales/ Demand characteristics (Demand uncertainty) and their job positions.

Page 210: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 187 of 384

Table 9.24Sales/ Demand characteristics(Demand Fluctuation) % within Job Position Sales/ Demand characteristics(Demand Fluctuation)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 5.6% 1.0% Disagree 1.3% 11.1% 3.0% Undecided 2.7% 16.7% 5.6% 4.0% Agree 1.3% 50.0% 100.0% 33.3% 11.0% Moderately Agree 9.3% 16.7% 38.9% 15.0% Strongly Agree 85.3% 16.7% 5.6% 66.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 68.026a .010 Likelihood Ratio 63.605 .000 Fisher's Exact Test 71.904 .000 Linear-by-Linear Association 34.762b .000

The above statistical tests reveal that there is significant association between

manager‘s views on Sales/ Demand characteristics (Demand fluctuations) and

their job positions.

Page 211: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 188 of 384

Table 9.25Distribution Characteristics (No. of Customers) * Job Position Cross tabulation

% within Job Position Distribution Characteristics (No. of Customers)

Job Position Total Logistics Manager

Financial manager

Director Other

Strongly Disagree 1.3% 11.1% 3.0% Moderately Disagree 11.1% 2.0% Disagree 1.3% 16.7% 2.0% Undecided 2.7% 100.0% 11.1% 5.0% Agree 2.7% 33.3% 33.3% 10.0% Moderately Agree 89.3% 11.1% 69.0% Strongly Agree 2.7% 50.0% 22.2% 9.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 94.876a .000 Likelihood Ratio 74.509 .000 Fisher's Exact Test 82.062 .000 Linear-by-Linear Association 14.446b .000

The above statistical tests reveal that there is significant association between manager‘s views on Number of customers and their job positions.

Page 212: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 189 of 384

Table 9.26Distribution Characteristics (No. of International Customers) * Job Position Cross tabulation

% within Job Position Distribution Characteristics (No. of International Customers)

Job Position Total Logistics Manager

Financial manager

Director Other

Moderately Disagree

5.6% 1.0%

Disagree 2.7% 11.1% 4.0% Undecided 5.3% 44.4% 12.0% Agree 2.7% 33.3% 100.0% 22.2% 9.0% Moderately Agree 88.0% 33.3% 16.7% 71.0% Strongly Agree 1.3% 33.3% 3.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 78.952a .010 Likelihood Ratio 57.399 .000 Fisher's Exact Test 64.778 .000 Linear-by-Linear Association 33.749b .000

The above statistical tests reveal that there is significant association between manager‘s views on Number of international customers and their job positions.

Page 213: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 190 of 384

Table 9.27Distribution Characteristics (No. of warehouses)

% within Job Position Distribution Characteristics (No. of warehouses)

Job Position Total Logistics Manager

Financial manager

Director Other

Moderately Disagree

16.7%

11.1% 3.0%

Disagree 1.3% 16.7% 27.8% 7.0% Undecided 4.0% 16.7% 27.8% 9.0% Agree 90.7% 16.7% 100.0% 27.8% 75.0% Moderately Agree 1.3% 33.3% 5.6% 4.0% Strongly Agree 2.7% 2.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests

Value Exact Sig. (2-sided)

Pearson Chi-Square 60.660a .006 Likelihood Ratio 50.031 .000 Fisher's Exact Test 58.805 .000 Linear-by-Linear Association 24.747b .000

The above statistical tests reveal that there is significant association between manager‘s views on Number of warehouses and their job positions.

Page 214: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 191 of 384

Table 9.28Distribution Characteristics (Distribution channel varity) % within Job Position Job Position Total

Logistics Manager

Financial manager

Director Other

Distribution Characteristics (Distribution channel varity)

Moderately Disagree

16.7%

1.0%

Disagree 16.7% 3.0% Undecided 4.0% 16.7% 27.8% 9.0% Agree 8.0% 16.7% 100.0% 22.2% 12.0% Moderately Agree

1.3% 16.7%

27.8% 7.0%

Strongly Agree 86.7% 33.3% 5.6% 68.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

.

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square

79.398a .010

Likelihood Ratio 64.388 .000 Fisher's Exact Test 71.041 .000 Linear-by-Linear Association

36.896b

.000

Page 215: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 192 of 384

The above statistical tests reveal that there is significant association between manager‘s views on distribution channel variety and their job positions

Table 9.29% within Job Position Job Position Total

Logistics Manager

Financial manager

Director

Other

Distribution Characteristics (Delivery fequency)

Strongly Disagree

5.6% 1.0%

Moderately Disagree

5.6% 1.0%

Disagree 5.6% 1.0% Undecided 2.7% 33.3% 11.1% 6.0% Agree 2.7% 50.0% 33.3% 11.0% Moderately Agree 94.7% 16.7% 100.0% 22.2% 77.0%

Strongly Agree 16.7% 3.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 71.300a .030 Likelihood Ratio 60.230 .000 Fisher's Exact Test 74.866 .000 Linear-by-Linear Association

17.474b .000

Page 216: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 193 of 384

Table 9.30Distribution Characteristics (Order lead time) % within Job Position Job Position Total

Logistics Manager

Financial manager

Director Other

Distribution Characteristics (Order lead time)

Moderately Disagree

5.6% 1.0%

Disagree 1.3% 100.0% 2.0% Undecided 2.7% 16.7% 16.7% 6.0% Agree 4.0% 66.7% 33.3% 13.0% Moderately Agree 92.0% 16.7% 44.4% 78.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests Value Exact Sig.

(2-sided) Pearson Chi-Square 91.199 .010 Likelihood Ratio 43.373 .000 Fisher's Exact Test 51.140 .000 Linear-by-Linear Association 18.211 .000

The above statistical tests reveal that there is significant association between manager‘s views on customers order lead time and their job positions.

Page 217: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 194 of 384

Table 9.31Distribution Characteristics (Distribution size time) % within Job Position Job Position Total

Logistics Manager

Financial manager

Director Other

Distribution Characteristics (distribution size time)

Moderately Disagree

5.6% 1.0%

Disagree 1.3% 1.0% Undecided 2.7% 33.3% 16.7% 7.0% Agree 5.3% 33.3% 33.3% 12.0% Moderately Agree

4.0% 16.7% 100.0% 38.9% 12.0%

Strongly Agree 86.7% 16.7% 5.6% 67.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests

Value Exact Sig. (2-sided)

Pearson Chi-Square 66.136 .020 Likelihood Ratio 61.915 .000 Fisher's Exact Test 71.843 .000 Linear-by-Linear Association

29.652 .000

N of Valid Cases 100

The above statistical tests reveal that there is significant association between manager‘s views on distribution size time and their job positions.

Page 218: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 195 of 384

Table 9.32Distribution Characteristics (Uncertainty of dist. time, quality& quantity) % within Job Position Job Position Total

Logistics Manager

Financial manager

Director Other

Distribution Characteristics (Uncertainty of dist. time, quality& quantity)

Disagree 2.7% 5.6% 3.0% Undecided 1.3% 22.2% 5.0% Agree 1.3% 83.3% 100.0% 22.2% 11.0% Moderately Agree 89.3%

27.8% 72.0%

Strongly Agree 5.3% 16.7% 22.2% 9.0% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Chi-Square Tests

Value Exact Sig. (2-sided)

Pearson Chi-Square 76.003 .000 Likelihood Ratio 59.778 .000 Fisher's Exact Test 62.165 .000 Linear-by-Linear Association

7.698 .006

The above statistical tests reveal that there is significant association between

manager‘s views on uncertainty of distribution time and their job positions.

Conclusion:- The above statistical test shows that there is significant

association between different aspects like production, distribution and

sales are important parameters in determining the efficiency of logistics

outsourcing, therefore we accept H3 Hypothesis.

Page 219: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 196 of 384

H04: Logistics performance does not play a key role in the profitability of

the Company

H4: Logistics performance plays a key role in the profitability of the

company.

Logistics performance depends on low logistics cost, promised delivery

time, ordered quantity, which can effect the profitability of the company.

RELATIVE IMPORTANCE OF LOW LOGISTICS COST Table 9.35 Descriptive of importance given by the managers for logistics objectives.

Logistics Objectives

Mean Importan

ce in points out of 100

Std. Deviati

on Std. Error

95% Confidence Interval for Mean

Minimum Maximum

Lower Bound

Upper Bound

Low Logistics cost 24.67 10.02 1.00 22.68 26.66 10.00 65.00 High reliable& consistent logistics service

19.75 4.99 0.49 18.75 20.74 5.00 40.00

Short delivery lead time

19.75 4.99 0.49 18.75 20.74 5.00 40.00

High flexibility to accommodate demand changes

20.50 5.05 0.50 19.49 21.50 10.00 50.00

ANOVA

Sum of Squares

Mean Square F Sig.

Between Groups 1673.168 557.723 12.678 .000

Within Groups 17420.610 43.991

Total 19093.778

Page 220: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 197 of 384

Tukey HSD

Logistics Objectives

Subset for alpha = 0.05

1 2 High reliable& consistent logistics service

19.75

Short delivery lead time 19.75

High flexibility to accommodate demand changes

20.50

Low Logistics cost 24.67 Sig. .855 1.000

Means for groups in homogeneous subsets are displayed.

ANOVA test shows that there is significant difference between mean

relative importance of the logistics objectives and Turkey test shows that

maximum importance given to Low Logistics cost.

Conclusion:-

The above statistical test shows that Logistics performance depends

on low logistics cost, promised delivery time, ordered quantity, which can

effect the profitability of the company. therefore we accept H4

Hypothesis

Page 221: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 198 of 384

CHAPTER 10

OUTSOURCING STRATEGIES

MODELLING THE LOGISTICS OUTSOURCING RELATIONSHIP

VARIABLES TO ENHANCE SHIPPERS PRODUCTIVITY &

COMPETITIVENESS IN LOGISTICAL SUPPLY CHAIN

PERFORMANCE MEASUREMENT IN BUSINESS PROCESS

OUTSOURCING DECISIONS INSIGHT FROM 4 C.S.

Page 222: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 199 of 384

CHAPTER 10

OUTSOURCING STRATEGIES

10.1 Modeling the logistics outsourcing relationship variables to enhance

shippers' productivity and competitiveness in logistical supply chain

The outsourcing of logistics functions has become the obvious choice with the

companies (henceforth referred to as shippers: the companies who are usually

the suppliers or owners of commodities shipped) eyeing for cost reduction and

value enhancement while distributing and transporting their products.

Outsourcing all or part of logistics function in a logistical supply chain to logistics

service providers (LSPs) has now become the norm across the industry. As per

[54] Muller (1991), an improvement in the delivery process can also contribute

towards competitive advantages, as contributed by the product. Logistics

outsourcing has also been instrumental in turn around cases, wherein shippers

incurred loss; hence it has taken its place in strategic boardroom agenda ([23]

Foster and Muller, 1990). [68] Sheffi (1990), identified the major contributing

factors in the development of logistics outsourcing as increased competition,

service expectation, worldwide deregulation, and advances in computers and

communication technology. Shippers' growing concern towards cost, service,

focus or core competencies, experience, asset reduction, access to suitable

information technologies etc. is perceived by LSP and this growing concern has

compelled to venture new intrusion in to their offerings ([27] Gooley, 1994). [2]

Bardi and Tracey (1991) and [44] Lieb and Randall (1996), surveyed firms using

Page 223: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 200 of 384

outsourcing services to determine the extent of logistics outsourcing penetration.

The result from these surveys suggested that the outsourcing of logistics

functions is becoming increasingly common and it is rapidly expanding source of

cost savings, competitive advantage, and customer serviceimprovements.

However at the same time, it is important to note that logistics outsourcing can

pose threat tocorporate failure and disappointment too, if outsourcing relationship

is not clearly defined and practiced. Hence it is very important to identify the right

potential LSP who can meet shippers' requirements, and maintain an enduring

and healthy relationship. [65] Schultz (2005), suggested seven guidelines to keep

healthy relationship which include "sharing the benefits, realistic request for

proposal (RFP), going for hype-vs.-reality check, measuring everything, keeping

accurate record, it is not an all-or-nothing game and nobody is perfect". As per [1]

Ackerman (1996), shippers may fail to gain the advantage because of many

reasons for instance unclear goals and unrealistic expectations, internal

sabotage by managers, partial voice of the management opting for outsourcing,

and flaws in the contractual agreement linking the parties involved. Relationship

between shippers and LSPs is of hidden attributes, most often neglected by the

shippers; hence healthy relationship is necessary for successful logistics

outsourcing relationship. ([16] Deming, 1986; [31] Hanan, 1986; [5] Bhote, 1989;

[56] Poirier and Houser, 1993; [17] Dixon and Porter, 1994; [18] Dobler and Burt,

1996; [19] Dyer, 1996; [57] Rackham et al. , 1996; [70] Simchi-Levi et al. , 2000;

[77] Wagner et al. , 2002; [46] McHugh et al. , 2003). In the past decade, the

significance of different forms of relationships has also grown in business

practices because shippers try to gain a competitive advantage by outsourcing

Page 224: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 201 of 384

non-critical activities, establishing close partnering relations, and reducing and

trimming their supplier bases, ([24] Gadde and Snehota, 2000). Handling

logistics services provider demands careful intervention from shipper as "It's five

times as hard to manage outsourcing as it is to manage people who work for

you", ([49] Malhotra, 2002). [42] Lieb and Bentz (2003), conducted survey of 500

fortune manufacturers, to investigate nature of the relationship exists between

users and providers. They also investigated theimpact of the economic slowdown

on user volume and third party logistics (3PL) relationships. As per [8] Bowersox

et al. (2003), the act of one stop shopping ([29] Gooley, 2002), makes the

management of 3PL relationships more complex, hence requires effective cross-

company management skills to realize the potential benefits of such

relationships. [80] Wisner (2003), developed and analyzed a theoretical

framework to check the linkages between supplier management strategy,

customer relationship strategy and firm's performance Depicts three dyadic

relationships among shipper, buyer and LSP in logistical supply chain. The

relationship with LSP does not end with the award of the contract in fact, in many

ways it is just the beginning, moreover shipper has an equal responsibility to

nurture the relationship so that the healthy partnership is established and gets

converted in to an enhanced productivity and competitive advantage. As per [36]

Knemeyer and Murphy (2004), shippers spend an average of nearly one-third of

their total logistics budgets (compared to 20 percent today) to support logistics

services, ([28] Gooley, 2000). Yet, very little research has examined the

managerial activities that might influence the performance of these logistics

outsourcing relationships. The study attempts to bridge this gap, we have used

Page 225: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 202 of 384

an interpretive structural modeling (ISM) that can develop a frame work for a

logistics relationship between shippers and LSPs, for this purpose the following

objectives have been identified. - identification and ranking of the factors that

acts as an enablers for logistics outsourcing relationship and to study their

influence on productivity and competitiveness; - to find out the interaction among

identified enablers and relationship outcome variables using ISM; and - to

discuss the managerial implications of this research.

This article is further organized as follows. The next section presents the

literature review and discusses the identification of enablers and outcome

variables of logistics outsourcing relationship, which is followed by an

introduction to ISM, ISM methodology and ISM model development. Matrice

d'Impacts Croisés Multiplication Appliquée à un Classement (MICMAC) analysis

has also been carried out, on the developed model subsequently. Finally, the

discussion and conclusion of this research are presented, which is followed by

limitation and scope for future work.

Commitment or trust

Commitment (or trust) is very critical for shippers as well as LSP as it provides

the sound ground for healthy relationship for success ([10] Bradley, 1994; [67]

Sheehan, 1989). [71] Sinclair et al. (1996) described three types of trust:

competence, contractual and goodwill, whereas [30] Hacker et al. (1999)

described trust as capability, commitment, and consistency. [25] Ganesan

(1994), profoundly stressed "trust" and its effect on the long-term relationship.

Commitment and trust can beused interchangeably ([52] Mohrand Spekman,

Page 226: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 203 of 384

1994) to portray the shipper and LSPs' relationship. [32] Handfield and Bechtel

(2004), grouped the trust in to eight conceptual paradigms. The eight paradigms

identified were: reliability; competence; goodwill (openness and benevolence);

vulnerability; loyalty; multiple forms of trust; combining trust with vulnerability; and

The future of trust (non-partisan proactive-based trust).

Top management support

Top management support is vital to commence and sustain a healthy

relationship. Encouragement from top management by way of award of contracts

motivates LSPs morally and economically. [20] Ellram (1991), emphasized top

management support as an enabler, while lack of top management support as a

barrier to partnership. As per [13] Chen and Popovich (2003), top management

commitment is an essential element to bring an innovation in a daily practice and

ensures delivery of promised benefits. Top management support and

commitment right from the outset percolate to the lower echelons and helps in

better understanding and functional tuning in order to achieve the mission and

vision of the shippers.

Two way information sharing

Advent of internet and information technology has opened new modes for

effective and economic communication at rapid pace. Through systematic

investigation, [73] Sink and Langley (1997), confirmed the high degree of

communication and interaction requirement for shippers that exists, between

different levels of the management and between the shipper and the LSP. The

information sharing by exchanging important data at each stage helps to bridge

Page 227: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 204 of 384

the gap and enables theLSP to take initiatives andcorrective action for required

coordination and integration, [59] Rahman and Qureshi (2007). According to [40]

Lehtonen (2004), the success of the relationship is based on many variables for

instance, two-way information-sharing, joint problem solving, the partners' ability

to meet performance expectations, clearly defined and mutually-agreed goals,

and mutual involvement in relationship development and planning. Thus, good

and systematic communication leads to healthy relationship ([11] Bullington and

Bullington, 2005). Information sharing and cooperative monitoring methods are

decisive for the success of outsourcing relationships.

Added distinctive value through TQM and JIT practice

Benchmarking practices and innovative ideas add distinctive value to the

challenging logistics services and problem solving activities. Shipper prefers the

change ([11] Bullington and Bullington, 2005) and joint problem solving ([52]

Mohr and Spekman, 1994). LSP practicing TQM and JIT practice adds distinctive

value ([20] Ellram, 1991) and commitment in their offerings thus ensure the

healthy relationship. Just-in-time (JIT) is also identified as a main driver for

outsourcing ([26] Goldberg, 1990; [68] Sheffi, 1990; [76] Trunick, 1989) as it

helps in curtailing the inventory burden. LSPs practicing JIT and TQM have

shown much potency in handling delivery and inventory for shipper in critical

time. Change, or continuous improvement, by LSPs is also witnessed by shipper

during their long term relationship.

Page 228: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 205 of 384

Coordination

LSPs who are engaged in all or part of the firm's product distribution function,

allow the shipper to focus on its core competencies rather than on the distribution

expertise. Thus collaboration between a shipper and LSPs is indispensable for

successful production-distribution outcome. Coordination ([52] Mohr and

Spekman, 1994) is very important enabler of the relationship to move towards

the shared goal ([20] Ellram, 1991). [21] Ellram's (1995) study of partnership

success factors identified shared goals as a high-ranking factor. Other studies

([53] Moody, 1993; [20] Ellram, 1991) confirm the importance of shared goals.

Participation ([52] Mohr and Spekman, 1994) and time spent together ([11]

Bullington and Bullington, 2005) by shippers and LSP enables them to

understand capabilities of each other. [35] Jung et al. (2005) proposed a new

decentralized coordinating model based on minimum information sharing for

efficient coordination.

Involvement

In general, LSPs' involvement produces positive impact on logistics performance

and relationship. Their involvement reduces the logistics cost as well as cycle

time. LSPs' involvement produces the biggest impact on quality improvement.

According to [38] Langfield and Greenwood (1998), early involvement of LSP

provides direct assistance to shippers. Constant involvement of LSP brings good

tuning in day-to-day operation. Last minute change in the operation is easily

doctored due to mutual understanding, which cuts down the delays and logistics

cost drastically. Involvement assures that, the healthy relationship is prospered.

Page 229: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 206 of 384

Evaluation of supplier performance

Formal performance evaluation of LSP ([38] Langfield and Greenwood, 1998) is

one of the important enabler which keeps the shipper and LSP to know their

strengths and weaknesses. [11] Bullington and Bullington (2005), stressed

appreciation of supplier on their outstanding performance in order to foster good

relationship. Appreciation for the improvements is communicated throughout the

organization, the commitment becomes impregnable, which in turn feeds more

improvement or allows the partnership to survive even more crises. As per [9]

Boyson et al. (1999) LSPs can contribute up to 5 percent increase in productivity

per year by togetherness and by motivating them to bring ideas to improve

productivity. [38] Langfield and Greenwood (1998), have found out that formal

evaluation of LSPs' performance is a key success factor in their relationship with

Toyota. The range of factors that may be taken into account in the evaluation of

supplier performance must be tailored to the specific as per the customers'

requirements.

Long term contract

Long-term contracts between shipper and LSPs create an atmosphere of trust

and commitment which creates propensity to deliver. A precise long-term

contract, with clearly defined expectations, responsibilities and performance

parameters, forms the basis for an enduring relationship. Nevertheless, the

conflict resolution mechanism should also be clearly included in the contract.

Long-term contracts leading to quantifiable standards of performance forms the

basis of the good relationship. As per [10] Bradley (1994), long-term business

Page 230: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 207 of 384

relationship canprovide required transition time to improve thebusiness.

According to [79] Webb and Laborde (2005), long-term arrangements must be

amenable to changing market conditions, technologies, and customer demands.

According to [38] Langfield and Greenwood (1998), long-term contracts, is a vital

variable in long-term relationship between shippers and LSPs.

Identification of outcome variables of LSP relationship

Customer satisfaction

Good relationship between shippers and LSPs boost productivity, which in turn

results in better increased profitability and customer satisfaction. State of the art

technologies like EDI, RFID, Tracking and tracing devices used by LSPs makes

them responsive ([58] Rahman, 2004), hence lead to render better services to

customers. According to [74] Sloper (2004), improving or guaranteeing service

quality or adding new features, such as 24 × 7 working helps in customer

satisfaction. LSPs practicing TQM, JIT, Six Sigma and other world class

benchmarking techniques bring world class quality in delivery leading to

customer delight.

Dedicated resources

As per [39] Langley (2000), excellence in logistics is a must for many shippers, in

order to satisfy their strategic objective of consistency in product delivery.

Logistics outsourcing settles the logistics infrastructure requirement of shippers,

in most cases they generate dedicated resources to serve the shippers in a

better way. Logistics outsourcing provides access to dedicated group of skilled

Page 231: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 208 of 384

manpower at lower costs. It also provides access to state of the art technologies

like RFID, tracking and tracing devices at very affordable rates. As per [23]

Foster and Muller (1990), outsourcing can contribute toprofits by enabling users

to gain competitive advantage, by ways of adding measurable value to products,

enhancing customer service, assisting in opening new markets, and providing

dedicated resources to meet anticipated needs.

Customer service levels

According to [61] Razzaque and Sheng (1998), the very reason behind the

evolution of contract logistics was customer service which plays an important role

in a supply chain. Outsourcing, third-party logistics and contract logistics,

generally, mean the same thing ([45] Lieb et al. , 1993). As per [34] Hill (1994);

[41] Lieb (1992) and [68] Sheffi(1990) good customer service can be obtained

efficiently and effectively through LSP, hence this strategic value must be

emphasized by shipper. As per [82] Ying and Dayong (2005), customer service

level can be enhanced by providing accurate information from a single source in

a real time through integration.

Logistics cost saving

LSPs provide lower logistics cost and better services with more flexibility. [75]

Sohail and Sohal (2003), conducted survey on the use of 3PL services from

Malaysian perspective and revealed that contract logistics services has had a

strong positive impact on costs, system performance, and customer satisfaction.

Of the respondents, 70 percent or thereabout noted the impact as "positive",

while an average of about 20 percent had reported the impact as "very positive"

Page 232: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 209 of 384

in each of these stated areas. Good relationship helps the shipper to cut down

the logistics cost by renewing the contract repeatedly to the LSP.

Expanded outsourcing

As per [74] Sloper (2004), logistics outsourcing is generally a long-term activity

requiring both parties to manage medium and long-term uncertainties, good

relationship helps in bonding them together even for short term too, thus good

relationship encourages expanded outsourcing. Expanded outsourcing helps

shipper in many ways for instance, permit to concentrate on core business,

provides skilled manpower and advanced technologies at lower rates, enhances

productivity and customer service level. Good relationship encourages LSP to

expand their range and spread of services. Good relationship also motivates LSP

to venture into the outsourcing business in a big way.

Enhanced value

According to [15] Daugherty and Pittman (1995), LSP can enhance value

creation for customers leading them to become more competitive and profitable

through speedy and superior customer service in logistical supply chain.

According to [74] Sloper (2004), enhanced value is the first benefit sought by

most shippers, in order to get explicit cost saving and increased market share.

Enhanced value by LSP is also responsible for turn around cases for many sick

units by cutting down their overheads and offering competitive price to beat the

market competition. Thus, enhanced value fetches more market share and help,

shippers to grow their business in a competitive market.

Page 233: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 210 of 384

Productivity enhancement and competitive advantage

Effective outsourcing relationships can establish continuous improvement in

productivity ([9] Boyson et al. , 1999). Enhanced productivity enables the shipper

to capture more market share. It has been suggested ([33] Hendrick and Ellram,

1993) that relationship will be the source of competitive advantage in the future,

and that commitment or trust is essential to these relationships ([81] Yilmaz et al.

, 2005). In view of [69] Sheth and Sharma (1997) and [20] Ellram (1991)

outsourcing advantage cover broad spectrum, it may be asset/cost efficiencies,

improved customer service, marketing advantage or profit stability/growth. As per

[7] Bowersox (1990), logistics alliances are making US industry more efficient

and thus more competitive. As per [74] Sloper (2004), logistics outsourcing

improves the focus towards value chain optimization leading to enhancement of

productivity, motivation and value addition. It also provides competitive

advantage by delivering faster to market and allow accessing and assessing new

technologies, techniques or markets.

ISM introduction

Interpretive structural modeling (ISM) is an interactive learning process in which

a set of different and directly related elements are structured into a

comprehensive systemic model ([78] Warfield, 1974; [63] Sage, 1977). The ISM

process transforms unclear, poorly articulated mental models of systems into

visible, well-defined models serving varied purposes ([63] Sage, 1977). The ISM

methodology is an interactive learning process wherein a systematic application

of some elementary notions of graph theory is used in such a way that

Page 234: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 211 of 384

theoretical, conceptual, andcomputational leverage areexploited to explain the

complex pattern of contextual relationship among a set of variables ([48] Malone,

1975). It helps in identifying the inter-relationships among variables. It also helps

to impose order and direction on the complexity of relationships among elements

of a system. It is a suitable modeling technique for analyzing the influence of one

variable on other variables. The model so build depicts the structure of a complex

issue or problem, a system or a field of study undertaken, in a systematic

blended presentment of graphics as well as linguistic.

ISM Methodology

As discussed in previous section, ISM is primarily intended as a group learning

process. The method is interpretive as the judgment of the group decides

whether and how the variables are related. It is structural as on the basis of

relationship, an overall structure is extracted from the complex set of variables. It

is a modeling technique as the specific relationships and overall structure is

portrayed in a digraph model. ISM starts with an identification of variables, which

are relevant to the problem or issue and then extends with a group problem-

solving technique. Later on a contextually relevant subordinate relation is

identified. After resolving the variable set and the contextual relation, a structural

self-interaction matrix (SSIM) is prepared based on pair-wise comparison of

variables. The SSIM is transformed in to a reachability matrix which includes

variable transitivity. Lastly, the partitioning of the variables and an extraction of

the structural model, called ISM is derived. In the present paper, ISM has been

applied to show the interrelationships of among the enablers of LSP relationship

and its outcome variables. Various steps involved in the ISM methodology,

Page 235: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 212 of 384

ISM model development

The development of the ISM model begins with literature review in order to

compile the enablers and outcome variable for LSP relationship which is

discussed in earlier section. The identification of enablers and outcome variables

of LSP relationship and establishment of contextual relationship was undertaken

through brain storming process which is discussed as under.

ISM methodology infuses expert opinions using brain storming, nominal group

technique etc. in contextual variable relationship development. Three brain

storming sessions were conducted to identify the enablers and outcome

variables of LSP relationship and later on the contextual relationship was

established. A total of 18 participants including five core members and six

experts, three each from LSPs and shippers from FMCG, automobile and heavy

engineering sector took part in brain storming session. An idea collector and rest

participants were from academia and experts from the field, concerned with

teaching, learning and practicing supply chain management and logistics

management. First introductory brain storming session was held to introduce the

research agenda and its significance; later on they were issued pertaining

literature to identify the related enablers and outcome variables of LSP

relationship. Second brainstorming session was conducted after 15 days,

wherein 11 enablers and ten variables were identified from the literature review.

During the last brain storming session, ranking of enablers and variables was

carried out. Three enablers and outcome variables were dropped, from both

groups as they were found to be less significant. The dropped variables were

also ranked, lowest inoverall ranking. Thus 11 enablers were reduced to eight,

Page 236: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 213 of 384

whereas ten outcome variables were reduced to seven, the reduction of enablers

and outcome variables also alleviated the manual contextual relationship

development. Initial relationship was established during the last session; later on

it was reconfirmed from the external expert group. Expert group was hailed from

LSPs handling FMCG, automobile and heavy industry sector and from the

shippers' side dealing in outsourcing activities and having profound experience.

The enablers and outcome variables of LSP relationship identified at the end of

the brainstorming session are listed in Table III [Figure omitted. See Article

Image.]. The identification of variables and their contextual relationships leads to

the development of various matrixes. The rest of the model development process

is further described under the following broad headings: - structural self-

interaction matrix (SSIM);- reachability matrix; - partitioning the reachability

matrix; - developing conical matrix, and - developing diagraph. After the model

development, the enablers and outcome variables are classified based on their

driving and dependence using MICMAC analysis, which is discussed at the end

followed by discussion, conclusion and scope for future work.

Structural self-interaction matrix (SSIM)

During the brain storming session, enablers and outcome variables were

identified. Later on during the contextual relationship establishing session,

relationship was established between sub-variables (let i and j ) by comparing a

pair of variables and asking "leads to" type questions. This means that whether i

leads to j or vice versa, the associated direction of the relation was questioned.

Four symbols have been used for establishing contextual relationship that exists

between the two sub-variables (i and j ) under consideration are as follow:

Page 237: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 214 of 384

V =Variable i will help achieve variable j ; A =Variable j will be achieved by

variable i ; X =Variable i and j will help achieve each other; and O =Variables i

and j are unrelated.

Based on the contextual relationships the SSIM is developed for the 15 variables

identified for the LSP relationship and outcome of LSP relationship.

According to expert's opinion, two-way information sharing (1) leads to

productivity enhancement and competitive advantage (15); therefore V is

assigned to the cell obtained by intersecting row of two-way information sharing

(1) and column of productivity enhancement and competitive advantage (15).

According to expert's opinion, expanded outsourcing (5) is achieved by long term

contract (13); hence A is assigned to the cell obtained by intersecting row of

expanded outsourcing (5) and column of long term contract (13).

According to expert's opinion, there is no relation between customer satisfaction

(7) and long term contract (13); hence O is assigned to the cell obtained by

intersecting row of customer satisfaction (7) and column of long term contract

(13). Similarly, during pair comparison if variable is found to help each other than

X is assigned in the cell at intersection row and column. Based on these

contextual relationships the SSIM is developed.

Reachability matrix

The reachability matrix is obtained from SSIM. The reachability matrix indicates

the relationship between variables in the binary form. The various relationships

between variables depicted by symbols V, A, X, O used earlier in SSIM are

Page 238: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 215 of 384

replaced by binary digits of 0 and 1. The following rules are used to substitute V,

A, X, O of SSIM to get reachability matrix. If the (i , j ) entry in the SSIM is V, then

the (i , j ) entry in the reachability matrix becomes 1 and the (j , i ) entry becomes

0. If the (i , j ) entry in the SSIM is A, then the (i , j ) entry in the reachability

matrix becomes 0 and the (j , i ) entry becomes 1. If the (i , j ) entry in the SSIM

is X, then the (i , j ) entry in the reachability matrix becomes 1 and the (j , i ) entry

also becomes 1. - If the (i , j ) entry in the SSIM is O, then the (i , j ) entry in the

reachability matrix becomes 0 and the (j , i ) entry also becomes 0. The

reachability matrix thus derived is known as initial reachability matrix

The final reachability matrix is obtained by incorporating the transitivity.

Transitivity is a relation between three elements such that if relationship holds

between the first and second and relationship also holds between the second

and third, than relationship must necessarily holds between the first and third (i.e.

i [arrow right]j , j [arrow right]k than i [arrow right]k ). Final reachability matrix is

shown in Table VI [Figure omitted. See Article Image.]where in transitivity is

marked as 1*. Table VI [Figure omitted. See Article Image.]shows driving power

and dependence of each variable which is explained later on in MICMAC

analysis

Partitioning the reachability matrix

After the final reachability matrix, the partitioning is done in order to find the

hierarchy of each variable. Partitioned reachability matrix will help to generate

conical matrix, which is explained subsequently. As per [78] Warfield (1974), the

reachability and antecedent set for each variable can be obtained from final

Page 239: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 216 of 384

reachability matrix. The reachability set includes variable itself and others which it

may help to achieve, similarly the antecedent set consists itself and other

variables which helps in achieving it. Later on the intersection between

reachability and the antecedent set is attained. If the membership in reachability

and the intersection completely agrees than the top priority is assigned and the

variable is excluded from the subsequent iteration, like wise procedure leads to

final iteration leading to the lowest level.

Developing conical matrix

Conical matrix is achieved from partitioned reachability matrix by rearranging the

elements according to their level, which means all the elements having same

levels are clubbed together. Element 15 is found at level I, while elements 7 and

8 are having level II, whereas elements 6 and 12 are having level III, The conical

matrix helps in the generation of the diagraphs and later on structural model.

Development of digraph

Based on the conical form of reachability matrix, the initial digraph including

transitive links is obtained later on the indirect links may be removed for the sake

of simplicity. As per the conical matrix, the variable identified first is placed at the

top here variable 15 has level I, hence it is placed on the top, followed by two

variables 7 and 8 which are foundat level II, thus all the variables are placed at

predefined level as displayed in conical matrix. The connectivity is shown among

the variables as per the final reachability matrix. The final diagraph is obtained by

removing the indirect link.

Page 240: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 217 of 384

It is evident that top management support (3) is a very significant factor for the

logistics service relationship between shipper and LSP as it forms the base of the

ISM hierarchy. Productivity enhancement and competitive advantage (15) is the

resulting outcome variable, which can be achieved through successful logistics

relationship practices between shipper and LSP. This variable has appeared at

the top in the ISM hierarchy. The top management support (3) leads to the

development of commitment or trust enforcement (2). Success of outsourcing

depends on a user-provider relationship based on mutual trust and faith ([10]

Bradley, 1994; [67] Sheehan, 1989). The trust enhances coordination (9),

ensures two-way information sharing (1) and appreciates the TQM and JIT

supplier added distinctive value (5). Management is always keen to keep strict

vigil by having evaluation of supplier performance (11) continuously, which in fact

boosts relationship bond and encourage long-term contract (13). Top

management thus create veracious environment for the healthy relationship

leading to extended outsourcing (4), which is as per the findings of [50] Maltz and

Ellram (1997) that has recognized the importance of such relationships in making

outsourcing decisions. Expanded outsourcing (4) lead to logistics cost saving

(14) and creation of dedicated resources (6) and resulting in enhanced value (8).

As per [62] Richardson (1993) high level of understanding propagates high level

of understandable partnership for the own business and the business of the

counterpart. Shipper gets superior service because of good tuning in day-to-day

work which is evident from the model. Enhanced customer service level (12)

leads toenhancement of customer satisfaction (7). Enhanced value and customer

satisfaction together prosper the logistics services relationship, and helps in

Page 241: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 218 of 384

productivity enhancement and competitive advantage (15), which is in line with

conclusion made by many researchers for instance conclusion made by [9]

Boyson et al. (1999) as "Across many industries, logistics outsourcing is a rapidly

expanding source of cost savings, competitive advantage, and customer service

improvements." While [14] Christopher and Towill (2001), concluded as "All the

trading partners work for a common goal and interacts with each other to realize

the benefits of an integrated supply chain."

MICMAC analysis

Identification and classification of the key variables are essential to develop the

system under study. Comparing the hierarchy of variables in the various

classifications (direct, indirect and potential) leads to rich source of information. It

enables one not only to confirm the importance of certain variables but also effect

to uncover certain variables which, because of their indirect actions, play an

important role (yet, they are not identifiable through direct classification).

MICMAC is an indirect classification method based on driving power and

dependence of each variable helps to critically investigate the scope of each

variables. In MICMAC analysis, all the variables are clustered in to four

categories. Cluster I portrays autonomous variables having weak driving power

and weak dependence, which are relatively disconnected from the system, as

they possess few weak links with other variables. Cluster II portrays dependent

variables having weak driving power but strong dependence. Cluster III portrays

linkage variableshaving strong driving power andstrong dependence. These

variables are unstable due to the fact that, any change occurring to them will

Page 242: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 219 of 384

affect other variables and gets affected through feedback too. Cluster IV portrays

independent variables having strong driving power but weak dependence.

The objective of MICMAC analysis in this study is to identify and analyze the

enablers and outcome variables of LSP relationship based on their indirect

classification ([51] Mandal and Deshmukh, 1994; [64] Saxena et al. , 1990; [66]

Sharma et al. , 1995). Driving power and dependence is the summation of binary

digit "1" in their respective row and column for each variable respectively in the

final reachability matrix, These driving power and dependence for each variable

can be plotted as the matrix diagram shown in that the variable (1) is having a

driving power of "8" and dependence of "5". it is positioned at a place

corresponding to driver power of "8" and dependency of "5".

Discussion and conclusion

In the competitive market, the shipper is looking to enhance market share by

adopting different strategies. Recently, many shippers have adopted the strategy

of logistics outsourcing to capture market, by satisfying customers through value

addition and customer delight. Logistics outsourcing also helps to cut down

shippers' logistics cost, thereby enabling them to offer their products and services

at more competitive rates to beat the stiff competition. LSPs are strategically,

creates product differentiation too, by providing flexibility, speed with minimal

holding off in a logistical supply chain. Considering the important role played by

LSP, it is of prime importance to build healthy relationship with them. Shippers

can enhance their productivity and competitiveness by practicing the healthy

Page 243: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 220 of 384

relationship, whichis evident from the model developed hence it is imperative on

the part of shippers to emphasis on healthy relationship.

This study has some other implications for the practicing managers. The driver

power-dependence matrix gives some valuable insights about the relative

importance and interdependencies, among the enablers and outcome variables

of relationship. The managerial implications emerging from this study are as

follows:

- The driver power-dependence matrix. indicates that no variable is taking place

in the autonomous variable cluster.

- Variables such as productivity enhancement and competitive advantage,

customer satisfaction, expanded outsourcing, dedicated resources, customer

service level, logistics cost saving and enhanced value are possessing weak

driving powers but have strong dependency on other variables. They are seen at

the top of the ISM hierarchy These variables represent the desired outcome in

favor of shippers having healthy relationship practices with LSPs.

- No variable is seen as a linkage variable that has a strong driving power as well

as strong dependence. Thus, it can be deduced that all the enablers and

outcome variables of logistics relationship identified are stable.

- The driver power dependence diagram indicates that independent enablers

such as top management support, trust, two-way information sharing, TQM and

JIT practicing supplier added distinct value, coordination, direct assistance,

evaluation of supplier performance and long term contract are at the bottom of

Page 244: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 221 of 384

ISM hierarchy, having strongdriving power and weak dependence. Thus the

management needs to address theseenablers more carefully during their liaison

with LSPs. It can also be deduced that these enablers help to achieve the

outcome variables, which appear at the top of the ISM hierarchy. Therefore, it is

important to note that, management should devise strategies to enhance the

deployment of such enablers in order to enhance productivity and

competitiveness.

The main contributions of this research include the following.

In this paper, an attempt has been made to identify mutual impact of enablers

and outcome variables of logistics relationship. Although good amount of

literature on LSP, based on empirical study has been developed involving

various issues related to it. The relationship between shippers and LSP in terms

of enablers and variables has not been modeled in order to help the practicing

managers. The present model will help practicing managers to understand the

relationship crux. The present model will act as a base model to develop further

model using structural equation modeling (SEM), hence the present research

assumes importance in this context. A key finding of this research also draws

attention of top management, about their crucial role in the relationship initiation

with LSP. The healthy relationship practices, favors both shippers as well as

LSPs. Enhancement in productivity and competitiveness is realized by shipper

while, outsourcing activities are expanded on other hand which contribute

towards LSP's growth, ([55] Muller, 1992).

Page 245: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 222 of 384

In this research, enablers and variables of logistics relationships are modeled in

terms of their driving and dependence. Strong driving power enablers should be

dealt with strategic move as they influence productivity and competitiveness.

The present research objective of identification and ranking of the enablers of

logistical supply chain relationship and their influence on productivity and

competitiveness involves number of key variables hence a model depicting

interaction would be of great help to shippers as well as LSPs. Contextual

relationships can easily be developed between the enablers using brain storming

and ISM, while an overall structure can be extracted for the system under

consideration. Numbers of enablers influence the shipper's relationship with LSP,

that results in to productivity enhancement and competitiveness. Clear effects of

each enabler can also be interpreted when considered variables collectively

rather than individually.

Limitations and scope for future work

In the present work only eight enablers and seven outcome variables are

identified for modeling the logistics relationship in a logistical supply chain. More

number of enablers influencing logistics relationship can be identified, similarly

outcome variables leading to enhanced productivity and competitiveness can be

added to develop ISM. The experts' help have been sought to analyze driving

and dependence power of the enablers and variables in this model. The

framework developed in this research is through brain storming and experts'

opinion hence some elements of group bias and individual bias may persist.

Moreover the model so developed has not been statistically validated.

Page 246: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 223 of 384

Structural equation modeling (SEM), a general statistical modeling technique

also commonly known as linear structural relationship approach has the

capability of testing the validity of such hypothetical model. Therefore, it may be

applied in the future research to test the validity of this model. Statistical software

like LISREL 8.8, Amos 7.0 etc. can be used in future to build correlation matrix,

confirmatory factor analysis and diagramming to validate the relationship. SEM

has the capability of statistically testing an already developed theoretical model

whereas ISM on the other hand, has the capability to develop an initial model

through managerial techniques such as brain storming, nominal group

techniques, etc. In this sense, ISM is a supportive analytic tool for the discussed

situation. Proceedings of the ASQ Customer-Supplier Division Conference,

Nashville, TN.

10.2 Performance measurement in business process outsourcing decisions: Insights from four case studies

The term outsourcing originates from the Anglo-Saxon language realm and is a

contraction of the words OUTSIDE RESOURCE USING. Outsourcing describes

the use of external resources to execute operational tasks ([20] Grover et al. ,

1994). Since the early 1990s, outsourcing has been discussed under diverse

aspects in both academic business studies and operational practice ([30] Lacity

et al. , 2008; [23] Holcomb and Hitt, 2007; [14] Espino-Rodríguez and Padrón-

Robaina, 2006; [42] Seuring, 2003; [27] Kakabadse and Kakabadse, 2000; [31]

Lonsdale and Cox, 2000). Having started with information technology,

outsourcing has now reached the so-called "white collar" realm of the companies.

Beginning with the initial takeover of computing centres only, complete

Page 247: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 224 of 384

application platforms including system operations and application support are

now outsourced with the aim of decreasing related transaction costs ([2] Arnold,

2000; [49] Williamson, 2008; [37] Müller and Seuring, 2007). This can be

interpreted that the reduction in vertical integration has reached the commercial

areas of companies.

The next level of development of outsourcing is business process outsourcing

(BPO). Companies are outsourcing whole business processes in addition to

corresponding hard- and software that has been outsourced in the past. It

involves the transfer of management and execution of one or more business

processes or entire business functions to an external service provider ([16]

Ghodeswar and Vaidyanathan, 2008).

It aims to analyse performance measurement systems applied in outsourcing

situations. This is justified as performance measurement systems were prioritised

as the most important tools for governing and controlling the outsourcing provider

([48] Weimer and Seuring, 2008; [18] Gottschalk and Solli-Sæther, 2005).

Performance management in outsourcing

In the context of an outsourcing engagement, companies are facing four

essential questions ([10] Dibbern et al. , 2004):

(1)] Why should we outsource?

(2)] Which functions should be outsourced?

(3)] How should we conduct the outsourcing engagement?

Page 248: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 225 of 384

(4)] What are the main success factors with outsourcing?

Accordingly, current outsourcing research can be divided into four main areas

that try to answer these questions ([10] Dibbern et al. , 2004):

(1)] Research activities describing outsourcing opportunities and risks, allowing

every outsourcing engagement to balance them within its own context as a key

pre-requisiteof the outsourcing decision (e.g. [17] Gonzales et al. , 2006; [21]

Harland et al. , 2005; [40] Quélin and Duhamel, 2003).

(2)] Research analysing the applicability of outsourcing to different functions,

primarily using the transaction cost theory and the resource-based theory in

order to build a theoretical framework for this kind of decision (e.g. [23] Holcomb

and Hitt, 2007; [4] Aubert et al. , 2004; [32] McIvor, 2000; for a critical analysis

see [34] McIvor, 2009).

(3)] Research dealing with guidelines on how to conduct an outsourcing project

(e.g. [33] McIvor, 2008; [8] de Boer et al. , 2006; [9] Dekkers, 2000).

(4)] Research evaluating key success factors of outsourcing project and

identifying related risks (e.g. [19] Gottschalk and Solli-Sæther, 2006; [25]

Johnson et al. , 2006).

Within the fourth area, outsourcing research has identified that permanently

governing and controlling the outsourcing provider is essential for a successful

outsourcing engagement ([18] Gottschalk and Solli-Sæther, 2005). Nevertheless,

examinations on how to set up and operate this governance in detail are missing

so far. In order to govern the outsourcing project in general and the external

Page 249: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 226 of 384

provider in particular, top management first of all needs sufficient information on

which future decisions can be based on. In the field of organisational decision

making, such information that has to be generated by a company as a pre-

requisite and basis of organisational decisions is defined as "information need"

([34] McIvor, 2009; [41] Sciulli, 2004; [38] O'Reilly, 1983).

Information is a key driver of business and business processes. It is not only

required to complete any kind of operational processes, but also to meet specific

decision making needs. This is reflected particularly in management accounting

where the provision of information for management decision making is a key task

that needs to be fulfilled e.g. [12] Drury, 2008; [3] Atkinson et al. , 2007).

Outsourcing decisions also have to be based on this kind of information ([15]

Ezzamel et al. , 2002).

[24] Jiang and Qureshi (2006) reach the conclusion that there are "three main

gaps in the current literature: lack of objective metrics for outsourcing results

evaluation, lack of research on the relationship between outsourcing

implementation and firms' value, and lack of research on the outsourcing contract

itself" ([24] Jiang and Qureshi, 2006, p. 44). In line with this, [6] Busi and McIvor

(2008) also argue that performance management in service related outsourcing

requires more research.

It seems rather surprising in the outsourcing context that almost no research on

the use of management accounting and performance management techniques to

drive outsourcing decisions has been presented so far. Using the keywords

"outsourcing", "management accounting", "information needs" and "performance

Page 250: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 227 of 384

management", we conducted a comprehensive literature search based on major

databases (e.g. EBSCO, Proquest 5000), as well as publishers (e.g. Elsevier,

Emerald, Wiley), but hardly found any related papers. As the keywords are not

too specific, many references had to be screened in detail for checking whether

they contain related information or not. Looking at this intersection, some

research addressed the outsourcing of the accounting function ([15] Ezzamel et

al. , 2002; [45] Smith et al. , 2005) or the treatment of outsourcing in company

accounts ([26] Juma'h and Woods, 1999). Closer to the issues discussed here

comes the cost estimation of outsourcing decisions, while the example presented

by [41] Sciulli (2004) basically assesses the tendering process for public

contracting. [47] Tate and van der Valk (2008) develop performance measures

for outsourced customer contact centres, thereby focussingmore on the customer

perspective than underlying business process. But no research has been

identified covering information needs or performance measurement systems in

outsourcing situations.

Therefore, [48] Weimer and Seuring (2008) conducted a Delphi study identifying

information needs in the outsourcing-lifecycle and prioritising them according to

their importance for governing andcontrolling the outsourcing provider. As a

result of the study, "service reporting" was evaluated as the mostimportant

information need."Service reporting" usually comprises the implementation and

operation of performance measurement systems to inform about the

performance of outsourced services. This paper aims to follow up the results of

the Delphi study and to further analyse performance measurement systems in

the outsourcing context.

Page 251: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 228 of 384

An analysis of performance measurement systems in the management

accounting and controlling literature that can be potentially used in the

outsourcing context led to the balanced scorecard concept. The balanced

scorecard ([28] Kaplan and Norton, 1992) plays a dominant role within current

management accounting and controlling research and is considered as the

preferred performance measurement system ([35] Malina and Selto, 2001) that is

widely used by companies ([5] Ax and Bjørnenak, 2005). Next, the theoretical

application of the balanced scorecard as a suitable performance measurement

system to analyse outsourcing contexts will be briefly discussed.

Outsourcing is applied to reach certain strategic business objectives ([11]

DiRomualdo and Gubanxi, 1998). In particular, at least one of two fundamental

business objectives is pursued:

(1)] long-term cost reduction; or (2)] focus on core business activities and

development of competitive advantage.

Both objectives aim to ensure the livelihood of the company in the long term

rather than providing short-term success ([17] Gonzales et al. , 2006).

Consequently, controlling tasks in the outsourcing context, like supply of

information, governance and controlling ("outsourcing controlling"), can be

described as strategic controlling which is defined as the execution of controlling

tasks to support long-term, strategic governance ([35] Malina and Selto, 2001). It

should be emphasised that this follows the German term "controlling", which in

English would be management accounting ([22] Hoffjan and Wompener, 2006;

Page 252: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 229 of 384

[43] Seuring, 2006). Thus, controlling tools that have been developed for

strategic controlling purposes can be applied in the outsourcing context as well.

The balanced scorecard is defined as a controlling tool that is particularly suited

to implement corporate strategies and to link operational and strategic

governance ([29] Kaplan and Norton, 2004, [28] 1992) and can therefore be

described as a strategic controlling tool. Consequently, the balanced scorecard

can also be considered as a potential outsourcing controlling tool that supports

the implementation of the corporate outsourcing strategy and thereby governs

and controls the external provider. In this respect, the balanced scorecard will be

used as theoretical background and conceptual framework for the empirical

research which allows the interpretation of the findings.

Just to repeat what is presented in many publications on the balanced scorecard,

its features are usually described as:

- operationalisation of strategies;

- four perspectives (finance, customer, internal business processes, learning &

growth);

- balanced key performance indicators (KPIs);

- limited number of key performance indicators;

- cause-effect relations; and

Page 253: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 230 of 384

- key performance indicators which are hierarchically structured (see e.g. [28]

Kaplan and Norton, 1992; [36] Martinsons et al. , 1999; [1] Ahn, 2005; [7]

Chavan, 2009; [51] Zimmermann and Seuring, 2009).

A case study design was chosen analysing four case studies in order to

empirically evaluate performance measurement systems in the outsourcing

context. "A case study is an empirical enquiry that

(1)] investigates a contemporary phenomenon within its real life context,

especially when

(2)] the boundaries between phenomenon and context are not clearly evident"

([50] Yin, 2003). [13] Eisenhardt (1989) recommends between four and seven

cases to achieve valid research results, while research on inter-organisational

phenomena is still dominated by single case research ([44] Seuring, 2008). The

research process for case studies is similar to those used for other (empirical)

research. [46] Stuart et al. (2002) propose a five-stage research process and

explain in detail how each step should be carried out when conducting case

study research (for similar descriptions see e.g. [50] Yin, 2003; [13] Eisenhardt,

1989).

It should be emphasised that while a linear, sequential approach is chosen not

only but in particular in case study research, the actual process might have to

repeat several stages. While starting at one research question and/or collecting

some evidence on a social or organisational phenomenon, the researcher might

have to return to a previous research stage, yielding a much more iterative

approach.

Page 254: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 231 of 384

The quality of research designs is determined by aiming for validity (i.e. is the

stated evidence valid?) and reliability (i.e. is the stated evidence correct?) ([50]

Yin, 2003). The excellence of qualitative research is addressed especially

through procedural reliability and validity ([46] Stuart et al. , 2002). For case

study research, [50] Yin (2003) outlines how validity of the research can be

ensured. He proposes three types of validity being relevant for case based

research: construct validity, internal validity and external validity. These three

types of validity are applied during different stages of the research process, as

reliability and validity are ensured by a clearly structured research process. The

following chapter will demonstrate the application of different measures to ensure

research quality of the presented research. The research process is based on

the five stages described above and will be outlined in the next section.

In order to investigate the research question of how to effectively design

performance measurement systems in the outsourcing context in theory and

practice, a multi-case research design has been chosen covering four

outsourcing engagements in different industries and companies that have

outsourced different business processes. Access to the cases was possible as

the first author is working for Accenture, one of the leading global outsourcing

consulting companies. This allowed access to information, else not being

available. However, the first author was not involved in either of the case study

projects and collected data purely for academic purposes. Information regarding

performance measurement systems is highly confidential for outsourcing

engagements. Hence, the respective companies insisted on not being named

when publishing this research.

Page 255: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 232 of 384

Instrument development and case selection

A case study protocol has been recorded to ensure reliability of this research and

to provide all relevant data for follow-up research activities. Case selection was

driven by the characteristics of the performance measurement systems of

available outsourcing engagements. Engagements with e.g. a very complex or

successful performance measurement system have been chosen.

Data gathering

To comply with the comprehensive, realistic claim of case study research, to

ensure construct validity and to avoid the mistakes of individual methods,

multiple data gathering methods (semi-structured interviews, analysis of

documents, websites and publications, direct observation and participant

observation) have been applied for the purposes of triangulation. Data gathering

took place in Autumn 2006. First, Accenture internal databases were accessed

on the single outsourcing cases. This allowed getting detailed insights into the

companies and the related outsourcing projects. After this preparation, the first

author visited the site of the service provider where the outsourced services are

processed. This comprised direct contact with staff members both of the

outsourcing company as well as the outsourcing service provider.

Data analysis

To ensure internal and external validity, raw data analysis applied a combination

of the case study tactics "pattern matching", "use of existing theory" and

"replication logic" ([50] Yin, 2003). Thereby, the four cases have been analysed

against a theoretical framework that was based on the balanced scorecard

characteristics outlined above. The multi-case design allowed a replication of

Page 256: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 233 of 384

identified pattern. Finally, a cross-case analysis was conducted and overall

results were derived.

Dissemination

In order to ensure construct validity, the preliminary case study protocol has been

sent to key interview contacts to verify completeness and correctness of the

protocol. Resulting feedback has been included in the final case study protocol.

Description of the four individual cases

1 - An international construction services provider

The company of the first case study is one of the three largest construction

services providers worldwide and market leader in Germany. In the fiscal year

2005, corporate revenues reached EUR 15 billion. With more than 80 per cent of

total revenues generated outside of Germany, the company probably represents

the most international construction services provider in the world. A total of

40,000 employees work for the company in all major markets around the

world.The range of services the construction services provider offers to its

national and international customers includes four closely interlinked modules

supporting the entire life cycle of construction projects:

(1)Development;

(2)Construction;

(3)Services; and

(4) Concessions and operations.

Page 257: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 234 of 384

The construction services provider wanted to reduce its total cost of purchasing.

Therefore, it centralised its different purchasing departments into one global

organisation in order to standardise business processes and to reduce related

handling cost. In this context, the construction services provider wanted to re-

negotiate purchase prices as well. Realising a lack of respective professional

capabilities in this area, the company outsourced its strategic purchasing function

(strategic sourcing) for all non-strategic and indirect goods and services to the

external provider Accenture in order to achieve significant price reductions. In

detail, the outsourcing engagement covered the following tasks:

- demand planning (evaluating and defining future purchasing demand);

- product groups strategy (developing a product groups strategy);

- tender management (preparing and handling tenders with potential future

suppliers);

- development of negotiation strategies;

- supplier selection and negotiations with suppliers;

- contract management (closing contracts with selected suppliers);

- supplier management (evaluating supplier performance);

- accompanying market and supplier analysis (continuously analysing markets

and suppliers to ensure an optimal supplier portfolio); and

- web-based procurement platform defining and supporting lean and efficient

process workflows with suppliers.

Page 258: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 235 of 384

The contractually agreed scope of the outsourcing engagement includes 18

different product groups. These represent an annual purchasing volume of

approximately EUR 60 million. The first product group only includes 8,000 to

10,000 different products. Outsourced services will be provided for all divisions of

the construction services provider in the German-speaking countries: Germany,

Austria and Luxembourg. The compensation model links the payments for the

external provider to the overall cost reductions achieved through the outsourcing

project.

2 - An international bank

The second case study evaluated an international bank which is one of the

leading financial institutes worldwide. The bank was founded in the 19th century

and controls a balance sheet total of more than EUR 1 trillion today. More than

75,000 employees are working in 75 countries around the world. The range of

services the bank is offering to its national and international customers includes

all of the key areas of a financial institute such as investment or retail banking. In

order to support the overall corporate objective of significantly increasing the

company's rate of return, the bank evaluated all functional areas and processes

whether they should stay in-house or be outsourced to an external provider. In

this context, the bank identified significant savings by outsourcing selected

processes in the purchasing and finance departments. Consequently, the bank

outsourced the end-to-end procure-to-pay process and transferred the following

sub-processes and tasks to the external provider Accenture:

- sourcing, buying and procurement support;

Page 259: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 236 of 384

- invoice processing, expenses payment and other accounts payable services;

- procurement platform;

- customer service desk; and

- reporting.

Outsourced services represent an annual purchasing volume of approximately

EUR 5 billion. They include four million transactions per year in more than 200

legal entities that interact with 50,000 suppliers. The processes described above

will be provided to all divisions of thebank. Geographically, they cover the

European countries Germany, Britain and Spain, as well as the United States

and the entire Asian region. Accenture delivers the contractually agreed services

primarily through its off-shore delivery centres in Bangalore (India) and Dalian

(China). The agreed compensation model is determined by fixed prices per unit

only depending on the transaction volumes of outsourced services.

3 - An international automotive supplier

The third case study analysed an international automotive supplier which

represents one of the world's leading companies in its industry and which is also

market leader in Germany. The supplier was founded in the 19th century and

generated total revenues of more than US-$ 30 billion in the fiscal year 2006. A

total of 136,000 employees are working for the company in more than 1,000 sites

serving customers in 125 countries around the world. The range of services the

supplier is offering includes, among other business fields, particularly the

production of various components for the automotive industry.

Page 260: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 237 of 384

Finance and accounting processes of the supplier were characterised by

heterogeneous and inefficient processes, many different IT systems and low

transparency. In order to increase efficiency and reduce costs, the supplier

decided to standardise and optimise its processes, and to support them with a

common IT platform using the expert know-how of an external provider. In

particular, the following finance and accounting processes have been

outsourced:

- accounts payable;

- accounts receivable;

- travel and expenses;

- general accounting;

- cash and banking; and

- fixed assets.

Outsourced services represent a very high transaction volume. In the accounts

payable department only, a total of 600,000 transactions have to be processed

per year. The finance and accounting processes mentioned above will be

provided to all divisions of the supplier. Geographically, they cover all European

locations. The outsourcing engagement represents a combination of near-shore

and off-shore delivery with outsourced tasks being processed in the Accenture

delivery centres in Prague (Czech Republic) and Mauritius. The agreed

compensation model is determined by fixed prices per unit only depending on the

Page 261: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 238 of 384

transaction volumes of outsourced services. (As the measures are quite

operational, no high-level description is provided in an additional column.)

4 – A high-tech global company

The company of the fourth case study is a high-tech global company belonging to

the IT industry. The high-tech company is one of the world's largest companies in

its industry and market leader in Germany. It was founded in the middle of the

last century and generated revenues of more than US-$ 100 billion last fiscal

year. A total of 150,000 employees are working for the company in 170 countries

around the world. The range of services the company is offering is one of the

most extensive product portfolios on the world market and includes a huge

variety of technological devices as well as IT services. Resulting from a merger in

the near past, the high-tech global company was faced with inflexible structures

and redundancies. Overall objective of the merger's business strategy was the

realisation of cost savings by eliminating these redundancies. Against the

backdrop of this strategy, the high-tech company decided that all "non-critical"

processes have to be outsourced to specialised external providers in order to

reduce cost as well as to increase flexibility and scalability. Thereby, the order

management processes have been identified as "non-critical" and therefore

transferred to the external provider Accenture. Objective of the outsourcing

engagement was a reduction of operational costs by 75 per cent over the next

three years. In particular, the following order management processes have been

outsourced:

Page 262: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 239 of 384

- order entry and updates, exception handling;

- backlog management;

- claims and returns management;

- transversal order fulfillment;

- customer set-up; and

- service reporting.

Outsourced services represent a high transaction volume. Approximately 25,000

direct orders plus another 20,000 orders via indirect channels have to be

processed annually. The order management services outlined above will be

provided for all business customers of the company. Geographically, they cover

all countries of the so-called EMEA (Europe, Middle East and Africa) region.

Accenture delivers the contractually agreed services through its near-shore

delivery centre in Prague. The agreed compensation model is determined by

fixed prices per unit only depending on the transaction volumes of outsourced

services.

Cross-case analysis

The cross-case analysis compared content and structure of the performance

measurement systems used in the outsourcing engagements. Content and

structure were interpreted by comparing them against the characteristics of a

balanced scorecard. Analysis results differ quite significantly for the performance

measurement systems of the four outsourcing projects.

Page 263: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 240 of 384

Looking at the first balanced scorecard attribute, only Case 1 shows an

operationalisation of its business strategy which pursues long-term cost

reduction. The other three case studies have selected a pure operationally-driven

approach compiling appropriate key performance indicators to govern and control

outsourced processes independently from the overall business objective of long-

term savings. The operationally-driven approach can be explained with the

underlying compensation model of these cases: the agreed terms and

conditionsalready include the cost savings compared to the baseline. A relation

between operational key performance indicators and their financial impact is

quite unimportant for the company that is outsourcing its processes.

The parameters of the different performance measurement systems can be

assigned to one or two balanced scorecard perspectives. While all engagements

show parameters belonging to the internal business process perspective, a

second perspective could only be identified for two of them. Case 1 uses the

finance perspective to gather the financial impact of the outsourcing project and

Case 2 controls the underlying infrastructure with key performance indicators that

can be assigned to the learning and growth perspective. The customer

perspective does not play a role in any of the cases as the external provider does

not have any direct contact with the customers of his client in any of the

outsourcing engagements.

A balance of key performance indicators can only be found in Case 1. The other

cases only use performance drivers, non-financial and internal parameters. This

allocation emphasises the already mentioned situation that the objective of these

performance measurement systems is to govern and control that the external

Page 264: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 241 of 384

provider executes the outsourced processes correctly. Due to the underlying

compensation models, output-oriented parameters as well as financial and

external key performance indicators are not needed.

The number of performance parameters in the outsourcing projects varies

between five and 40. In this respect three out of four performancemeasurement

systems are not aligned with the recommendation of [28] Kaplan and Norton

(1992).They proposerange of 16-24 parameters which is the number of KPIs

used in Case 2. Nevertheless, particularly Case 1 offers evidence that the

number of parameters is less important, than aligning all parameters with the

overall business strategy ([28] Kaplan and Norton, 1992), which is true for Case

1. Looking at cause-effect relations among the single performance measurement

systems shows significant differences between the cases: Case 1 demonstrates

the ideal type of cause-effect relations, linking all perspectives and parameters in

a way that each element is part of an overall chain of cause-effect relations that

allows the traceability of the overall financial success. On the other hand, Cases

3 and 4 do not have any cause-effect relations at all. They represent a pure

coexistence of operational key performance indicators. Case 2 can be allocated

between these extremes showing dependencies between and within the

perspectives without developing cause-effect relation chains with more than two

elements.

The last typical characteristic of balanced scorecards that key performance

indicators are hierarchically structured can be confirmed for all case studies. All

performance measurement systems offer a hierarchical evaluation of parameters

Page 265: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 242 of 384

mainly using "country" and "sub-processes" to break down the overall

performance values.

Discussion

While there is a rapidly growing body of literature on outsourcing, there is hardly

any account on performance measurement for outsourcing decisions. Based on

a multi-case research design, the performance measurement systems of four

outsourcing engagementswere evaluated within this paper. The balanced

scorecard served as asuitable performance measurement system to assess

related outsourcing projects. This is a first step to filling a gap in literature ([6]

Busi and McIvor, 2008; [24] Jiang and Qureshi, 2006). The performance

measures of four outsourcing cases present an important finding in itself, as to

our best knowledge, such measures have not been presented in related

publications so far. In line with important role governing and controlling the

outsourcing provider plays ([18] Gottschalk and Solli-Sæther, 2005; [48] Weimer

and Seuring, 2008), as well as the role of outsourcing contracts ([39] Platz and

Temponi, 2007), this research provides empirical evidence and insights for a field

that is hardly covered in outsourcing research so far.

The strength of the approach is that a detailed description of the design of

performance measurement systems in the outsourcing context in practice has

been developed. Furthermore, the balanced scorecard offers an interpretative

framework for analysing performance measurement systems in the outsourcing

context that allowed drawing important conclusions which will be discussed later

in this paper. Thereby, the underlying compensation model or outsourcing

Page 266: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 243 of 384

contract has been identified as a key determinant. Considering the frequently

reported strategic relevance of outsourcing decisions (e.g. [23] Holcomb and Hitt,

2007; [21] Harland et al. , 2005), it is rather surprising that such "simplistic"

performance measurement models are put into practice. In this respect, the

paper contributes to outsourcing performance management. It emphasises the

need for future research into the role of performance measurement and how

such systems need to be designed and used to justify and support

outsourcingdecisions and the ongoing management of outsourced processes.

Traditional theoretical approaches appliedfor determining outsourcing decisions,

such as transaction cost economicsor resource-based view ([34] McIvor, 2009;

[49] Williamson, 2008; [2] Arnold, 2000) are not able to assess such details of

outsourcing decisions as they rather deal with why and what then with how

questions.

One major limitation of our approach lies in only selecting cases from outsourcing

projects conducted by Accenture. This might have biased the results, but was the

only possibility to get access to the highly confidential information on

performance measurement in the outsourcing context. As described in the

research methodology and process sections, different measures were put into

place to achieve high research quality for this study.

Conclusion

The study aimed to further develop the so far little considered research area of

performance measurement for outsourcing decisions. It considered the results of

four case studies to describe in detail the design of performance measurement

Page 267: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 244 of 384

systems in the outsourcing context as well as to derive the determinants driving

performance measurement system characteristics. The balanced scorecard

served as a suitable performance measurement system to assess related

outsourcing projects.

The cross-case analysis results show that elements of the balanced scorecard

can be found in practical outsourcing projects. Yet, just Case 1 uses a

performance measurement system that fulfils all characteristics of a generic

balanced scorecard. On the other hand, comparing these characteristics with the

performance measurement systems in theremaining three case studies

demonstrates that these performance measurement systems lack most of the

characteristics of the balancedscorecard concept. Itsapplicability inthe

outsourcing context depends mainly on contractual agreements and

compensation models determining the characteristics of the performance

measurement systems.

This research identified the underlying compensation model as the key

determinant for the characteristics of a performance measurement system. The

compensation model manages payment terms and conditions and has a

significant impact on the performance measures used for controlling the

outsourcing provider. The key objective of all outsourcing engagements is a long-

term cost reduction of outsourced services irrespective of the underlying

compensation model.

The compensation model of the first case study links the payments for the

external provider to the overall cost reductions achieved through the outsourcing

Page 268: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 245 of 384

project. The company which is outsourcing its services has a strong interest in

tracking the overall savings. Consequently, a performance measurement system

has been developed that is primarily focused on controlling the overall cost

reductions and that has aligned all parameters, respectively. Overall savings

have been linked with all operational parameters impacting them. Therefore, the

characteristics "strategy operationalisation" (with overall savings as a starting

point), multiple "perspectives" (finance and internal business processes

perspective) and "cause-effect relations" linking perspectives and respective

parameters to explain overall cost reductions can be identified. A "limited number

of parameters" can be confirmed as well as it is less important in case that all

parameters are aligned with the overall business strategy. The performance

measurement system in case study 1 captures all characteristics of a balanced

scorecard.

Case studies 2-4 operate with fixed-price or volume-dependent contracting or

compensation models. In these cases, both parties negotiate fixed payments or

fix prices per unit only depending on the transaction volumes of outsourced

services. These compensation models realise the pursued cost reductions

against the baseline independent of the operational cost generated by the

external provider. The company which is outsourcing its services has no interest

in a performance measurement system tracking the overall cost savings as

central parameter. It is rather interesting that the outsourcing provider executes

the outsourced processes in a contractually compliant way and therefore focuses

on a detailed controlling of all outsourced process steps. Consequently, the

underlying performance measurement system does not operationalise the overall

Page 269: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 246 of 384

outsourcing strategy. Working only with key performance indicators of the

internal business processes perspective is sufficient in general. The single-sided

allocation of parameters to performance drivers, non-financial and internal

parameters emphasises the characteristics of these performance measurement

systems as well. Finally, parameters do not have to be linked via case-effect

relations, as long as all relevant process steps are tracked. Within these case

studies, the balanced scorecard characteristics "perspectives", "balance" and

"cause-effect relations" cannot be identified. Having these compensation models

in place, the balanced score characteristics do not represent an appropriate

performance measurement system in the outsourcing context.

From a theoretical point of view, the overall results of the case study analysis can

be summarised as follows: the balanced scorecard characteristics represent

under certain conditions an appropriate performance measurement system in the

outsourcing context with the underlying compensation model being the major

determinant for their applicability as it basically drives the characteristics of

performance measurement systems in the outsourcing context. Companies

should therefore use the compensation model as a starting point to select and

design the performance measurement system for their outsourcing engagements

in order to effectively govern and control the external provider which is

considered essential by outsourcing research. This should allow successful

outsourcing engagements.

Page 270: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 247 of 384

CHAPTER 11

FUTURE OUTSOURCING STRATEGIES

TRANING FUTURE LOGISTICS MANAGERS

THE ROLE OF BALANCED, STRATEGIC,

CASCADED,& ALLIGNED PERFORMANCE

MEASUREMENT IN ENHANCING FIRM

MEASUREMENT

Page 271: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 248 of 384

CHAPTER 11

FUTURE OUTSOURCING STRATEGIES

11.1 Training future logistics managers: Logistics strategies within the

corporate planning framework

Bose Corporation, the audio equipment company, has entered into partnerships

with transportation carriers, suppliers of plastic and metal parts, and printing

vendors in a program it refers to as JIT II.(1) Under this program, big volume

improvements are front loaded for the supplier, resulting in the elimination of

certain conventional sales and purchasing activities and leading to a more active

involvement of the vendors' in-plant representatives with Bose's manufacturing

operations. Recently, Xerox slashed inventories and related assets by nearly $1

billion by coordinating the product flow through its channel of supply and

distribution.(2) Sears has contracted its LTL and intermodal transportation

requirements to third-party logistics firms.(3)

As these examples suggest, logistics strategies are undergoing a transformation

to a form more complex, longer lasting, less easily reversible, and having more at

stake than ever before. This transformation has also been accompanied by

greater visibility for logistics in the corporate executive suite. A recent CLM-Ohio

State University report on strategic planning in logistics states that logistics is

becoming an integral part of corporate strategic planning and that logistics is

benefitting from recent emphasis on customer service and JIT systems.(4)

Page 272: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 249 of 384

Given the on-going transformation of logistics strategies and the increased

visibility of logistics, how can educators teach this subject to students, the

logistics managers of the future? The premise of this is that logistics strategies

can neither be taught nor understood by students without a framework that

relates logistics to corporate strategy. To underscore this point, the authors use

simulation courseware that leads students to adopt different logistics strategies

for a hypothetical manufacturing firm--all successful as measured by long term

financial performance--but each contingent on the chosen corporate strategy.

The Strategy Framework

Corporate Strategy

The subject material on corporate strategy can be divided into two parts: (1)

elements of corporate strategy, and (2) the strategic planning process. Elements

refers to areas of the business enterprise for which options are evaluated and

decisions are made. For example, the decision to offer a particular set of

products is a corporate choice falling into the line-of-business element. Certain

other aspects of strategy are also better developed at the corporate level,

through the CEO, the board of directors, and the senior executives. These

policies set the tone for the enterprise and dictate the choices and evaluation

criteria for more detailed decisions at the (lower) functional levels.

In addition to corporate policies which set the groundwork for functional

strategies, the planning framework is also important. The planning process's

contribution comes from the integration it spawns and the learning process which

it engenders within the firm. The planning process can play a very influential role

Page 273: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 250 of 384

in suggesting the type of strategies that might be fruitful because of the careful

attention paid to the business environment during the planning process.

Elements of Corporate Strategy

The corporate strategic decisions fall into clusters that are referred to as

elements in this paper. The key elements of corporate strategy consist of

answers to the following questions:

* What lines of business should we (the firm) be in or exit? What product groups

should we develop?

* What should be the geographical scope of our markets?

* What are our growth strategies and financial objectives?

* What commitments should we make to our stakeholders?

* What are our core competencies and capabilities?

Lines of Business. Decisions by AT&T to enter the computer business, Dow

Coming to exit the silicone breast implant line of business, and attempts by

television cable and local telephone companies to seek the ability to invade each

other's product lines are corporate strategic choices that will affect the companies

involved for years if not decades.

The input data for such decisions should come from all functional departments

within the firm so that the ability to profitably manufacture, market, distribute, and

finance the product line can be accurately assessed.

Page 274: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 251 of 384

Geographical Scope. Decisions by Fujitsu to enter, abandon, and then reenter

the supercomputer business in the U.S., Federal Express to cease serving

Europe through its dedicated fleet, and Coors to enter the eastern U.S. market

are also corporate decisions that have a heavy impact on logistics both in terms

of sourcing capabilities and requirements, and also for distribution.

Growth Strategy. Firms may decide to grow by acquisition or through internally

generated expansion. Acquisition may involve diversification or integration into

related lines of business. Examples include conglomerates such as General

Electric and ITT, integrated steel producers such as Inland Steel, and minimills

such as Nucor. Stakeholder Commitments. Many firms create certain

expectations in the minds of their stakeholders, either explicitly through policy or

implicitly through a history of actions. For example, shareholders may come to

expect certain dividend distribution policies and levels of earnings growth;

employees may come to expect job security, pension benefits, wage increases,

and other aspects of worklife; and customers and suppliers may develop

expectations of quality and reliability in various aspects of doing business with

the firm. General Electric expects to be the first or second leading firm in market

share in each market it serves, 3M expects a significant portion of its revenues

each year to come from new products, IBM (until recently) had a no-layoffs

policy.

Core Competencies. In a recent Harvard Business Review article, Hamel and

Prahalad focused on core competencies which firms might have and which they

can capitalize on to fuel their growth.(5) Examples include Honda's competency

Page 275: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 252 of 384

in engines and power trains, Sony's edge in miniaturization, and Toshiba's in

screen technology.

Core Capabilities. In another HBR article, Stalk, Evans, and Shulman argue that

in addition to the core competencies that are rooted in technology and production

skills, firms may also possess core capabilities derived in a basic understanding

of and exploiting of key processes central to the firm's business.(6) Examples

include Wal-Mart's capabilities in managing its cross-dock logistics, Honda'

capabilities in dealer management and product realization, and 3M's capabilities

in nurturing an innovative environment.

The Planning Process

The corporate strategy planning process typically starts with a vision, a mission

statement, and a set of objectives that the firm wants to achieve to satisfy its

stakeholders: customers, suppliers, employees, and shareholders. Next, the firm

assesses the resources available to it by identifying its strengths and

weaknesses, in both its internal operations and customer and channel

relationships. In addition, the external threats and opportunities that will have an

impact on company's performance in the future are also pinpointed. Levi Strauss

& Co.'s corporate and logistics strategy planning process illustrates this approach

well.(7) Rushton and Shaw have described the overall planning process and

some of the common pressures influencing logistics systems.(8) In this analysis

of strengths, weaknesses, opportunities, and threats (SWOT), the firm must

detect both ongoing and potential changes in society which are relevant--

including social, demographic, behavioral, and environmental changes--as well

Page 276: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 253 of 384

as both societal and governmental responses to these changes, such as

adjustments in taxes, services, andregulatory policies. The market and the

competitors are also, of course, studied to see how they might respond to the

changes and where the company should position itself against the competitors in

the market.

The external and internal environment analysis described above is sometimes

referred to as environmental scanning. The company needs to know the

environmental factors that are external to the company so that major strategies

will anticipate and respond to environmental changes. It also needs to know the

resources that are available to the company and use them efficiently and

effectively to achieve the objectives. Usually the company's strengths and

weaknesses study will reveal its overall health condition in comparison to its

competitors. Then an opportunities and threats analysis in the industry will show

where the industry stands in the future. The social trends, consumption changes,

demographic shifts, and technology advances are studied jointly and separately

to gain insights of these changes. Further analyses may follow to see how these

changes and their implications will affect the company's bottom line performance.

Next, the company needs to develop several corporate strategies and make the

strategic choice to pick up the one that best fits the company's mission, the many

objectives, and the operating environment. (These are discussed further below

under elements of corporate strategy.) Later, functional strategies in marketing,

operations, finance, and logistics are developed following the same process of

developing thecorporate strategy. The planning process keeps moving down to

Page 277: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 254 of 384

the company management hierarchy until all strategic, tactical, and operational

plans have been developed to the formal extent necessary and appropriate.

The action plans are a result of the strategic thinking, and represent a feasible

approach to achieving the objectives in a shorter term. They cover details in

implementing the strategies, with a schedule indicating what and how much of

each key resource is used by whom at what time. Action plans also close the

loop in the strategic planning process by providing feedback and enabling

corrective actions to be taken to respond to changes in the marketplace.

The decisions at the corporate level on the various elements of corporate

strategy, coupled with the planning process, provide the framework within which

functional strategies can be formulated and linked to each other. The

relationships between corporate strategy and functional strategies are obvious

and straightforward in most cases. For example, a corporate decision to

manufacture multinationally or to source globally would lead to a different

logistics network than otherwise. Similarly, a corporate decision to seek

significant export sales would lead to greater attention being paid to aspects of

international logistics.

The relationships between corporate and functional strategies could also be

more subtle, however. Stalk, Evans, and Shulman in the previously referenced

article argue that Wal-Mart's success comes from its corporate focus

on"capabilities-basedcompetition."

Thisin turn leads to certain logistics strategies that are difficult to execute and

implement. Wal-Mart facilitates these functional strategies by investing, as a

Page 278: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 255 of 384

corporate strategic decision, in satellite-based communication systems, a

proprietary transportation system, extensive training, and numerous other

supporting infrastructure investments affecting its business processes and

organization practices.(9)

The implication, then, is that logistics managers must be well attuned to their

firm's corporate strategies and to its key business processes and practices.

Experience and insight are necessary to develop good judgment about what

logistics strategies are likely to work and succeed within this larger framework.

Logistics Strategy

Functional strategies must be developed within the framework of corporate

strategy where decisions are made about lines of business to pursue and

geographic markets to enter, based on core competencies and capabilities,

which will meet stakeholders' expectations and provide the desired pattern of

growth. Logistics strategies must not only consider these overarching corporate-

level considerations but also take into account relevant functional strategies,

particularly in terms of manufacturing capacity available and the product-price-

promotion mix.

The growing visibility of logistics is at least partly due to the pervasive nature of

logistics' interaction across the functional spectrum of thefirm. The challenge to

logistics managers is how to develop a coordinated logistics approach inthis

environment--and the answer increasingly is a method referred to in the literature

as supply chain management.

Page 279: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 256 of 384

The management of the logistical supply chain as an integrated system has long

been advocated by academics as well as by other students and practitioners of

the logistics concept. The term "supply chain" as used here denotes the channel

of firms and intermediaries through which a product (or group of products) moves

from the original sources of its basic raw materials through

conversion/manufacture and then distribution in its finished form to the ultimate

consumers. Thus it supersedes the logistical operations of any one firm. The

concept is closely related to the channel of distribution, but that term typically

connotes the chain for finished goods only, with a strong emphasis on marketing,

as opposed to logistical, issues. We will use the term "logistics system" to

indicate the specific set of fixed facilities (of suppliers, producers, and customers)

and the transportation and information processing/transmittal choices linking

those fixed facilities used to implement the supply chain concept. There have

been no definitive studies either determining the exact circumstances under

which integrated supply chain management is clearly superior to other

alternatives or measuring the extent of that superiority. However, several studies

have shown that managing inventories independently and/or with simplistic

decision rules at each of the various points in the chain leads to higher

inventories or dysfunctional fluctuations in demand at upstream (supplying)

locations than would be the case when coordinating techniques are

employed.(10)

In any case, it is faith among logistics professionals in general that integrated

supply chain management will result in logistical performance in the channel of

distribution (or supply) superior to that of channels not employing such

Page 280: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 257 of 384

integrating approaches.(11) The means for achieving integration typically involve

the sharing of information, particularly with regard to projected demands and

planned production. In addition, integration requires a comprehensive look at all

of the critical elements The discussion below describes these elements first and

then presents a model for their integration.(12)

Customer Service Levels. This element involves determining the appropriate

levels of customer service for the appropriate product-market combination. In

order to evaluate strategic options, it is necessary to survey and study

customers, determine opportunities for differentiation, identify and benchmark the

performance of competitors, and define the best network options and associated

costs of offering various levels of service. Xerox has been cited as a firm that

decided to make field service its competitive advantage to replace its expired

patent rights.

Channels of Supply and Distribution. How many channel members should there

be and what should be the working relationships with them? Pursuing total

quality management (TQM) and JIT, many firms have moved to reduce the

number of suppliers, carriers, and distributors/dealers they do business with and

bolster their relationships with those remaining, often entering into long term

contractual and partner shipping arrangements. 3M is one of the few firms to

formalize this strategy, calling it its "Channel Approach."(13) Under this

approach, 3M has identified five logistics channels to serve 90 separate

businesses, with teams established to develop customized logistics strategies for

each channel.

Page 281: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 258 of 384

Facility Locations. What raw material supply sources, supply consolidation

points, distribution facilities, field service centers should be part of the logistics

network and what should be their capabilities? Answering these questions

involves close liaison with manufacturing and marketing departments so that the

whole supply chain is working in a satisfactory manner. Allocations. Coupled with

the facility element above, these strategies involve the best use of the facilities.

In other words, how should raw material supplies be best allocated and deployed

to meet manufacturing needs and how should plant output be allocated to

distribution centers and eventually to customer locations? Inventories. What

should be the inventory management system, how much inventory should be

carried, of what products, and where should they be carried? Traditionally,

inventories have served a buffer function to smooth seasonal peaks in demand

and provide for production economies. As the hidden cost of large inventories

has become better known, there has been a move to reduce these assets,

requiring a much more coordinated operation to manage product and goods

flows. Practices such as postponement, standardization, and speculation can still

be useful when viewed in a systems context.

Transportation. What modes of transportation to use, what carriers and shipment

sizes and who should make the transportation decision, shippers or receivers?

Deregulation has opened this area as a major opportunity for cost savings and

quality improvement.

Information Management. What planning, operational, and control systems are

appropriate, and what type of telecommunication systems are needed to track

product flows throughout the logistics pipeline? Therapid growth of barcoding and

Page 282: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 259 of 384

other forms of automatic identification, electronic data interchange (EDI), and

imaging facilitating transaction processing and communications as well as

sophisticated decision support and expert systems for planning attest to the

significant role of this strategic element.

Organization. The proper motivation, delegation of authority and responsibility,

and organization of logistics personnel, in terms of line and staff and the degree

of centralization vs decentralization, are important issues to be addressed for a

well functioning logistics operation. The interrelationship of the logistics

organization to the rest of the firm is also critical. Some firms, such as Sony

Corporation of America, have established their logistics organization as a

separate enterprise (in Sony's case. its Logistics Services Company), which

renders services in a fashion not unlike a third-party logistics provider.(14)

The Hierarchical Model

The authors' approach to teaching students how to develop logistics strategies

consistent with corporate objectives, as well as to achieve integration across the

logistics elements, is through a concept referred to as the hierarchical model.

This model goes beyond strategic planning and bridges into strategic

management--that is, aspects of directing and controlling in order to implement

strategic plans. The first two levels of the model deal with designing and

optimizing the logistics system, while the next two levels deal with aspects of

planning, directing, and controlling logistics transactions and flows.

The hierarchical model is based on the premise that the planning and control

process follows a top down approach in which decisions are made by the various

Page 283: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 260 of 384

levels of management, with higher level decisions circumscribing the range of

choices available for lower level decisions. Thus strategic resource decisions--

such as building new plants or revamping the distribution system to offer higher

levels of service--are made by top management, often with the use of appropriate

computerized decision support systems. Operational planning decisions--such as

how much of a given product group to produce by month for the next twelve

months given the available resources anticipated in the strategic plan--are made

by upper middle level managers. And day-to-day scheduling decisions are made

by first- and second-level supervisors within the resource availabilities and

constraints provided by operational plans, the suggested frequency with which

they are performed, and the approximate time horizon covered by the plans at

each stage. Typically this process must be performed for each strategic business

unit--separately if they are truly independent or jointly where there are common

suppliers, customers, or production/distribution of resources. Obviously this

process is related closely to the typical planning and control process described in

the manufacturing literature. However the approach here is broader in that

customer service issues, and the entire supply chain and associated resource

needs are considered explicitly. The manufacturing literature generally takes

customer service levels and the broader issues of the supply chain management

as given in their prescriptions for the manufacturing planning process.

Tanning in Logistics Strategy Formation & Management

Having described the authors' view of how corporate strategy and functional

strategies are linked and how the hierarchical model can assist students to

appreciate the manner in which logistics planning can be comprehensive and

Page 284: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 261 of 384

integrated with flow planning, the paper now delves into the methods of

instruction. The primary mode of instruction is a simulation courseware.

The use of simulation for pedagogical purposes is, of course, not a new concept,

In the logistics field, there are several general- and special-purpose simulation

programs that have been widely used, including the Stanford Business Logistics

Game,(16) Michigan State University's Distribution System Simulator,(17)

Industrial Dynamics,(18) BLAST,(19) and others.(20) The courseware described

in this paper has some objectives in common with these other simulators: provide

users insight into logistics tradeoffs, network design, and network operation. A

further objective of this courseware is to show the interdependency between

logistics and the rest of the corporate planning and decision framework.

Prior to students' exposure to this courseware, they are instructed through two

other means: lectures and case studies. The lectures involve assigned readings

in both corporate strategy and logistics strategy and instructor presentations on

the subject matters previously described. The strategic planning process and the

hierarchical model are also described and illustrated. These lectures and

readings then lead into case studies exploring some elements of strategy in

depth.

Case Studies

The case studies are used in two ways. First, one case is drawn from logistics

literature to demonstrate the formulation or application of some specific logistics

strategy. For example, the 1991 fall semester saw the use of the Lotus

Development Corporation case, which focused on channel issues and

Page 285: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 262 of 384

strategies.(21) The case describes the founding of the company and key

corporate responses to the business environment it faced following the

introduction of its successful spreadsheet software but prior to the introduction of

WINDOWS from Microsoft. Logistics strategies in terms of channel interfaces

with software wholesalers and dealers and customer service issues are explored

in the case and related back to the corporate strategy and the business

environment.

The second use of case studies is a logistics article that summarizes seven

cases in different industries, each involving different product and industry profiles

and each pursuing a different logistics option to accomplish the company's

objectives.(22) This article focuses more on the context of the strategic logistics

decisions, lines up the logistical alternatives, and through this process

establishes linkages between the two.

In summary, both of these sets of cases, coupled with the lectures and reading

assignments, prepare students for the simulation courseware that is administered

during the last six weeks of the course. The MAS case, programmed in

FORTRAN, simulates the long term operations of a logistics system under a wide

variety of configurations and conditions. It calculates total logistics costs, net

profits, and customer service performance for any configuration provided by the

students. Students may change the markets served; the location of DCs, plants

and their capacities, and supply points; modes of transportation and shipment

sizes; the levels of forecast accuracy; the two flow planning methodologies (DRP,

Reorder Point); the set inventory availability targets; and a linear programming

subroutine that performs allocation tasks. This section describes the courseware

Page 286: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 263 of 384

in greater detail and the subsequent section delves into how this courseware is

used to instruct students in logistics strategy.

MAS Manufacturing produces a line of household cleaners, chemicals. and

associated accessories in Denver, Colorado. These products are currently sold in

the West and Midwest, but not on the East Coast. Founded in the early 1950s,

the company has had its ups and downs as it has struggled toward stable.

profitable growth. The CEO recently asked her top managers to consider the best

way for the company to "bring our growth under control so we can increase

profits and return on investment." A meeting called by the CEO to discuss this

issue leads, to an interchange between the department heads shown in Exhibit 5.

(Exhibit 5 omitted) MAS Manufacturing's existing logistics network and the

optional additions to that network are shown in Exhibit 6. (Exhibit 6 omitted)

Products and Markets. The MAS line of household cleaners and chemicals is

sold in 27 Western and Midwestern states, primarily through grocery and

discount channels. The company has no direct sales force, but rather uses food

brokers to sell to customers on a commission basis. Ten district sales managers

are located around the market, each supervising several brokers. While the

company promotes sales in a variety of ways, its primary promotional

expenditures are devoted to television, with spot ads on afternoon soap operas

and late night news programs. On the average, the products sell to the grocery

and discount chains for $32.00 per case (or $2.00 per pound), FOB destination.

There is one price for each item throughout the market. Demand is seasonal,

with the peak occurring during the spring cleaning season. Students are given

Page 287: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 264 of 384

the percentage of annual demand shipped from distribution centers each period,

and annual demand forecasts by metropolitan area.

The Distribution System. Because of the large number of LTL shipments to

customers (shipments are generally between 1000 and 5000 lbs.), and the long

from distribution centers each period, and annual demand forecasts by

metropolitan area.

The Distribution System. Because of the large number of LTL shipments to

customers (shipments are generally between 1000 and 5000 lbs.), and the long

distances to be covered, MAS has several distribution centers. These are located

in Los Angeles, Denver, (separate from the plant--the plant does not make LTL

shipments to customers due to the limited loading area), Dallas, Chicago, and

Detroit. The latter was added recently in an effort to get closer to K-Mart

headquarters and increase shelf space in those stores. There is some evidence

that this strategy has led to higher sales in Michigan and Ohio.

The distribution centers are resupplied primarily by rail in order to reduce

transportation costs. Rail carload rates are available at 50,000 and 90,000 pound

minimums. Truckload rates are available at 24,000 and 40,000 pound minimums.

Examples of these rates--both to some of the existing DC's and to possible new

DC's--are given to the students. Also shown are typical public warehousing

charges paid by MAS, and freight rates to metropolitan areas.

The inventories at the distribution centers are controlled by means of reorder

points. The reorder point (ROP) for an item is that item's safety stock plus the

demand expected during the resupply lead time. The general rule the company

Page 288: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 265 of 384

has been following is to set the safety stock equal to one and a half times the

demand expected in the period. The lead time for rail resupply is generally

considered to be two weeks. Thus the ROP is set at about two periods' worth of

sales for each item at each location. Whenever an item's inventory level at a DC

reaches its reorder point, a resupply is requested from the factory warehouse. In

order to fill a carload, other items close to their ROP may be added to the

shipment. Students have the option of switching from ROP to a Distribution

Requirements Planning (DRP) method of operation, in which case the

courseware automatically develops time phased flows and feeds them to the

production scheduling module.

Production. While the vice president for manufacturing indicated that the plant

capacity at the Denver location is close to 27 million pounds of product per year

(see Exhibit 5), that assumes 7 days a week, 24 hours a day operation (21 eight

hour "turns" per week). In general, the plant can turn out 25,000 pounds of

product in an eight hour work turn, allowing for standard preventive maintenance

procedures. Adding afternoon, midnight, and weekend turns increases many of

fixed and variable costs of production. This is due to wage premiums required for

extra shifts and weekends, as well as the increased wear on the equipment.

Denver production economics are given to the students, including both fixed and

variable costs of operation.

It is also possible to purchase some adjoining land and expand production

operations in Denver. The expansion would involve not only new facilities, but

also some revamping of the old facilities. The overall result would be to reduce

Page 289: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 266 of 384

variable costs by $.02 to $.03 per pound. Students are shown the projected

economics of any Denver expansion.

After a good deal of study, six sites have been selected as potential locations for

a new plant in the East. These are: Covington, Kentucky; Parkersburg, West

Virginia; New Kensington, Pennsylvania; Allentown, Pennsylvania; Richmond,

Virginia; and Raleigh, North Carolina. Any new plant will use new technology, so

that even though Eastern labor costs may be higher than those in Denver, less

manpower will be used. The estimated economics for each new plant site are

given to the students for three sizes of plant. The capacity figures are based on

15 work turns per week.

Also located at the Denver plant is a warehouse for holding raw materials and

finished goods. The finished goods stored there consist of stocks used for

replenishing the distribution centers, and stocks resulting from production

smoothing. It is possible to reduce the investment required for expansion of the

Denver plant to $450,000 (and fixed costs to $100,000) if the finished goods

section of the plant warehouse is eliminated. In this case, production would be

allocated to the distribution centers as it comes off the production line. It is

undecided whether to include a plant warehouse in any new Eastern plant. The

costs of operating the Denver plant warehouse (and the associated sunk

investment allocated to it) are given to the students as are the projected costs

and investments for any of the six new plant locations.

Purchasing and Supply. The raw materials for the company's cleaners come

primarily from petrochemical producers located along the Gulf Coast. At least

Page 290: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 267 of 384

one supplier is also available on the West Coast near Los Angeles. In addition,

several of the suppliers operate water-supplied terminals on the East Coast and

in major cities along the Mississippi and Ohio Rivers.

Prices are quoted either FOB the refinery or FOB the terminal point. They are

competitive for the most part, with any differences partially reflecting varying

degrees of quality and delivery performance. The materials can be received in

24,000 and 40,000 pound truckloads, and 50,000 and 90,000 pound carloads.

The material prices and freight charges for the major supply sources are given to

students both for the existing plant in Denver as well as a potential future plant in

the eastern United States.

Making Decisions. The simulation is designed to highlight the effect production

and logistical decisions can have on corporate strategies and operating

performance. Even though certain aspects of the business have been held

invariant (such as pricing and promotion), students find themselves concerned

about marketing issues--such as market penetration and customer service--and

about financial performance. Students see that their decisions do have an

important impact, and can work for or against the marketing and financial

objectives, and are contingent on the overall strategies at the corporate level. To

do the planning, students (organized into teams of 4 to 6) configure a

market/logistical system which will be simulated for a year on the computer. (The

courseware can conduct simulations for 10 years beyond the base year, with

built-in changes in demand and other parameters.) At the end of the year the

results--sales, profits, investment, and customer service--are printed out for each

team, broken out by manufacturing/logistics facility and market area. Students

Page 291: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 268 of 384

typically run several simulations for each of the two assignments, which are

described later.

Use of the MAS Simulation Courseware

The MAS simulation case is used in two phases. In the first phase, students

retain the current network but alter operating policy elements. These elements

include inventory availability levels at each location, safety stock of raw materials

and finished goods at plants, transportation modes and shipment sizes used,

production capacity adjustment, forecasting and inventory planning

methodologies used, and the mix of procurement from raw material sources. This

exercise allows them to see how efficiently the existing logistics system can

operate. Students learn during this phase that it is possible to fine tune the

logistics operation through a better forecasting process and the substantial

reduction of inventories. The benefit of this phase is primarily in understanding

the tradeoffs within logistics among such various elements as customer service,

transportation choice, production scheduling, and inventories.

In the second phase of the case study, students make strategic decisions,

altering the logistics structure over a five- to ten-year time frame. They can

change the number and location of plants, and distribution centers, enter or close

markets, and expand production capacity of plants. Since the courseware does

only simulation, it does not produce an optimal solution. However, via

comparison of alternate runs, it shows students the sensitivity of performance to

changes in strategic variables.

Page 292: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 269 of 384

Students learn during this second phase that it is possible to succeed with

different logistics networks and strategies depending upon what the corporate

policies are regarding its scope of business, success being measured in terms of

profit and return performance over at least a five-year period.

A natural question that arises is whether learning is enhanced with the use of this

courseware. The authors have reported elsewhere the results of a preliminary

evaluation of the benefits of this courseware used in three separate sections of

the course taught by different instructors. In all three cases, there was an

extremely favorable response from students to the hands-on experience obtained

with the courseware.

Summary

In the past few years, many companies have recognized the strategic value of

logistics and used it as a source of savings as well as a source of service

advantage. Logistics' role in the overall corporate strategic framework has

become more prominent as firms have attempted to cut costs and become more

competitive without sacrificing service. The increasing attention to time-based

and capabilities-based strategies has elevated the role of logistics managers in

the strategic context. In this environment, the challenge facing instructors in

logistics is how to make logistics students--the managers for the future--both well

versed in elements of logistics strategy as well as better attuned to the overall

corporate strategic framework. The authors' approach has involved a mixture of

lectures, assignments, and case studies as well as a capstone simulation

courseware.

Page 293: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 270 of 384

Describing a hierarchical model approach used to instruct students in the

integration of the various elements of logistics strategy. Finally, it has shown how

a simulation courseware, MAS SIMULATION, enables students to obtain hands-

on experience in making strategic decisions and observing their impacts over a

long term.

11.2. The Role of Balanced, Strategic, Cascaded &aligned Performance Measurement in enhancing Firm Measurement

Although it has long been recognised that performance measurement has an

important role to play in the efficient and effective management of organisations,

it remains a critical and much debated issue. After about a decade of being

presented in the literature, one of the most compelling questions remains

whether the implementation of contemporary performance measurement models

such as the Balanced Scorecard (Kaplan and Norton, 1996) and several other

performance measurement frameworks (Keegan, Eiler and Jones, 1989;

Fitzgerald et al., 1991; Lynch and Cross, 1991; Atkinson, Waterhouse and Wells,

1997; Neely, Adams and Crowe, 2001) actually enhances company profitability.

It has been suggested that companies adopting these systems would improve

their corporate profitability by identifying the causal relationships between actions

and performance. Their authors argue that through a better alignment with the

strategy corporate performance is improved since the goals of managers and

their subordinates are then aligned with corporate strategy, and this alignment

should lead to a better performance.

Page 294: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 271 of 384

However, little consideration has been given to providing comprehensive

evidence of relations that might explain how contemporary performance

measurement systems and the congruence between the different elements of

management control systems in a broader sense (strategy setting, incentive

systems, cascading of performance measurement through hierarchical levels in

particular) have beneficial effects on financial performance. While there is some

evidence that non-financial performance measures are positively associated with

performance (e.g. Abernethy and Lillis, 1995; Ittner and Larcker, 1995; 1997;

Chenhall, 1997; Perera, Harrison and Pole, 1997, Ittner et al., 2003, Kaynak,

2003, Said et al., 2003, Davis and Albright, 2004), the empirical evidence is

mixed. It is questionable if any of the isolated relations such as the alignment of

performance measurement systems (PMSs) with the corporate strategy or the

introduction of non-financial performance measures per se are powerful enough

to stimulate the efforts of the organisational members and to channel these

efforts toward the achievement of the organisational goals. Even carefully

designed and cascaded PMSs may fail to co-ordinate employees' efforts and

their decision-making if not linked to an incentive system. More empirical

evidence is needed to understand the reasons for the diversity of PMSs and their

impact on organisational performance. We use a multiple case study approach

consisting of in-depth interviews and a survey with managers from different

hierarchical levels to investigate these questions. Eight Slovenian companies

from different industry sectors were selected for the study. Altogether, 119

managers from the first three managerial levels participated in the survey and 48

managers were interviewed.

Page 295: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 272 of 384

It is found that organisations without a Balanced Scorecard type of a

performance measurement system were achieving high levels of integrative

information from their specific PMS. Focused performance measurement that is

also well-aligned with the business strategy and further supported by tight control

mechanisms may actually improve firm profitability. Also, in complex and

dynamic business environments effective organisations may combine PMSs of

tight controls with moreopen, informal and flexible information and

communication systems to stimulate and channel employee behaviour towards

achievement of the overall organisational goals.

The influence of contextual variables such as the external environment,

technology, organisational structure, size, strategy, and national culture on the

design of an effective PMS has long been recognised in the performance

measurement and accounting literature. Originally, however, this field developed

as a contingency framework in the organisational literature (Burns and Stalker,

1961). Contextual variables may, in effect, have a direct affect on a company's

performance. Nevertheless, when studying the influence of a PMS on a

company's performance, the important question is how well a PMS is designed

for the context in which the company operates. There are two views of how the fit

between contextual variables and structure, in our case - the PMS - develops:

the first one says that the fit is a continuum that allows frequent, small

movements by organisations from one state of fit to another; whereas a

contrasting view says there are only a few states of fit between the context and

structure with organisations having to make major jumps from one state of fit to

another (Gerdin and Grève, 2004). The contingency view claims that the higher

Page 296: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 273 of 384

the degree of fit the better the performance, with all other things being equal. An

extensive body of accounting research has provided evidence that the

appropriate design of performance measurement systems is influenced by the

context within which the companies operate (for a review, see Chenhall, 2003). It

is beyond the scope of a single study to consider the influence of all individual

contextual variables on performance. Rather, we focus here on the fit between all

of them together and the PMS, which is allowed by a holistic field research

approach.

The attempts to make three contributions to the current literature. First, by

undertaking multiple cases we attempt to extract from the perspectives of

individual organisations that are characterised by the idiosyncratic conditions

underlying each organisational context (Flyvbjerg, 2001) to a higher and more

general level of abstraction applicable to a greater number of companies. The

applied method helps us better understand the critical factors underlying the

mediating role of performance measurement and incentive systems' alignment in

the association between the company's strategy and its financial performance.

second, this study investigates eight different types of performance measures

(e.g. financial, customer, quality, processes, environmental, employees,

suppliers, and research and development) and how they are aligned with

incentive systems. This approach may provide different and more meaningful

insights than those provided by prior studies that typically investigate a

dichotomy of financial vs. nonfinancial measures (Said, HassabElnaby and Wier,

2003). Finally, the paper attempts to contribute to a better understanding of how

combinations of different types of controls can be combined to suit the particular

Page 297: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 274 of 384

circumstances of the organisations. Management control system is a broader

term that encompasses PMSs and also includes other controls such as personal

or clan controls (Chapman, 1997; Otley, 1994; Chenhall, 2003), but a limited

number of studies examine broader elements of control (Ittner and Larcker,

1998b). The paper is organised as follows. section 2 provides a discussion of the

background literature on management control, performance measurement,

RAPM (Reliance on Accounting Performance Measures) and incentive systems,

and develops the hypotheses.

The management accounting literature has long maintained that one of the

primary roles of internal accounting and control systems is to facilitate the

development and implementation of business strategies (Simons, 1990; Ittne

rand Larcker, 1997). Simons (2000, p. 5) defines performance measurement and

control systems as 'the formal, information based routines and procedures

managers use to maintain or alter patterns in organisational activities'. In this

role, management accounting and control systems can support the formulation

and communication of strategies, along with the development of controls to

monitor the success of implementation steps and the achievement of strategic

objectives (Govindarajan and Gupta, 1985; Simons, 1987; Govindarajan and

Shank, 1995). Performance measures provide managers with information used

to track the implementation of business strategy by comparing actual results

against strategic goals and objectives (Simons, 2000). With the growing speed of

changes and complexity of today's business environments (Bartlett and Ghoshal,

2000; Harvey, Novicevic and Kiessling, 2001), contemporary PMSs must

encompass multiple financial and non-financial performance measures (Garrison,

Page 298: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 275 of 384

1990; Eccles, 1991; Fisher, 1992; Kaplan and Norton, 1996; 2004; Merchant and

Bruns, 1996). While financial performance measures primarily report how the

organisation has performed, non-financial indicators provide leading information

of future performance and enable managers to track progress with strategic

success factors and processes. Economic theory also explains why companies

place importance on both financial and non-financial performance measures:

importance will be placed on additional, non-financial measures as long as the

measure provides information beyond that contained in financial measures

(Feltham and Xie, 1994). Gersbach (1998) specifically demonstrated that the use

of multiple control measures will induce higher effort among managers than

relying on an aggregated financial measure. With respect to the evidence about

the impact of performance measurement diversity on firm performance, Ittner and

Larcker (1998a) found that firm-level customer satisfaction measures are

associated with the firms' current and future market value but not with

contemporaneous accounting measures. Chenhall (1997) reported that firms

using both TQM and non-financial manufacturing performance measures achieve

higher performance that those using TQM without the non-financial measures.

Kaynak (2003) similarly confirms the positive relationship between TQM

practices and performance levels. From a more general perspective, Davis and

Albright (2004) specifically study the Balanced Scorecard implication for superior

financial performance and confirm it, however, based on a case study. Said,

Hassab Elnaby and Wier (2003) find that the adoption of non-financial

performance measures improves a firm's future accounting- and market-based

returns. Ittner, Larcker and Randall (2003) find that firms making more extensive

Page 299: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 276 of 384

use of a broad set of financial and (particularly) non-financial measures than

firms with similar strategies or value drivers have higher measurement system

satisfaction and stock market returns. In a Slovenian study, Cadei (2002) finds no

support that the provision of strategic accounting information results in better

performance. Relevant information cannot translate into better performance if

management does not incorporate this information in the decision-making

process. According to the survey, the insufficient exploitation of provided

accounting information for decision-making was related to the lack of accounting

knowledge to interpret the provided information. Four other Slovenian studies

(Cadei, 2002; Hocevar et al, 2002; Rejc, 2003; Rejc, 2004) investigate the

inclusion of contemporary performance measures in performance evaluations.

Increasingly, it has been found that companies implement balanced performance

measures with highly ranked non-financial performance measures such as

employee satisfaction, customer satisfaction and loyalty, and care for the

environment. One should note, however, that concerns about employee

satisfaction are related to the traditionally embedded care for employees and

social matters.

Generally, the literature is still inconclusive about the role and importance of

performance measurement diversity and its link to increased firm performance.

However, companies will design multidimensional PMSs but still place more

importance on those performance measures that provide information directly

relevant to their respective strategies and strategic success factors (Simons,

2000). A number of studies have attempted to examine how the diversified

performance measures are linked to organisational strategy. Perera, Harrison

Page 300: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 277 of 384

and Pole (1997) argued that a customer-focused strategy comprises dimensions

that are not well captured in traditional financial accounting information and,

therefore, non-financial information would be morerelevant. We posit that it is

more likely that the diversity of performance measurement positively affects

financial performance on the condition that it is clearly associated with the

strategic orientation of the company. This leads us to investigate that The

diversity of performance measurement positively affects firm performance when

associated with the company's strategy.

A number of accounting and strategic management studies indicate, however,

that in many companies managers at lower hierarchical levels rely exclusively on

financial control systems that place too much emphasis on budgets and short-

term profits, potentially hiding strategic problems from management and causing

business managers to be shortterm in their decisions (Ittner and Larcker, 1997).

Strategic control systems, on the other hand, include the development of action

plans and targets for achieving the chosen strategic objectives, but also the

assignment of responsibilities and alignment of reward systems with strategic

objectives to ensure that manager' actions are consistent with the strategy's

goals and avoid an over-emphasis on short-term financial results (Govindarajan

and Gupta, 1985; Goold and Quinn, 1990; Govindarajan and Shank, 1995;

Chenhall, 2005). As the purpose of performance measures includes aligning

employees with the business strategy and mission (Kaplan and Norton, 1996;

Simons, 2000), the company's overall PMS would ideally be broken down into

sets of local measurements for lowerlevel units to cascade the company's

strategic objectives into more manageable subsets. The cascading of key

Page 301: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 278 of 384

performance indicators throughout the company may represent an important

mediating variable in the association between the PMS and performance. The

cascading of performance measures along the organisational structure is

important as it focuses a lower level manager's attention on the strategic success

factors and the achievement of overall objectives which enhances the likelihood

of the company's financial success (Kaplan and Norton, 1996; 2004). This leads

to an investigation of the role of performance measurement cascading for

increased firm performance that there is a significant association between well-

cascaded performance measurement systems and increased firm performance.

Management control also deals with the challenge of how to induce individuals to

behave in ways which contribute to overall organisational performance. Within

the management control literature, considerable attention has been paid to the

behavioural and organisational effects of using accounting information for the

performance evaluation of subordinates. Research in management accounting

traditionally predicts that the use of budget-based accounting performance

measures in complex, dynamic and uncertain environments results in

dysfunctional managerial attitudes and behaviours and low performance, which

suggests that they should be replaced or complemented by a qualitative or

subjective performance measurement (Hartmann, 2005).

Most of the literature on management control and performance measurement

relies on an alignment of strategy with performance measures but ultimately with

compensation. In an earlier study, Govindarajan and Gupta (1985) examined the

association between strategy and remuneration and concluded that perceived

organisational performance was higher when reward systems were matched to

Page 302: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 279 of 384

organisational strategies. Simons' investigation of the relations among

accounting control systems, business strategy and firm performance also found

preliminary evidence that the return on investment was higher when control

systems and strategies were more closely linked (Simons, 1987). Symons and

Jacobs (1995) indicated that in companies pursuing quality strategy TQM-based

reward systems are associated with higher performance. According to

conventional wisdom, a well-developed incentive scheme may represent a

crucial link between PMS and organisational performance by guiding employee

behaviour in the direction of strategy implementation and thus contributes to goal

congruence. Since the alignment between performance measures in a PMS and

incentive system additionally stimulates and channels employees' efforts toward

a common goal, we investigate

A significant association between the alignment of performance indicators in

formal performance measurement and incentive systems leads to increased firm

performance.

The effectiveness of performance measurement depends on its intertwining with

all mechanisms of management control. By management control, we understand

a wide range of formal and informal control mechanisms whereby informal

mechanisms include the selection, training, transfer, career path of managers

etc. (Martinez and Jarillo, 1989; Bartlett and Ghoshal, 1989), or the

communication of values and beliefs (Simons, 1995). They are commonly

labelled behaviour control (Ouchi, 1977). Formal control, on the other hand, is a

group of mechanisms that next to performance measurement and incentive

Page 303: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 280 of 384

system encompasses organisational structure, formalisation and standardisation

expressed in written rules, policies, job descriptions etc.

If performance measurement is systematically linked with other organisational

controls, studies that exclude or do not control for these elements within the

research method may report spurious findings (Chenhall, 2003). For example,

one may argue that formal budget systems are unsuitable in uncertain operating

conditions as they include incomplete information and lack flexibility. However, it

may be that successful companies operating in such environments have formal

budgets but they are systematically combined with open and flexible informal

communications between managers. Chapman (1998) argued that in uncertain

conditions effective organisations can employ formal accounting but they should

take place within a situation that involves intense verbal communication between

organisational groups. Thus, since the effectiveness of management control

systems depends on the appropriate combination of different types of controls

determined by the particular circumstances of the organisation, we are interested

in performance measurement will positively affect firm performance if it is

congruent with the company's broader management control system.

while it is likely that a well-formulated strategy has a direct and positive

association with company performance, the importance of an aligned and

cascaded performance measurement system will intervene in that relationship.

Further, a well-designed, balanced and cascaded performance measurement

system may also have a direct and positive relationship with a company's

financial performance, but an aligned incentive system will intervene in that

relationship. In other words, if companies properly implement their strategies by

Page 304: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 281 of 384

placing importance on measures that provide critical feedback on the strategic

drivers of success and the outcomes, cascade the most important performance

measures throughout the organisationand include them in incentive systems,

then the company will realise more benefits from that strategy. Finally, the

effectiveness of performance measurement depends on how congruent they are

with the overall management control system.

We investigated the hypotheses in the field research by combining in-depth semi-

structured interviews with a survey. Based on Ravetz's (1971) advice that every

discipline needs to utilise methods appropriate for its own subject matter,

numerous management accounting researchers acknowledge the value of field

research in providing richer and more complex descriptions of the phenomena

under investigation (Smith, 2003; Lindsay, 2004, Lillis, 1999, Chua, 1996).

Kasanen et al. (1993) found that the majority of significant management

accounting innovations have come from practice or consulting bureaus and not

from academic accounting research. Illustrative examples of the most significant

control models arising from field research are the development of Activity Based

Costing and the Balanced Scorecard by Robert Kaplan and his colleagues, the

development of the Beyond Budgeting Model by Jeremy Hope and Robin Fraser,

and the development of Interactive Control Systems by Robert Simons (Lindsay,

2004).

However, progress in field research may be facilitated if the role of case study

research is expanded to include the development and testing of theory by

following Eisenhardt's (1989; 1991) methodology, which is grounded in the use of

a comparative, multiple case logic of replication and extension. The researcher's

Page 305: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 282 of 384

intimate connection with the organisational reality along with the multiple data

and cases facilitates the discovery of pattems among the comparison cases,

obtaining of anecdotes explaining the patterns observed, detecting of the

boundaries that shape and limit relationships and providing of the construct

validity that is ultimately required in developing high-level theory (Lindsay, 2004).

In addition, researchers should also begin to conceive of generalisation

differently. In scientific situations where the focus is on making predictions

regarding some process or cause-system (e.g. will the balanced scorecard work

in my organisation) the representative model with its focus on aggregate

measures of central tendency impedes the acquisition of empirical generalisation

and the development and refinement of theory. Thus, we designed research

methodology that includes two distinct components: a survey and semi-

structured interviews. The study started in 2004. As we proceeded, we were

continuously adding new companies to be able to replicate the methodology and

permit empirical generalisations. Altogether, eight Slovenian companies are

included in the study. The selection primarily relied on the feasibility and

accessibility of the higherlevel managers.

The companies studied

Companies come from various industry sectors and have a wide variety of

competitive and organisational characteristics, which introduces diversity into the

sample. To provide some anonymity of the companies, we named them after the

industries they operate in. Financial performance lies in the core of our interest

but, as the analysed companies come from different industries, have different

sizes while, in addition, some are closely held and others are publiccompanies a

Page 306: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 283 of 384

direct comparison of their financial results is clearly inappropriate.Therefore, our

clustering based on financial performance is qualitative. Theclassification criteria

rely on acombination of financial performance measures. We selected two highly

related profitability ratios (ROA and ROE), a real profit growth, and a real sales

growth, the last one being one of the least susceptible indicators to earnings

manipulation. The second criterion was a company's world market share which

indicates the ability of the company to break through and establish an important

position among the world's largest competitors.

We divided all companies into three groups: Group 1 comprises 'Companies in

financial distress'; Group 2 includes 'Average performers'; and Group 3 'Above-

average performers'. Evidently, the worst performers are the two companies that

have for a number of years suffered financial distress and are still subject to a

restructuring programme. On the other extreme are two outstanding companies

that have the highest value of the selected financial indicators. Both of them are

important world players - the household appliance company counts among the

eight largest companies in the industry, whereas being part of a multinational

corporation the telecommunication company controls considerable market shares

in Eastern Europe and ex-Soviet Union countries.

Company 1 - Shoemaker 1 - used to be one of the biggest Slovenian producers

of women's and men's fashion footwear. The company had 362 employees at the

end of 2004 and is still in the ownership of the Republic of Slovenia (82%). 15

percent is owned by two commercial banks and the rest by the employees. Over

50 percent of its sales is created by its own collection; but it also produces

footwear for recognised foreign trademarks. Its markets are in Slovenia, Italy and

Page 307: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 284 of 384

Croatia. The company is, due to financial distress, under a restructuring

programme.

Company 2 - Ferrite Components · was recently taken over by a larger

international corporation of a related industry, manufactures soft ferrite and

magnetic components. Most of the products are exported to well-known

companies worldwide and used in various segments of application

(telecommunications, industrial electronics, sensors, automotive industry, data

processing systems etc.). The company currently has 420 employees. In 2005,

the start-up of production in China was planned and 20 percent of the production

range of ferrite cores was to be redirected to the new manufacturing site in

China.

Company 3 - Food Processing - a publicly held company with 550 employees, is

one of the leading producers of food and non-alcoholic beverages in Slovenia

and in the Balkans. The company's most important product lines include water,

non-alcoholic beverages, baby food, the Unilever line, and the production of food

additives. 70 percent of its products are sold in Slovenia; an additional 20 percent

are sold in South-east Europe. The company has three production units in

Slovenia and numerous subsidiaries in ex Yugoslavia, Germany and Russia. The

ten largest investors are all portfolio investors which hold 64 percent of the

company ownership. The rest of the ownership is widely dispersed.

Company 4 - Medical Supplies - is a publicly held company engaging in the

manufacture of hygienic-medical products (60 percent of the company's turnover)

and a general consumption line of products for personal hygiene, infants and the

Page 308: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 285 of 384

household. Manufacturing sites are all located in Slovenia; trading subsidiaries

are established in ex-Yugoslav countries as well. With 740 employees, it markets

over 300 different products and 11 sets of products are protected by a trademark.

About 15 percent of the company's turnover is generated by exports to

demanding European markets, while two-thirds of its production is sold in the

Slovenian market. The company is controlled by six investment funds, two of

them are governmental, that hold 64 percent of ownership. 5 percent of the

company is owned by the employees. The rest of it is dispersed among over

2,000 small shareholders.

Company 5 - Warehouse and Real Estate Renting - is a management-owned

company whose activities include the development and management of property

intended for business, trading, entertainment, sports and recreation, together

with the development of business and technical process of logistics and

distribution. It started up with warehousing; today, its premises include shopping

malls, logistics, offices, sports and leisure, and parking garages, all within an

area of over 360,000 m^sup 2^. It has 362 employees. With recent investments it

has become the largest business, shopping, sport-leisure and cultural centre of

South-east Europe.

Company 6 - Shoemaker 2 - manufactures sport and fashion footwear. It is the

leading producer of cross-country ski boots with a 30 percent world market

share. Sport lines also include downhill ski boots (2 percent of the world's

downhill ski boots), and mountain climbing boots. The fashion lines in both

women's and men's footwear account for two-thirds of its entire production. It has

a well-organised network of retail stores in Central and Eastern Europe as well

Page 309: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 286 of 384

as distributors and representatives around the world. Each year 847 employees

in manufacturing sites in Slovenia, Bosnia and Herzegovina, and Romania

produce over 1.5 million pairs of shoes and boots. Over 65 percent of the

production is sold abroad under the company's own brand name.Among the four

largest shareholders are the two governmental funds with 25 percent and the

European Bank for Reconstruction and Development with 16 percent. An

important influence on corporate governance is exerted by a family whose

members own 15 percent of the company and are also among executive

directors. The rest of the ownership is dispersed among small shareholders.

Company 7 - Household Appliances - is a public limited liability company that has

managed to maintain its position among the eight largest household appliance

manufacturers in Europe. The company manufactures electric and non-electric

domestic appliances and electro-thermic appliances within three programmes:

Cooling programme (washing and drying machines), Wet and Dry programme

(washing and drying machines), and Cooking programme (electric cookers, gas

cookers, and ovens). With 9,486 employees it is one of Slovenia's largest

manufacturing corporations. The company makes most of its sales in the

European Union, South-east Europe and Russia. The two governmental funds

hold 33 percent of the shares and together with a few investment funds they

control 54 percent of the company ownership. 8 percent of the ownership is

owned by the employees of the company.

Company 8 - Telecommunication Systems - is a privately held company and a

telecommunications equipment, service and solution provider in the carrier and

enterprise segments. The company has 1,000 employees of which more than

Page 310: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 287 of 384

400 work in the R&D department. The company has established technological

partnerships with Intel, Motorola and Siemens. Target markets include countries

from Central, Eastern and South-east Europe, and Asia. 48 percent of the shares

are owned by a multinational corporation and a further 26 percent by a

commercial bank. The rest is widely dispersed among small shareholders.

Interviews

In each of the eight companies, we interviewed the CEO, the CFO, two heads of

strategic business units (SBU), and two managers who directly report to the

interviewed SBU heads. In the eight companies 48 semi-structured interviews

were conducted. Semi-structured interviews provide in-depth knowledge of the

company context, a better understanding of the managers' views of performance

measurement and its use in their company, and an opportunity to gain additional

data. The interview protocol is described and the list of questions is presented in

the Appendix.

Clearly, in field research there is nothing like the Cronbach alpha or control

groups and experiments to demonstrate the reliability and validity of the

constructs (Smith, 2003, p. 135). Rather, our attempt is to lean on the existing

theory and literature and to seek to provide convincing explanations that justify

practice choices and facilitate the development of the theory.

Survey

To provide additional depth and a substantial context for the arguments we

combined the findings from the interviews with data collected by a survey.

Despite the fact that we surveyed 119 managers, no statistical testing of

Page 311: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 288 of 384

hypotheses is feasible as our units of observation are companies and there are

only eight of them. The questionnaire focused on the use of performance

measures for decision-making as well as for incentive purposes and covered a

larger number of managers in each company. We surveyed managers at the first

three managerial levels to provide different perspectives of the performance

measurement systemand the particular measures that managers at different

hierarchical levels actually use. Surveying top managers, managers in both

strategic business units and functional units, and their subordinate managers

allows for the identification of both the degree of alignment and whether the

measures have been cascaded and used throughout the organisation. This

approach is specifically important as most studies solely survey the top

management, and top managers are likely to overestimate the understanding

and use of critical performance measures at lower levels. The large number of

managers in each company also provides inter-rater reliability and lends greater

support to the findings. We are also able to evaluate whether the managers at

different levels in the organisation are being evaluated on the performance

measures they think are most relevant to their performance.

The survey covers seven CEOs of eight companies, 13 executive directors, 22

and 26 business function and business unit managers (2nd-level managers),

respectively, and 51 department managers from various areas. 20 managers

come from the first managerial level (CEOs and executive directors), 54

managers come from the second managerial level, and 45 managers represent

the third managerial level.

Page 312: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 289 of 384

In all the studied companies performance measurement systems collect

numerous performance measures. With respect to evaluating the performance

measurement diversity, a representative selection of both financial and non-

financial performance measures was taken from the underlying literature.

Altogether, 41 performance measures were listed. Each respondent was asked

to grade their importance on a scale from 1 to 4. If a performance measure was

of no importance to the manager, they omitted it. A missing value, hence, marks

no importance and/oruse. We normatively grouped those 41 measures into eight

dimensions of performance measurement.1 These dimensions are (see Table 1

in the Appendix): (1) Financial Performance; (2) Customer Perspective; (3)

Quality; (4) Processes; (5) Environmental Performance; (6) Employee Relations;

(7) Supplier Perspective; and (8) Research and Development. The eight

dimensions of performance are composed variables and the score each

company gets for a dimension is calculated as the mean value of the

performance measures.

In the second step we analysed each company's PMS profile. We calculated

average grades the executive directors and business unit managers ascribed to

the different dimensions. The grouping of their responses is justified by the fact

that executive directors are in charge of the overall performance of the company.

Business unit managers may also be looked at as a single group of managers as

their performance is assessed along similar performance measures. second-level

managers in charge of business functions are too heterogeneous so it is no

longer reasonable to group their answers. The same holds for the third-level

managers, who are in charge of very specialised activities, and comparable

Page 313: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 290 of 384

directly neither within the company nor across companies. According to the mean

values ascribed to each dimension we ranked the dimensions in each company.

Comparisons of the ranks of dimensions on the first and second managerial

levels allows for inferences about the cascading of PMSs.

Result & Discussion

Our findings are broken down into four subsections according to the four research hypotheses.

The first hypothesis addresses the association between the company strategy

and the performance measurement system diversity (use of multiple perspectives

of performance measurement). Our first observation is that all but one company

are predominantly export-oriented and pursue growth strategies based on new

product and new technology development. Their export orientation has led the

companies to strive to differentiate themselves from their competitors. Most

SBUs in the sample companies pursue a product differentiation strategy. As

markets are driven more by value than cost companies are being forced to

consider quality, customer service, response and other such attributes at the

same time, and this change of focus has created the need for performance

measures to facilitate the control of these attributes. The relevance of the well-

known strategy archetypes developed in the 1970s and 1980s and focusing on

either costs or differentiation is 20 and more years later becoming less clear

(Kotha and Vadlamani, 1995) and managers seem to realise that the multiple

orientation of the strategy has to be supported with performance measurements.

Similar to the traditional understanding of a balanced PMS we define a balanced

PMS as one in which first-level managers ascribe relatively equal (balanced)

Page 314: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 291 of 384

importance to several dimensions of performance. The Balanced Scorecard, for

example, implies that a balanced PMS is one where relatively equal importance

is placed on the financial, customer, internal processes, and learning and growth

dimensions of performance. In contrast, in a focused PMS some performance

dimensions are given strikingly more consideration: usually this is the financial

aspect of performance, but it may well be some other or a few of them.

The companies' performance measurement systems are presented in Figures 1

to 8 in the Appendix. The lines represent the average scores of the first- (CEOs

and executive directors) and second-level managers (SBU managers) on each

performance measurement dimension. The first-level managers' responses allow

for inferences about their corporate PMSs' diversity and balance. As can be seen

from these figures, CEOs and executive directors monitor several aspects of

performance, however, at varying degrees. Some companies are particularly

specific in that they pursue the low costs leadership strategy. For these

companies the financial perspective of the PMS is the most important. This is

true for Company 2 - Ferrite Components, and Company 4 - Medical Supplies. In

other companies where the prevalent source of competitive advantage is, for

example, innovation (Company 8 - Telecommunication Systems) and intellectual

property, the profile of the PMS is focused on other dimensions such as R&D.

We found that some of the non-financial dimensions, such as customer, quality,

and processes dimensions, are equally critical for all companies and received

high scores they have been incorporated in all types of strategies. Other non-

financial dimensions' importance should be related to the specific contingencies

of the companies - their technology, in particular. Thus, while it is true that

Page 315: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 292 of 384

balanced PMSs provide more direct and timely feedback on managerial effort,

focus attention on the long-term perspective and allow managers to understand

the relations among various strategic objectives, which should all lead to

improved financial performance, one cannot firmly conclude that balanced

performance measurement is a must in all circumstances. Three companies in

our sample, with Company 8 being an above-average performer, the other two

(Companies 4 and 6) average performers, have considerably more financially

focused PMSs at the first managerial level.

The second research hypothesis is directed at the association between the

cascading of performance measures and increased financial performance.

Cascading refers to the characteristic of how well the importance of different

performance measures is communicated to the lower levels. Based on the

overlapping (or its absence) of the importance of different PMS dimensions

between the first-level managers and business unit managers we draw

conclusions on this association and its impact on financial performance.

Companies that want to achieve financial success are supposed to communicate

the importance of the financial aspect of actions well throughout the company.

The cascading of financial performance measures can, on one hand, be

relatively easy decomposed to a very detailed level but, on the other, it

strengthens the importance that every action must have a beneficial financial

effect.

The level of cascading of the financial measures varies considerably among the

companies. The highest levels of cascading can be found in Companies 52 and

7. Company 5 Warehouse and Real Estate Renting - managed to achieve an

Page 316: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 293 of 384

outstandingly high level of overlapping of (financial) performance measures

throughout the company. A brief story based on the interviews will reveal how

and why. Company 5 implemented an integrated PMS with a strong financial

focus in 2002. At that time, the company was divided into responsibility centres

as detailed as single buildings in the shopping centre area. Performance

measures were assigned to managers and targets were set according to the

desired overall profitability. Financial measures at the upper level (ROA, ROI,

and profit margin) are decomposed to more detailed financial and some non-

financial measures at lower levels. Measures as well as targets for financial

ratios are imposed by superiors, non-financial measures and their targets, on the

other hand, are developed by the managers of individual units. Managers of the

business units are checked monthly for their financial results and asked to react

immediately if they are below target. There is no performance-related incentive

system in place at the lower levels (but a profit-sharing scheme was introduced

to stimulate upper-level managers who are also major owners of the company).

Throughout the company, the alignment of interests is primarily exercised

through tight control. The clearly focused performance measurement system -

with a focus on financial performance, processes (specifically capacity utilisation)

and quality, along with the consistent cascading of performance measures (see

Figure 5 in the Appendix) and frequent formal control give clear guidance for the

lower managers' decision-making. Although a focused performance

measurement system appears to be in contradiction with the prevailing notion of

comprehensive and balanced performance measurement, the cascading of

performance measures and tight control, which acts as a substitute for

Page 317: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 294 of 384

performance-related compensation, may impact on the company's financial

performance.

Company 7 - Household Appliances - also has an exemplary cascading of

financial performance measures. Company 8 - Telecommunication Systems -

has well-cascaded financial measures at the first two managerial levels and, also

customer, quality and R&D dimensions of PMS. As discussed earlier, Company 8

focuses heavily on the financial and R&D dimensions of its PMS and the

importance of both perspectives is well-communicated along hierarchical levels.

Dimensions of performance that are not considered as strategically important at

the top have also been evaluated as less important at the lower levels. 'Formal

monthly management meetings are important', says one of the interviewees, 'but

informal communication is even more important.' Of the two companies in

financial distress, Company 1 has a particularly poor cascading of all PMSs.

Company 2, on the other hand, has a relatively well-cascaded PMS in general; in

addition, the performance measures are well-balanced. The CEO of the company

specifically noted that all managers receive reports on the most critical

performance measures. A new PMS, however, has just been recently

established and is expected to improve the company's financial performance

because of its alignment with the new incentive system.

Based on empirical evidence from our study, we may conclude that the

cascading of critical areas of performance to lower levels is important and that it

may contribute to increased financial performance.

Page 318: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 295 of 384

The third research hypothesis stated that the alignment of performance indicators

in formal performance measurement and incentive systems leads to increased

financial performance. In fact, there was a general consensus among the

interviewed managers that the alignment between performance measurement

systems and incentive systems is critical for the channelling of employees' efforts

towards the achievement of the organisational goals. Yet, the alignment between

the two was managed with varying degrees of success. In an earlier Slovenian

study by Rejc and Slapnicar (2003) investigating the relationship between

management compensation contracts and performance measurement systems,

the authors found that the use of performance measures in the executive

compensation contracts and the PMS design are not associated. In most of our

companies under study fixed compensation is in place. As a consequence, while

the interviewed managers or questionnaire respondents use several indicators

for business decision-making and control over operations, only a smaller number

of indicators are used for rewarding purposes.

There are several explanations of this phenomenon. First, the roots for the

prevailing fixed compensation can be found in the previous egalitarian

compensation model (Warner et al., 2005) and continuity with old compensation

practices. second, managers fear implementing formal incentive systems

because of a poor understanding of the magnitudes of the incentive effect

(MacLeod, 1995). Several interviews revealed this fear. The underlying reason is

explained by the fact that, given the environmental complexity, complete

contingent contracts cannot be written and, hence, principals use implicit

contracts including high morale, loyalty and team-spirit. According to the theory

Page 319: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 296 of 384

of self-enforcing contracts, these objectives help align the incentives of the group

(Alchian and Demsetz, 1972).

Financially distressed Company 1 - Shoemaker 1 - currently has no incentive

system in place. While the company had an incentive system in place before

1990 with variable compensation linked to sales, the collapse of ex-Yugoslavia

and subsequent loss of its main markets forced the company to abandon the

incentive system. This has been explained by the pressure to cut labour costs,

but also the managers' belief that an incentive system linked to sales can only be

put in place when the company's strategy (products, markets and technology) is

determined and successfully launched, otherwise it will not produce a motivating

effect.

Company 5 and Company 7 have already been discussed for their well-

elaborated cascading of financial performance measures, accompanied by tight

control. In Company 5 - Warehousing and Real Estate Renting - the managers of

business units are checked monthly for their financial results and sanctioned for

poor performance. In Company 7 Household Appliance - below-target

performance is sanctioned as well: with a negative stimulation up to 20 percent of

the fixed pay. The head of the Controlling Unit specifically noted that 'poor

performers are benchmarked with their peers to get an objective evaluation of

their actual achievements' which then form the basis for their potential dismissal.

In both companies, the alignment of interests and stimulation of people's efforts

is primarily exercised through tight control.

Page 320: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 297 of 384

Despite the increasing trend to incorporate non-financial performance measures

(such as customer satisfaction, quality etc.) in performance measurement

systems, the sample companies rarely apply them in their incentive systems.

Even though advantages have been widely discussed and empirically evidenced,

their common argument was that they prefer to measure the performance of

teams rather than individual performance. Yet using them for rewarding purposes

might violate the principle requiring that a measure is controllable from the point

of view of the controlled employee. In addition, in the interviews, when we

discussed the importance of aligned performance measurement and incentive

systems, the issue of measurability was often raised. Managers would imply it is

very difficult to design fair incentive systems, in particular, for middle

management in charge of diverse projects and functions (i.e. quality manager,

environmental manager, controller etc.), whose job performance is often only

indirectly linked to final outcomes. Although the notion of being accountable

(only) for what one is able to directly influence may be viewed as conforming to a

commonly held concept of justice, it should be noted that a strict application of

the principle would imply that in most cases even the use of budgets for

managerial performance evaluation (and management control) would not be

feasible since, especially in uncertain and complex organisations, with people

working in joint effort the possibility to single out individual responsibilities is

severely limited (Hartmann, 2000). In practice, budgets are used for evaluating

and rewarding managerial performance in Companies 5 and 7 in particular, but

also in Companies 2 and 8, and many non-financial performance measures are

applied as well.

Page 321: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 298 of 384

In most companies modestly using either financial or non-financial performance

measures formally included in the incentive system, other forms of motivating

and stimulating human behaviour are in place. These include public disclosures

of individual results (on the Internet, ina company newspaper, or at company

gatherings where the CEO publicly rewards the best performing managers as in

Company 8); regular meetings and discussions of individual or team

performance, promotions, training and education and granting of fringe benefits.

But the general impression from the interviews was that 'soft' or qualitative

measures and opinions that are used to substitute for more formal and

quantitative measurements are not well-accepted among employees. On one

hand, they generally view them as unfair; on the other, the practice shows that

the superiors responsible for performance evaluations are gradually reducing

their efforts in fair evaluations or abandon this practice altogether. Few or none of

the employees are proposed for rewards or promotions.

In the majority of the companies the incentive system does not incorporate an

explicit bonus formula and individual performance is only indirectly linked to the

salary through, for example, promotion. In other companies, the variable part of

the compensation is too small to change the behaviour of the incumbent. In the

light of the expectancy theory, it is not important which measures are used to

measure performance if a negligible reward is associated with performance

measurement. Such incentives cannot stimulate and channel the employees'

behaviour toward the achievement of the overall company goals. All in all, we

may conclude that in accordance with earlier empirical evidence in complex and

dynamic business environments effective organisations may combine tight

Page 322: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 299 of 384

controls with more open, informal and flexiblein formation and communication

systems

(Simons,1987; Chenhall and Morris, 1995; Chapman, 1998) to stimulate and

channel employee behaviour towards the achievement of the overall

organisational goals. Empirical evidence from the eight companies shows that

explicit incentive systems are typically narrower than performance measurement

systems in the sense that they only include a handful of performance measures.

We can conclude that the alignment of performance measurement and incentive

systems in the studied companies has received little attention: one of the major

reasons is that the managers in charge of rewarding believe the noise when

measuring an individual's performance is too strong and the cost of eliminating it

would be too high. Moreover, companies want to motivate group achievements

(not individual ones) and, hence, focus more on building commitment. All in all, it

is perceived as quite doubtful that the alignment of performance measurement

and the incentive system alone will bring about a better financial performance.

The fourth research question investigates the overall fit of the performance

measurement and management control system. Incentive systems as well as

performance measurement systems represent only a fraction of a management

control system that is directed at influencing (stimulating and channelling) human

behaviour. Other control systems may assist in the achievement of organisational

goals. But we know verylittle about how managers use these systems and

whether it is their negligence that leads to a poor or insufficient increase in

financial performance. Earlier studies reveal there are systematic differences in

management control systems among companies that compete in different ways

Page 323: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 300 of 384

(Simons,1990). In our study we were able to identify somecontextual variables

that influenced the nature of the management control system in place.

The presence of a controlling shareholder has been found to be one of the main

determinants of the tightness of a management control system. A major owner

can well articulate his interests, which are communicated by various mechanisms

to lower level managers. Company 2 - Ferrite components - has been taken over

by a larger company which tightened control of all processes including control of

the company's PMS. Following a management buy-out, Company 5 -

Warehousing and Real Estate Renting - has established very clear financial

objectives and a financially focused PMS. Company 6 Shoemaking 2 - is family-

owned with the top and some middle managers and their relatives being its major

owners. Here, the specific location of the company (poor labour force access)

and the family ownership have created a unique management control system

focused on softer mechanisms such as building employee commitment and an

informal organisational climate. All the other companies have a dispersed

ownership structure and less tight management control systems.

Organisational structure is another formal mechanism of control. The larger the

company the more hierarchical and the more it controls its units with accounting

and financial performance indicators to make the performance of units

comparable in terms of profitability. The size of the company affects information

asymmetry between different managerial levels and, hence, the reliance on

formally measured performance indicators rather than intuition and subjective

indicators. We found that larger companies have clearly more elaborated

accounting reporting and rely on it more. However, we could not conclude that

Page 324: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 301 of 384

the size or organisational structure of the company affects the emphasis of

financial indicators in the boardroom and there was no evidence that the size and

organisational structure would affect the formalisation or design of an incentive

system.

Conclusions, Implications & Solutions

The research reported in this paper provides some additional empirical evidence

as to the performance measures used and the relevance of those performance

measures to the improvement of performance. Interestingly, we find evidence

contrary to the notion that only a collection of balanced performance measures

can properly align the efforts of an enterprise with its strategic objectives (Kaplan

and Norton, 1996) and by further tying compensation to the performance

measurement system the company's corporate financial performance should

improve. While it may be true that balanced PMSs provide more direct and timely

feedback on managerial effort, focus attention on the long-term perspective and

allow managers to understand the relations among various strategic objectives,

which should all lead to improved financial performance, one cannot firmly

conclude that balanced performance measurement is a must in all

circumstances. Three of the companies in our sample, all relatively good or

above-average performers, have strategically focused (unbalanced) PMSs. We

thus find that focused performance measurement that is also well-aligned with

the business strategy and further supported by tight control mechanisms may

actually improve firm profitability. In companies with comprehensive and

balanced performance measurement, on the other hand, poor cascading and a

lack of alignment to incentive systems appear to be the most critical factors

Page 325: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 302 of 384

preventing companies increasing their financial performance - despite the

relatively consistent alignment of performance indicators with the corporate and

business strategy.

On the other hand, although the need for aligned performance measures in

PMSs and incentive systems was recognised in the sample companies, the

alignment between the two was managed with varying degrees of success. In

fact, in most companies under study fixed compensation is put in place and only

a smaller number of indicators are used for rewarding purposes. But companies

use other control tools such as use of sanctions and dismissals as a way of

controlling managers' behaviour and decision-making. Tight control may

substitute for incentive systems in specific circumstances. Also, other forms of

motivating and stimulating human behaviour are in place. These include public

disclosures of individual results, regular meetings and discussions of individual or

team performance, promotions, training and education as well as other fringe

benefits. We may conclude that in complex and dynamic business environments

effective organisations may combine tight controls with more open, informal and

flexible information and communication systems to stimulate and channel

employee behaviour toward the achievement of overall organisational goals.

Thus, it is not any one variable in isolation that makes a company perform better,

such as its strategy or its performance measurement system; it is a combination

of all of the pieces working together in an integrated package consistently and

over time. Except in the case of Company 2 - Ferrite Components none of the

companies has introduced its existing PMS overnight or as a package of new

solutions based on the inventions of contemporary performance measurement

Page 326: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 303 of 384

models. Rather, they have built up their PMSs gradually, over time. New

managers in charge introduced new measures which they felt are more

appropriate and abandoned some old ones. This indicates that the fit between

PMS and the contextual variables is being realised in small steps and that PMSs

are constantly being adapted to environment and management practices.

Theories are not universal in scope; they are always context dependent (Lindsay,

2004) and it may be the increased uncertainty of the business environments in

which the sample companies operate in led to somewhat different conclusions.

All in all, the study found that organisations without a Balanced Scorecard type of

performance measurement system were achieving high levels of integrative

information from their specific PMS. This suggests that the adoption of a well-

known PMS such as the Balanced Scorecard is not necessary as other

integrative performance measurement systems will provide integrative

information as well. Some Balanced Scorecards may even not be designed to

provide high levels of integrative information; rather they may be limited to

supplying a mixture of financial and non-financial measures (Ittner and Larcker,

2003).

In earlier studies, uncertainty was related to the usefulness of broad scope

information (Chenhall and Morris, 1986; Gul and Chia, 1994; Chong and Chong,

1997); a performance evaluation characterised by a more subjective evaluation

style (Moores and Sharma, 1998); less reliance on incentive-based pay (Bloom,

1998) and a non-accounting style of performance measurement and evaluation

rather than either a budget-constrained or profitoriented style (Ross, 1995).

Some evidence suggests combinations of traditional budgetary controls and

Page 327: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 304 of 384

more interpersonal and flexible controls in conditions of environmental

uncertainty. Chenhall (2003) reports that a consistent stream of research over

the past 20 years has confirmed that uncertainty has been associated with the

need for more open, externally focused, non-financial styles of management

control systems. Many of these findings were confirmed in our study.

As with most studies this study has some limitations. One limitation is that the

current selection of cases does not ideally suit the requirements posed by

Eisenhardt (1989; 1991) about the replication logic of case studies. Another

limitation is that the study uses self-reported survey data, which led to overly

positive responses from the respondents at all managerial levels. Finally,

contingency-based research has approached the study of management control

systems assuming that managers act with the intent to adapt their organisations

to changes in contingencies in order to attain fit and enhanced performance. Our

study has confirmed some of the earlier findings; but to maintain the relevance of

management control systems of contingency-based research researchers need

to focus their attention on the contemporary dimensions of management control

systems. According to Chenhall (2003), much can be gained by reflecting on

recent thinking in areas such as strategy, organisational and cultural change,

information technology and human resource management, but also psychology.

Contingency-based research can provide an ordered way to integrate thinking

about the sociological processes effecting management control systems in

action, perhaps combining these insights with conventional elements of

contingency-based models.

Page 328: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 305 of 384

Footnote

1 It was unfeasible to perform a factor analysis due to the wide variety of

hierarchical and functional positions of the managers included in the study and

because of the relatively low frequencies on each of the 41 performance

measures (respondents focused on a relatively few indicators of performance

that were the most relevant). As a consequence, the data matrix is non-singular.

Company S has an orthodox divisional organisational structure and, hence, no

business function managers at the second level.

Page 329: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 306 of 384

CHAPTER 12

CHALLENGES & OPPURTUNITIES FOR INDIAN

LOGISTICS OUTSOURCING COMPANIES

KEEPING A WATCHFUL EYE ON PILFERAGE PREVENTION

BUILDING WAREHOUSING-KEY TO FASTER LOGISTICS

GROWTH

MARITIME TRANSPORTATION

MEGA TRENDS IN AIR CARGO

RAIL FREIGHT IN INDIA

Page 330: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 307 of 384

CHAPTER 12

CHALLENGES & OPPURTUNITIES FOR INDIAN LOGISTICS

OUTSOURCING COMPANIES

12.1 Keeping a Watchful Eye on Pilferage Prevention

―The fast-paced growth of the Indian logistics industry has brought with it various

challenges that demand urgent attention. One of the common concerns faced by

logistics companies is pilferage of goods during transit and storage, by building a

safe supply chain model and investing in technology to ensure high goods safety

companies can now prevent losses that occur due to pilferage.‖

Robust economic growth and liberalization have led to considerable increase in

domestic and international trade volumes over the past five years, Consequently,

the requirement for transportation, handling & warehousing is growing rapidly

and is driving the demand for integrated logistics solutions. With integrated

logistics solutions & services provided by 3PL players already in the market, a

key concern for the logistics industry lies in the pilferage of goods during storage

& transportation. To create a safe zone for the goods being transported as well

as stored, the needs to build a robust supply chain that is not only cost-effective

but also safe from pilferages and other inventory damages is vital.

Tamper-Proof Supply Chain:

To address changing consumer demands, companies are challenged to become

more flexible in their manufacturing operations so that they can manage multiple

new stock keeping units (SKUs) while maintaining operational reliability and

Page 331: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 308 of 384

ensuring quality standards. Furthermore, companies must find ways to optimize

their existing manufacturing infrastructures due to growing profitability pressures.

A safe, orderly and efficient supply chain is key to a successful and safe

operation, It plays an essential role in the way goods are sent, received, stored

and circulated throughout the facility with so much going on and so much to keep

track of a supply chain is highly vulnerable to face pilferage of goods, inventory

and other inventory damages during storage & transit. Commenting on the

attitude of logistics players on the implementation of a safe supply chain, Sanjiv

Kathuria, Director-Sales & Marketing, TNT India says, We believes that the

implementation of a safe supply chain is multi-pronged and includes steps like

quality warehouse design with adequate security measures such as 24*7

electronic surveillance, etc. Moreover shipments can be assured protection from

varying weather conditions when being transferred in quality closed body

vehicles with a tamper-proof sealing system, Vehicles monitoring through GPS

helps in real-time visibility & ensure high degree of control. In addition, security

quality certifications like TAPA & ISO 28000 help in building a safe supply chain.

Risk assessment with corrective action clear escalation matrix system and a

strong investigation team helps in handling any untoward incident or situation,

while CCTV surveillance at key areas help keep a check on the movement of

goods and records evidence, providing adequate road safety training to drivers

and the safety management team helps deal with such situations.

Page 332: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 309 of 384

Checking for Discrepancies:

There are no set rules to build a safe supply chain. However most companies

have developed a few practices that help them minimize pilferages and ensure

inventory safety. According to kathuria, a dedicated closed- storage facility with

access to the control centre is normally deployed CCTV systems, as mentioned

earlier are thepreferred options to ensure minimum pilferage, It is necessary to

have the goods moved through gate-pass and physical checks. Some of the

other ways that can ensure lower pilferages are through metal detectors, bar

codes scanners, vertical stackers and inventory management through unique bar

codes with stackers support, It is very important that quality recruitments and

background checks are made before appointing an employee, It is also

necessary to work with quality vendors who are aware, trained and well versed

with best in class security measures and its effective implementation, tamper-

proof and quality travel-worthy packing materials, investments in electronic

surveillance and proper structure with supervisory skills.

― To minimize pilferage during storage, it is important to ensure a proper storing

place, good warehouse design, electronic access control, control over

movements of goods, regular stock taking process, well defined and established

escalation process, physical security deployment, bar coding system for parts

and alarm system,‖

Pilferage can be minimized through proper deployment of a mix of manual and

technological resources, Rajeev Saxena, Sr V.P.- Contract Logistics, Agility

Logistics opines, ― Regular & rigorous frisking of people moving out of facilities,

Page 333: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 310 of 384

though it may sound trivial is still the most effective solution to check pilferages.

Restricted entry and exit points to facilities would ensure that no unnoticed

movement of people takes place. Moreover, a daily perpetual inventory count in

the facilities help in finding out if any pilferages may have taken place during

earlier instances. Any shortage reported in perpetual inventory, which cannot be

attributed to any transactional errors would alert the facility management of any

possibilities of pilferages taking place in the facility and corrective action can

immediately be initiated to stop further pilferage.‖

―Moreover, approximately 80% of cargo thefts are either perpetrated by internal

employees or involve some internal collusion. Hence the deployment of labour

and contracted staff needs to be done only after a through verification and

registration process,‖ Saxena says, adding, ―Sending escorts with vehicles could

be another measure through not a foolproof one to check transit pilferages, In

addition automation to avoid manual handling wherever it is feasible and cost-

effective also reduces chances of pilferages.‖

Safety, a Challenge?

While the deployment of security systems during storage and ensuring full

visibility of inventory during transit might be solutions to prevent pilferages, it is

difficult to implement these in the supply chain. According to Saxena, while most

companies face the challenge of pilferage and other inventory damage little can

be done to prevent it. The adaptation of technology in Indian companies is very

slow and thus investing in such high technology solutions is difficult.

Page 334: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 311 of 384

―Most logistics companies look at investment in security systems as an overhead

cost rather than an opportunity to save inventory damage or theft, They tend to

ignore the fact that investment in good security systems can help them improve

product safety, reduce tampering improve inventory management, reduce excess

inventory and increase reported on-time delivery, this further leads to more

efficient customs clearance process reduction in cargo delays and reduction in

cargo inspection or examination. It enhances speed reduces the transit &

delivery time window andabove all attains higher customersatisfaction thereby

reducing the customer attrition rate and increasing the number of new

customers.‖

According to Saxena one of the key challenges is changing the mindset of the

industry. This industry has been spending only about 0.5% of its turnover on IT

and getting it to invest in cutting-edge technologies is a challenge. ―This industry

is highly fragmented and its needs are ever changing as it is undergoing

metamorphosis for example small customs house agents (CHAs) are getting into

freight forwarding and freight forwarders are getting into warehousing and so on

and so forth, therefore the needs of these companies are changing very fast as

well. Hence, investing in system to prevent pilferage will also depend on how

much flexibility and agility the technology vendor can provide through their

solutions,‖

Kathuria also elaborated on some of the other challenges faced by companies,

―Some of the other challenges faced by companies are the process violation

during shipment inadequate infrastructure (transport & storage), lack of trained

manpower and gaps in security along with the space constraints in warehouses,‖

Page 335: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 312 of 384

Technology as an enabler:

Many MNCs have forayed into the Indian logistics industry and have set

benchmark service standards that smaller organizations ought to emulate. To

meet the service standards set by large MNCs in India there is no option for

smaller players but to adopt technology in order to survive and excel in such a

competitive business environment, Shippers are constantly demanding complete

supply chain visibility, which has further necessitated the need to have good

system with big &small logistics players. Moreoverthe need to provide enhanced

customer service to include web-based order entry as well as a real-time order

and shipment visibility to avoid theft & pilferage has compelled companies to

invest in technology upgradations. ―Technologies like TAPA certification (FSR A

level for warehouse management and TSR 1 level for transportation), electronic

access control, advance GPS tracking, panic alarm system, X-ray, advanced

CCTV installations, perimeter security, metal detectors etc are some of the latest

technology developments observed in the industry. Apart from these, the use of

biometric devices and radio frequency identification (RFID) devices to allow the

entry of only registered people inside the facilities is currently used in the

industry, says Saxena, ―While using CCTV & electronics surveillances definitely

acts as a deterrent to pilferages, one needs to do a cost benefit analysis before

deployment. The deployment of effective WMS, if required having EDI with a

billing system or ERP and ensuring that all processes in the facility are driven by

the system, would ensure quick detection of any pilferages, which can be

subsequently checked. Another technology observed in the industry include

mobility solutions that provide better tracking facilities & enhance customer

Page 336: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 313 of 384

satisfaction. Mobility solutions like usage of handled devices also improve

productivity.‖

12.2. Building Warehousing-Key to Faster Logistics Growth

―With the country‘s GDP posting higher growth rates, major sectors like

automobile, retail FMCG, will require robust logistics support, Under these

circumstances, the development of warehouse infrastructure has become all the

more critical‖.

―Union Government has plans to create a Special Purpose Vehicle (SPV) to

undertake studies on food grain storage handling and transportation. Beside, the

Planning Commission is also conducting a comprehensive study to suggest

measures for the development of a modern storage infrastructure to boost the

growth of the warehousing sector.‖

The warehousing segment has been attracting attention from many, this is not

only true for venture capitalists who are eyeing this major market, but also the

policy makers who are planning to bring revolutionary measures to maximize

warehousing efficiency, Union Government has plans to create a special

Purpose Vehicle (SPV) to undertake studies on food grain storage handling and

transportation, Beside the planning Commission is also conducting a

comprehensive study to suggest measures for the development of a modern

storage infrastructure to boost the growth of the warehousing sector. The Centre

has also introduced a negotiable warehouse receipt system in the country, & with

a view to provide much-needed renovations to warehouses, diversification of

services aimed at improving the agro-supply chain has been initiated on a wide

Page 337: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 314 of 384

scale. The efficiency of the private sector & the fundamentals of the public sector

can be combined & the riskscan be shared, The logistic market is valued at Rs

5.6 trillion in 2010 & it is likely to touch around Rs 17 trillion by 2015.

Warehousing Potential:

Warehousing accounts for about 20% of the domestic logistics market and is

expected to grow at a rate of 35-40% annually displaying high potential for

growth over the next few years. ―It is imperative for the sector to not only

modernize but also adopt best practices to achieve a world class infrastructure

plat-form,‖ said R. Dinesh Joint Managing Director, TVS & Sons.

In the past few years, the space and size of the warehouses in automotive

industry are growing as it is developing at a rapid pace in India, Manufacturing

companies are facing difficulties managing the warehouses due to this

unprecedented growth. The transition time for the supply chain has also reduced

as compared to few years ago, as the technology is implemented at every stage

right from taking orders, distributor confirmation for releasing the dispatch to

invoice processing all these create pressure on warehouses, to overcome these

complications, it is necessary for warehouses to modernize as the pull-push and

internal processing is becoming much faster. According to Pranil Vagama,

president Chep India, another challenge in the Indian supply chain is the huge

volume of inventories to overcome this collaborations in the supply chain viz

equipment pooling will help the companies to drive the efficient flow of materials

and information.

Page 338: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 315 of 384

Aiming for a Smooth path:

According to CII-Institute of Logistics and a Pwc study, the dynamic market

requirements have made it imperative for Indian warehousing players to

overcome challenges and maintain, improve and sustain competitiveness,

Various measures such as skill development, policy initiatives and government

measures, IT adoption and increased investments in the sector can be effective

in increasing the competitiveness of the Indian warehousing players.However,

this journey can be smoothened and simplified if the challenges and concerns

are addressed with collaborative efforts among all stakeholders including the

government and its agencies, policy makers, entrepreneurs, investors, logistics

service providers, manufacturers, farmers and sellers. The mutual integration

among them will rewrite the success story for the logistics and warehousing

industry.

12.3.Maritime Transport

Ninety per cent of the world‘s international trade is transported by sea. The

customs and practice associated with this form of transport have been refined

over centuries of worldwide trade. Sending cargo by sea is ideal for high-volume

cargo that are not necessarily time sensitive or have long lead time for delivery.

However, this mode of transport is slow & fraught with possibilities for delay. As

globalization has increased and sources of manufacturing moved eastwards to

India and China more companies have outsourced their manufacturing to this

part of the globe. As a consequences, due to the elongated supply lines and

Page 339: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 316 of 384

slowness of this form of transport, higher levels of in-transit inventory need to be

accounted for.

The Use of shipping containers has revolutionized the way that cargo is handled

and transported, this modules aims to give a general overview of maritime

transport or as it is often called sea-freight. The reference to maritime transport

as ‗Shipping‘ has been avoided to prevent confusion as many people often use

the term ‗ Shipping,‘ especially in the USA, in the context of dispatching cargo

from its origin, whatever the mode of transport used.

Structure of the industry:

Liner Conferences:

Liner conferences are formal groups of shipping lines that operate on

certain shipping routes, they were 1st set up to control the trade

betweencolonial powersand their colonies. Today they are seen by many

as being a very controversial anachronism as they work together to agree

tariffs for certain routes. They work fundamentally for the interests of the

member shipping lines to help to avoid destructive price competition. For

their part the shipping lines would argue that there would be much more

price and capacity volatility without the stability that the liner conferences

provide a way of managing forward revenue streams.

The European Union (as well as many of the conference‘s customers)

has criticized them for anti-competitive actions and is examining ways of

changing the status quo. As a matter of record the liner conferences are

the only industry that is currently exempted from anti competition laws in

Page 340: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 317 of 384

Europe and the USA (it is called anti-trust legislation in the USA). There is

a huge body of opposition to these price fixing organizations and it is very

likely that further legislative action will be taken against them.

Shipping lines:

They own and operate the various types of ships in their fleets. Their role

is to provide the physical means by which cargo may be safely &

efficiently transported by sea.

Ship’s agents:

They provide services to the shipping lines in the ports where the ship

call. A ship‘s agent will deal with many important and diverse matters on

behalf of the shipping lines. These services may include: provisioning with

food and spare parts, arranging any necessary repairs for the ship,

dealing with localports andcustoms authorities, organizing berths, pilots,

tugboats (if required), crew change and refueling.

Freight forwarders:

Often referred to as freight management companies these days their role

is to oversee and manage the movement of the freight from the point of

origin to the point of destination. Freight management companies provide

integrated door-to-door solutions for their customers that may include

arranging different modes of transport, customs clearance and

documentations, arranging port handling and generally supervising all

aspects of the movement. In order to do this effectively they usually have

worldwide networks of offices and agents in many countries.

Common Shipping terms:

Page 341: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 318 of 384

As with many specific areas of industry sea-freight has developed a whole

plethora of terms and abbreviations over a period of time that spans

centuries. The terms that are listed below are the ones that most

commonly causes problem for the newcomer to the trade.

Full container load ( FCL)

As the terms implies, this refers to a load that will fill a given

container.

Less than container load( LCL)

Once again, as the terms implies, this is a shipment that will not fill

a container and therefore will require to be consolidated with other

LCLs in order to economically fill a shipping container.

Hook to hook:

This term is used by many shipping lines when quoting prices for

break-bulk sea freight. It means that the shipping line‘s price

includes loading the goods on to the vessel and unloading the

goods at the destination port. It also includes the cost of

transporting the goods between the origin and destination ports. It

is important to note that this price does not typically include

insurance nor does it include the stevedoring cost at both ports to

attach or detach the cargo from the ship‘s lifting gear. In addition it

does not include other port handling costs.

Full liner terms:

This means the same as hook to hook.

Page 342: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 319 of 384

Liner in:

The shipping line is responsible for the cost of loading the cargo on

board the vessel.

Liner out:

The shipping line is responsible for the cost of unloading the cargo

at the destination port.

Free in and / or Free out:

In effect this is the opposite of hook to hook. Many purchasers of

sea-freight who are new to the industry make the mistake of

interpreting „free‟ as meaning free to them. Whenever the term

„free‟ is used in this context it means free to the shipping line.

Therefore the partypurchasing thesea-freight will be responsible for

the cost of loading and unloading the goods on and off the ship.

Break bulk cargo:

This is a general term for non-containerized loose freight. Out-of-

gauge cargo and heavy weight items that are unsuitable for

containerization fall into this category. Bulk cargo such as crude oil,

loose grain or bulk powders, and iron ore would not be classified

as break bulk.

Vessel classification:

Ships are classified by organizations that survey and classify vessels. They are

licensed by government who issue ship certificates for ships registered in their

country. This is commonly known as being registered under a certain ‗flag‘.

Page 343: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 320 of 384

Classification societies are licensed by these governments to issue these

certificates on their behalf.

Ship‘s certificates are often required by insurance companies and shippers when

engaging the services of a shipping line. This helps them establish the class, age

and minimum standard of maintenance related to the ship being used to carry the

cargo. As a general rule insurance companies would increase their insurance

premium for older vessels.

Handysize:

This is a smaller sized ship used to carry bulk commodities or

crude oil. It will have a size of between 10,000dwt (dead weight

tones) and 30,000dwt.

Handymax:

This is a vessel used to carry bulk commodities or crude oil of a

size between 30,001 dwt and 50,000 dwt.

Aframax:

A crude oil tanker of between 80,001 dwt and 119,000 dwt which is

capable of remeasurement to deadweight of 79,999 long tons. This

is the largest crude oil tanker in the Average Freight Rate System

(AFRA) Large Range 1 category compiled by London Tanker

Broker‘s Panel.

Page 344: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 321 of 384

Suezmax:

The maximum size of ship that can pass through the locks of the

Suez Canal is 200,000 dwt. Ships below this size may be referred

to as Suezmax.

Capesize:

These ships are too large to pass through either the Suez or the

Panama Canal. They are therefore forced to take the long route

around either the cape of Good Hope at the southernmost tip of

Africa or Cape Horn. Which is at the southernmost point of South

America. Their size also requires them to service only deepwater

terminals. They are used for the transport of bulk commodities

such as mineral ores.

Ports and cargo handling:

Terminal handling Whenever cargo is sent to a port due consideration needs to

be given to the nature of terminal handling facilities available. Not all ports are

capable of handling all types of cargo and some ports are solely established to

handle onetype ofcargo only, for example crude oil terminals other may have

separate facilities for handling different types of cargo, for example ISO

containers and break-bulk cargo.

Charges for terminal handling will vary from port to port and by the type of cargo

handled. Many ports will offer free periods of storage prior to loading of the ship

or after unloading of the vessel. If these periods of free time are exceeded for

any reasons then changes known as demurrage or detention will usually be

Page 345: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 322 of 384

charged in addition. If goods are unloaded from a ship directly on to a truck, and

vice versa, then this is usually referred to a direct delivery and ports will offer a

reduced charge for allowing this activity to take place. This can speed up vessel

turn-around times in the port but needs careful planning to ensure sufficient

trucks are continuously available to maintain the direct delivery process until the

ship is fully discharged or loaded.

Future Challenges Abound Maritime Industry Gearing up to tackle global

competition:

―Is India ready to take on the global position as the shipbuilding nation? The

answer today is perhaps ‗no‘. But this scenario is soon going to change with the

maritime industry witnessing resurgence and making its way towards becoming

global competitive by eliminating the shortfalls in its operational processes and

product development. With such promising initiatives in place, the Indian

shipbuilding industry is set to ensure that the ‗Indian Flag‘ keeps flying high‖.

Characterized by low capacity, poor productivity and lack of modernization,

Indianshipbuilding has miles to travel to become the global shipbuilding nation of

the world. The good news is that India has already started taking proactive

measures to becomeglobally competent. Let us first start with the facts to

understand the potential ithas. According to Frost & Sullivan, the market earned

$ 1.60 billion as revenues in 2010. It expects this figure to reach $3.50 billion in

2016. ―About 40 per cent of the India-owned fleet is more than 20 years old, and

Indian owners will need to spend about $4 billion to replace these during 2010-

2015‖, says Srinath Manda, Transportation & Logistics Programme Manager,

Page 346: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 323 of 384

Frost& Sullivan in a statement. In addition International Maritime Organization

(IMO) has mandated the phasing out of all single-hull vessels by 2010, and

single-hull tankers constitute about 15.8 per cent of the total vessels owned by

Indian shipping companies. As per the Indian Shipbuilders Association‘s (ISBA)

estimates, the industry can grow at a rate of more than 30 per cent and this

momentum can be maintained for the next 10 years to reach a level of 5 million

DWT order book in the 11th Five Year Plan as against 1.3 million in the 10th Five

Year Plan. With this, the shipbuilding industry would also be able to achieve a

world share of 2.2 per cent and an annual turnover of Rs 18,000 crore in the last

year of the 11th Five Year Plan. It is expected that in 2017 by the time the

shipbuilding industry matures, it would have attained more than 7.5 per cent of

the global order book and will have a turnover of Rs 40,500 crore.

The Indian shipbuilding and repair market is poised to pick up momentum with

the increasing penetration of Indian shipbuilding companies in the offshore

vessels (OSVs) segment. India has proven its might in the building and repair of

OSVs, thereby resulting in a spike in order for such vessels from the Indian

industry, The limited capacities related to OSVs in leading shipbuilding nations

such as Japan and South Korea, have resulted in a diversion of orders to India,

thereby driving up the fortunes of the Indian shipbuilding and repair market. The

aging fleet of shipping companies in India augurs well for the shipbuilding and

repair market in the country. But this is just one side of the story; the

shortcomings possessed by Indian shipbuilders are blocking their path towards

attaining global competitiveness.

Page 347: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 324 of 384

Challenges abound:

India lags behind China, Japan, Korea, Vietnam and Philippines in shipbuilding

and ship repair. But what prevents India from becoming a world leader in

shipbuilding? This is probably one of the biggest questions that the industry

needs to address.

Lack of a mentor:

During a recently held summit, this question was discussed in detail and the

outcome drawn was lack of vision, resolve and management i.e. the lack of a

‗Sam Pitroda‘ in Indian shipbuilding. Although at first these hurdles seemed like

they were easy to overcome, but in hindsight the absence of a mentor has been

hampering the growth prospects of this industry since long.

Poor production technology

India‘s ship design capabilities may be fairly good for warship, but the quality of

designs related to merchant ships, including coast guard ship are poor. The

country is unable to use the latest IT tools in shipbuilding as India still lacks basic

ship design and production technology. According to experts, for the last eight

years, due to non-availability of expertise in ship design and production, most of

the orders to build ships were either cancelled or postponed. We have to be

‗proactive‘ in this area instead of remaining ‗reactive‘. ―India has a vast coastline,

but there is anacute shortage of deep draft water space along the coast‖, says

Srinath, adding, ―This restricts the type and size of ships that can be built or

Page 348: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 325 of 384

repaired in India and curbs the full growth potential of the Indian shipbuilding and

repair market.‖

Need for government support

In the face of a global recession and in the absence of government support in the

form of a shipbuilding subsidy scheme, which expired post August 2007, Indian

shipyard have been far behind their competitors for the want of new orders. The

yards could book very few orders-for export or domestic shipping lines as foreign

yards. Commenting on the same, Captain Rahul R Pathak Principal Consultant,

Mantrana Maritime Advisory, says ―Indian shipbuilding is going through a

challenging phase Very few new building orders have been placed by the private

sector. Most of the orders that have come to Indian shipyards, in the commercial

and naval segment in the last two years are from the Indian Government. Most of

the shipyard are executing past orders. Once completed, the situation at

shipyards could worsen. There is little hope for the revival of commercial

shipbuilding in the next two years. The shipping industry is oversupplied and

underutilized.‖

―Even through shipping companies have large cash on their books, they are not

placing orders for new ships and their existing fleet has low utilization. Moreover,

they do not see the trade and other maritime activity picking up to the extent that

they absorb the surplus ship already in market. Hence, no company other than

government owned firms is thinking of acquiring new tonnage. This leads to poor

order outlook for shipyard‖, he says, adding ― The immediate future opportunities

for Indian shipyard would come from the government-owned companies such as

Page 349: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 326 of 384

ONGC, SCI, Indian Navy, Coast Guard, Ports, etc, Whose requirement are

budget driven.‖

Other Factors

Additionally, the shipyard‘s low productivity and delayed delivery schedules due

to factors such as lack of management and commitment, short term policies

&appointment of CMDs in shipyards, lack of experienced design engineers,

production engineers, lack of development in ship design technology and

production technology poor labour relations, outdated government policies lack of

support from ship owners etc are preventing India from competing in the world

shipbuilding market.

Action Agenda

Shipbuilding has a long gestation period. It needs a lot of funding as it is labour

intensive and requires the installation of costly equipment. This combination can

prove to be highly rewarding if handled properly. Industry leaders vouch for the

fact that the National Shipbuilding Capability Index for shipyards has to be

brought out. The ship breaking or recycling industry must not be neglected and

norms have to be set for this industry. Apart from this some of the other initiatives

that the industry needs to implement on an urgent basis include:

Delivery schedule of ship:

The industry needs to tackle issues pertaining to non-standardization of

material, equipment, non-freezing of design & specification, etc, which

lead to a ship‘s delayed delivery that in turn leads to cost and time

Page 350: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 327 of 384

overrun. Alsofrequent layout changes between sister vessels of the same

class should be avoided.

Dearth of skilled manpower in design:

Private & government institutions need to intervene and solve this problem

by starting design courses in naval architecture. AMET University,

Chennai has already started a naval architecture programme.

Lack of skilled manpower in shipyards:

In private shipyards there is acute shortage of skilled manpower.

Government shipyards already have apprenticeship schools to meet their

manpower requirement and institutions throughout the country like ITI to

train students.

No industry-academia connect:

There has to be industry-academia connect to create awareness among students

about the immense career opportunities that maritime offers. Major industries can

provide scholarships to students and train them about the maritime sector. There

is also a need for industry people to visit academic institutions regularly and talk

to students about the importance and relevance of maritime affairs in India and

the prospects that it can offer students.

Consortium of ship designers deeded:

An association or consortium of ship designers needs to be formed so that the

design load can be shared among them, Shipbuilding at the sub contractor‘s

level is an unorganized sector in India and workers are not given benefits as per

labour regulations, Additionally the safety requirements are to be looked into and

Page 351: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 328 of 384

regulated. Multiple professional associations must work together to bring up the

shipping industry in close association with the government.

Need for subsidy scheme:

The shipbuilding turnover for private and public sector shipyards, excluding

defence shipyards has grown 14 fold in the last nine years from about Rs 440

crore in 2001-2002 to Rs 6,200 crore in 2010-2011 But the introduction of a

shipbuilding subsidy scheme would immensely benefit the industry. ―Subsidy is

required to provide a level playing field. Unlike other industries that are protected

by customs and duty barriers the shipbuilding industry has to compete on global

pricing levels as there is no duty imposed by the government on the import of

ships and dredgers. In addition the Indian yards have to pay excise and VAT on

all indigenous items as well as on complete ships, which is not the case with

ships imported says a report. ―Without this the industry is likely to collapse and

there will be no shipbuilding industry left in the country‖, the report adds.

Much needed policy on shipbuilding:

The National Manufacturing Competitiveness Council ( NMCC) has been

emphasizing on the need for a shipbuilding policy to enable Indian yards to

compete effectively in both the domestic and export markets to help build a

strong shipbuilding sector in the country, given its potential for employment

generation as well as its strategic importance. In a meeting held in January 2010,

NMCC recommended that the shipbuilding industry in India needs to be granted

infrastructure status and also be declared a strategic sector.

Page 352: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 329 of 384

Navigating towards the future:

With sustained support from the government, India can become a preferred

shipbuilding nation and can contribute more to the global shipbuilding industry, if

the existing regulatory mechanism is eliminated or relaxed. India can soon

compete with nations like China, Korea and Vietnam. Also the labour intensive

nature of the shipbuilding industry and the availability of low-cost labour can play

a key role in making India highly competitive in the global shipbuilding industry.

The future of the Indian shipbuilding and repair market looks promising and is

likely to double in the next 5-6 years. The growth potential is further enhanced

with the Indian Government aiming for the nation‘s shipbuilding sector to attain a

5% share in the global market by 2017, of late the Indian Government is

encouraging greater private participation in the sector and a new world-class

commercial shipyard is being built on the eastern coast. These factors will speed

up the growth prospects for the market. The government is also facilitating

improvements in port & infrastructure facilities and easing regulations and taxes

to assist the industry in addressing the challenges and overcoming its barriers.

The prospect are rip for the industry to capitalize on. It is just the industry‘s

preparedness and forthright attitude that will be enable them to make the right

decision in the long run and become the world‘s most preferred shipbuilding

nation!

Page 353: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 330 of 384

12.4 Mega Trends in Air Cargo

―Despite the global economic downturn, the Indian international market has

expanded 7% from 1.11 million tones in 2007 to 1.19 million tone in 2009. With

India‘s freight industry expected to grow at 10% per annum by 2014 & the air

freight sector set to expand by 8.5% per year for the next 5 years, the air cargo is

all set to witness highly promising prospects.‖

The air cargo sector has grown to become a vital mode of transport for India‘s

international trade, especially for products with high cost and value addition, The

current air cargo traffic in the country is around 2.64 million tone this year with

almost half of this coming from Delhi and Mumbai. Delhi accounts 6,00,000 tone,

while Mumbai accounts for 5,00,000 tone in 2010-11. Further, with the Indian

Government raising the limit of FDI in cargo airlines from 49% to 79% the growth

rate of the aviation sector in the next 10 years is expected to be approximately

25% thereby making the Indian market even more lucrative for foreign players to

enter into the air cargo space. ―The Indian air cargo industry has become highly

competitive with service providers investing in infrastructure, acquisitions and

technology in order to provide the best possible services to customers like FedEx

are doing.

As per a Boeing report ‗World Air Cargo Forecast 2010-2011,‘ India is the largest

submarket in South Asia, comprising of about 69% of international flows in the

region, India also enjoys a significant domestic market from 1999 to 2009, the

total Indian air cargo domestic and international markets have averaged a 6.6%

growth annually. The Indian domestic market had been growing rapidly before

the global economic downturn in 2008 and in the 10 years between 1997 and

Page 354: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 331 of 384

2007, the domestic air cargo market averaged a 10.8% growth annually India‘s

leading trade partners are Europe & Middle East and Asia but until 2007 Europe

was India‘s biggest air trading partner.

India’s International Standards:

According to the International Air Transport Association (IATA) Economic briefing

ever since liberalization in the air transport market began in the late 1970s, actual

yields have fallen by almost 50%. Air travel and air freight have become

considerably cheaper and clearly this has boosted volumes, However this impact

has been marked by a steady trend. Economic growth & GDP have been the

principle drivers of changes in global revenue passenger kilometers (RPKs).

Economic forecasts imply that airline traffic will remain below the previous trend

over the medium-term with passenger travel forecast to be 9% lower by 2016

than pre-crisis industry forecasts the report points out.

The key to any cargo player to succeed is to understand and listen to customers

and get their feedback and respond to what they want, this focus will ensure that

customers continue to get the superior experience and value they expect. ‗The

service providers are aware of the environment they have an eye on the current

economic scenario and work at par with the international standards.‘ a senior

TNT official highlights.

Logistics providers are further enhancing their services by implementing

technology and developing infrastructure. After much research & study it was

established three gateways in India—one each in Mumbai, Delhi and Bengaluru.

This has enabled them to provide 31 international flights to India-15 flight to

Page 355: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 332 of 384

Delhi, 11 to Mumbai &5 to Bengaluru- the maximum offering by any express

service provider in India. They also offer 12 clearance gateways from Indian

cities, the maximum for any carrier.‖

Major Trends:

According to the Planning Commission, Indian air cargo movements would grow

at over a compound annual growth rate (CAGR) of 11.5% from 2007-08 to 2011-

12. The major reasons which can be attributed to this increase, are increase in

overseas trade, Indian economic policies and e-commerce developments. On the

major trends in the air cargo sector the senior TNT officials comments, ― Air

cargo, trade and the GDP of a country are interdependent and have a direct

relationship. Air cargo enables nations regardless of its location to efficiently

connect to distant markets & global supply chains in a speedy and reliable

manner. The rapid growth of international trade has boosted prospects for the air

cargo market in India, increasing globalization, establishment of manufacturing

facilities and India‘s growing might in the IT space have contributed to the boom

in the country‘s economy thus resulting in an increased aggregate demand from

India driving the air cargo services market.‖

As India emerges as a key growth economy on a global platform, there is an

emerging need for logistics services operating on global standards in order to

effectively integrate Indian enterprises with the global economy. This is fuelling

globalization and consolidation within the industry with the entry of global players

as well as Mergers & acquisitions in the Indian market. ―Another emerging trend

is the broad-basing of service and product portfolios of express delivery

Page 356: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 333 of 384

companies with more players offering comprehensive portfolios covering an array

of services ranging from express services ground services, value-added

services, warehousing, 3PL etc, like it have done at FedEx.‖

Globalization and rapidly evolving demands of the industry are also increasingly

driving the use of technology in operations to improve efficiencies and offer

enhanced value-added services.

Use of Technology:

In today‘s world, keeping up with the latest technologies provides enhanced

speed & quality of service, Various technological investments have enabled

Indian players to automate many processes to save time, increase productivity,

improve operational efficiencies, customer relations and reduce cost. Here is a

list of technologies that FedEx uses to provide services to its customers.

Handheld scanning devices, also referred to as the FedEx Power Pads, to

update the package status at every stage. As soon as a package is

scanned the information is uploaded onto the FedEx network.

FedEx Billing Online (FBO) enables customers to receive and pay their

invoices online.

Automation at clearance operations at the company‘s automated gateway

in Delhi include automated conveyor belts, supported by scanning devices

that can produce clearance type information on a label which is used for

efficient sorting.

Tracking tools that help customers keep track of their packages such as

Sense Aware. Sense Aware enables customers to monitor their shipments

Page 357: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 334 of 384

in near real time with information like temperature, location & exposure to

light and continually share this information with their supply chain partners.

Future of Air Cargo in India:

India is the leading economy and international air trade hub of South Asia of the

1.73 million tone of international traffic that moved into and out of the region in

2009, more than 1.19 million tone moved through India, ―India‘s domestic air

cargo market will return to rapid growth expanding 10.6% per year on an average

to reach 2 million tone per year by 2029,‖ as per the report.

Today, India is among the top four biggest economies globally and is predicted to

be among the top three economies by 2020. Economic growth also reflects the

growth of the air express industry in India. The Indian domestic & international

express cargo industry is among the fastest growing in the world and worth close

to US$2 billion. Over the last decade it has witnessed a CAGR of 33%.

According to the senior TNT official, ‗The growth rate of the aviation sector in the

next 10 years is expected to be in the range of 25%.‖ The demand for air

transportation is ever increasing particularly from the trading pharmaceuticals

and manufacturing sectors in India.

12.5 Rail Freight in India

―While the world is shifting towards high-speed metro rail and monorails, Indian

cargo rails still await an opportunity to move beyond the average speed of

25kmph, Passenger trains in the country are gaining momentum, as a new set of

Page 358: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 335 of 384

express freight trains are still toiling for a proper footing. There is a dire need for

Indian Railways to step up the efficiency of freight trains to improve services.‖

With the introduction of bullet trains, the pace of transportation has reached

speeds unimaginable in the last century. Oblivious to these developments, the

Indian Rail freight still awaits for a silver lining.

Cargo trains are one of the most lucrative businesses of the Indian Railways,

which bring in a major chunk of its revenues and is still waiting for initiatives by

the government to increase its transit speed, In the past few years Railway‘s

share of goods moving across the country has reduced and is expected to further

decrease from the present 36% to 25%, as compared to this percentage, the

relative share of rail transportation in China and the US is almost 50 per cent.

Even though transportation by train is less costly & three times fuel-efficient than

road transportation, people prefer transporting goods through road and not train.

A recent Mckinsey study reveals that if the Railways do not regain their lost

market share, the loss can increase due to the sub-optimal logistics from the

equivalent of $45 billion (or 4.3% of GDP to 140 billion (or more than 5% of GDP)

in 2020. Ashish Sehgal, Director Global Packers & Movers, says, ―Indian

Railways are an important part of the Indian transport system carring an entire

gamut of cargo. Going forward rail freight has been and will experience a steady

growth in the future.‖ Emphasizing on the present situation he avers, ―The rapid

progress in the industrial sector is creating demand for rail transport particularly

in core sectors like coal, iron & steel ores and petroleum products. With the

emergence of dedicated freight corridors across the nation rail freight is set to

witness tremendous growth opportunities, Still the government should take some

Page 359: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 336 of 384

initiatives to reduce the transit period of these cargo trains to help the Railways

gain more business.

Slow Speed of the Railways:

According to the Mckinsey report, in effect goods train can manage an average

speed of a maximum of 25kmph on the other hand the same locomotives

average more than 60 kmph when they pull passenger coaches on intercity runs.

There are a number of reasons for this slow speed of goods train in India, First

as compared with the passenger trains the trailing load of cargo train is twice-

leading to the inability of locomotives to accelerate or cruise at a faster speed.

Second, certain wagons such as those carrying coal or petroleum are not at all

designated to run on high speed and finally goods trains are almost always

necessarily sidelined at wayside stations to allow the passenger trains reach the

destination first.

―The average speed of a goods train was 17.4 kmph in 1950-51, which in 1989-

90 increased to 22.7 kmph. In today‘s fast moving world, this speed or the rate of

growth in speed is very slow. In a predominantly agriculture economy like India,

perishable goods account for a big chunk of the freight. Hence a speed of at least

100 kmph is a requirement today.‖

Speed is the need of the Day:

In order to improve the overall efficiency of rail freight services in India, Indian

Railways should focus on increasing the speed of container trains. This will help

the Railways compete more effectively with road services, Vineet Agarwal,

Page 360: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 337 of 384

Executive Director, Transport Corporation of India, says, ― Since Indian Railways

primarily focuses on improving the service levels technological upgradation

should occupy a prime slot in its future planning facilities like automatic signaling,

doubling of tracks, installation of route-relay interlocking on all major routes is

already a step in the direction towards improving the average speed of trains.‖

Hurdles on the way:

The existing infrastructure is the biggest hurdle in the way to development, the

present rail network is not adequate compared with the burgeoning rail freight

focus on the freight business of Railways, Also there is a shortage of necessary

equipment like wagons & rakes. ―Intensive monitoring for timely delivery,

increase in trailing load of trains, claim free movements of goods, improved

services like refrigerated containers for perishable goods, etc are some of the

hurdles faced by cargo trains,‖

Promising Heavens:

With the proposed Dedicated Freight Corridor ( DFC) the future of Indian

container trains appear bright, Possibilities are being explored for double-

stacking the trains and some trial runs have already been carried out. ―A plan is

proposed to run double-stacked container traffic under electric traction on the

DFC stretches, Even triple-stack container trains with special-purpose

automobile carrier containers have been proposed for the New Delhi- Pune

route,‖ The Ministry of Railways has announced a pilot project to run such triple-

decker container trains to carry cars, scooters and motorcycles in preparation for

the eventual operation of such train on the western section of the proposed DFC.

Page 361: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 338 of 384

The triple-stack trains are expected to be hauled by diesel locomotives as this

western freight corridor is expected to be un electrified, with the proposed DFC,

one can wish for the freight scenario in India to change for the better in the years

to come.

Challenges in Indian Logistics

―The issue of logistics in India remains a grave concern area for any business to

operate seamlessly – be it retail or nonretail.

The Technical Team of talk in detail about the challenges faced by the country

when it comes to logistics.‖

CII – Institute of Logistics

India has emerged as one of the top projected at 13 per cent of the transportation

and warehousing) in India is10 countries in Industrial production country's GDP.

But there are losses 31 per cent, where in the same is as per UNIDO's [United

Nations due to poor infrastructure and inept only 10 per cent in the United States

I n d u s trial development of supply chain management solution, and 18 per cent

in China. Any Organization]. The report states as reflected in 1,300,000 ton of

food improvement on this part will (under the title ―Performance of grains rotting

in storage during the directly improve the competitive-Manufacturing Industries of

India‖) last decade, due to lack of moderns of the Indian products in global that

the country is now leader warehousing. About 25 per cent of market among

developing countries in some of the agricultural produceis India isa land some

high energy - intensive getting wasted in India due to lack of of opportunity in

these segments. The 12th five year plan is requisite infrastructure. A study global

trade. The logistics infrastructure under preparation with a target conducted by

Page 362: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 339 of 384

KPMG & Cygnus true growth is also tremendous due growth of 9 per cent - 9.5

per cent. Business consulting has revealed to government schemes and private

India, with a sustained growth in the that the total spend on wastage and

investments. But this infrastructure approaching years, expects to other

expenses (excluding transport growth could not keep up with the become one of

the top three economies in the world by midcentury. India is also emerging as

one of the leading consumer state. The logistics sector plays a major

role to support his cause. Connectivity and convenience in operations is the key

for sustaining the trade growth in the global arena. The logistics industry in India

is recording staggering revenue of about $ 82.1 billion with a growth of about 9.2

per cent in the fiscal year (2010 – 11). The total spend on logistics and aided

services in India is pace of the trade growth. Hence there is a severe backlog in

infrastructure development and the industry is finding it difficult to enjoy a

convenient operation. The supply chain and the logistic sector will be on utmost

focus in this decade. Major Areas of focus for improvement in the industry, to

enable a sustained growth and endow with support to the demand from the

global trade, are majorly on the below grounds.

Uniform Tax Policy

Trade across pan India is more complex now with the varying tax procedures of

each state. The supply chain strategies are majorly based upon tax saving

instead of operational convenience and cost optimization. Tax cascading across

the supply chain is adding up to the cost and affects the price competitiveness.

Though the proposal of GST implementation came as a reliever, the delay in

implementation is causing anxiety to the industry and the stake holders could not

Page 363: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 340 of 384

formulate strategies for their future action. Post GST strategy for trade growth in

India is phenomenal. further improve the support from logistics and inventory

carrying, But the growth of logistics sector is this sector to the supply chain could

not be determined due to the still lagging behind. The supply industry.A study by

World Bank delay in implementation. Various turnaround time is much below the

reports that it takes 195 days and 37 initiatives are taken in the industry desired.

In addition to development, procedures to construct a legally to prepare

themselves for the GST improvement and maintenance of compliant &

operational warehouse regime and once implemented; the proper road facility,

development of in India. The warehousing sector is supply chain is the area will

benefit dedicated rail routes and exploitation- majorly unorganized and scattered

the most from the GST scheme of waterways in and around the About 92 per

cent of the warehouse country, also connecting the B and C space used in the

country is Infrastructure and Connectivity class cities, is the need of the hour.

Unorganized Warehousing another major area of apprehension constitute 20 per

cent of the Indian Land conversion in India is infrastructure. Lack of for

warehousing, Logistics Industry. The country has efficient infrastructure for both

infrastructure development and 1800 million sq.ft. of Warehouse transportation

and warehousing is a dedicated clusters for warehousing space of which only 8

per cent is huge cause of concern in India. The is also demanded in the industry

to organised. Most of this organized space is functional under private body.

According to KPMG, of the unorganized warehouses, 27 per cent percentage is

unaccounted supply, 29 per cent is public sector and 44 per cent is in-house. In

terms of weight, the existing capacity is approximately 80 million Metric ton. India

Page 364: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 341 of 384

will need additional capacity of 35 million Metric ton in next 5 years. The industry

is also growing at a steady pace and is expected to develop additional 45million

sq.ft. organized warehouse space in next 5 reduce the complexity and difficulty in

port clearances. The KYC assessment has improved process efficiencies. The

industry is also focusing on making the logistics activities leaner

and greener by reducing and compensating on carbon footprints they leave on

the environment. The need for carbon emission control and introduction of

innovative Green supply chain initiatives by the industry players are also yielding

cost benefits. About 70 per cent of domestic cargo movement in India happens

through roads and enables last mile delivery. The cargo movement through

years. The industry is growing at and certifies the warehouse a road leaves

CAGR 12 –13 per cent. propos the relevant certification more carbon footprints

than the echelon. This process not only does movement through rail and sea. It

Introduction of Warehouse an audit on process efficiency, has also proved to be

more expensive Development and Regulation Act effectiveness and adaptability

and posting a regulatory authority to also enlightens the management to monitor

the implementation of the focus on critical areas for sustained Use of sea routes

wherever possible Act is also a welcome move from the process improvement.

Thus it will be cost effective and greener. government. This has addressed

encourages more unorganized More corporate, particularly most of the storage

issues of food players in the sector to move automobile and manufacturing grains

and retail market towards organized operations and sectors have already started

working Introduction of negotiable reduce cost wastages on using sea route as

best as Warehouse Receipt is also proved to possible. Government of India is

Page 365: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 342 of 384

also be a growth inducing tool ensuring The port infrastructures are being

encouraging the cargo movement availability of critically needed funds developed

to the world class through waterways and has started to have a sustained trade.

The latest standard and the focus is now mainly initiatives to develop better

trends seen in Warehousing industry on developing connectivity to the

infrastructure to ensure connective service oriented architecture, ports. Projects

are being taken up in it to major and high volume ports. consolidation, large &

multi- developing dedicated freight Inland water transport where ever purpose

warehouses, automation corridors by rail and road to the possible is also being

exploited. and integration of WMS & TMS. p o r t s . The private public Skilled

Manpower Partnerships are encouraged in CII Institute of Logistics, on its part,

developing and promoting FTWZs Acute shortage of skilled man power

contributed WAREX (Warehouse and SEZs to be in the closest vicinity in the

Supply Chain industry is also a Excellence Certification) to the of the ports for

better logistics threat and is expected to escalate industry. This process

qualitatively services. The introduction of faster than the industry growth.

assesses the warehouse operations Authorized Economic Operator Shortage of

truck drivers, skilled against the industry benchmarks scheme has addressed the

need to warehouse operators, forklift operators etc are raising alarm in the

industry. Intense training is needed to support the cause. Fully equipped and

dedicated education centers to train manpower on specialized Logistics skills are

immediate requirements .Awareness of innovative techniques and latest

technology is now far from the market reach. This is now one of the major

concerns. Implementation and reach of Technology High cost of implementation

Page 366: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 343 of 384

of IT in supply chain is another bottleneck. Latest technology implementation

Emergence of 3PL service providers sector to a cost is perceived as far high and

less larger extend. The confidence on ROI in such invest- and usage of latest

technology in the advantage of using 3PL are less has kept away the technology

sector could provide boost to the investment on capital, support of from the

industry players. Initiatives growth of the sector. Contribution of technical know-

how, possible are taken in the industry to extract 3PL to the Indian logistics

sector is utilization of latest technology in the Government support in the form of

only 9 per cent where in the sector, reach to new markets, assess subsidy on IT

implementation. The contribution of 3PL in Japan, US and to market information,

flexibility technology market in Indian Europe are 80 per cent, 57 per cent and

cost convenience. Selecting the Logistics Industry alone expects a and 40 per

cent respectively. If the right 3PL service provider and growth of 19.8 per cent

and to cross usage of 3PL could improve the implementing apt SLAs are vital for

$600 million by 2015. quality of deliverables and could success in outsourcing.

possibly improve the growth of the We acknowledge and appreciate the

promotion schemes are offered by the government at various areas. Generating

skilled manpower, technology implementation and improving the infrastructure

are the most needed support to the industry. A collective approach to the entire

supply chain will support sustained growth. Logistics Summit 2011 organized by

CII Institute of Logistics in association with Industry focuses on improving the all

the key areas identified. Collectively we should be able to address this need.

And what are the best practices ???

Page 367: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 344 of 384

The complexity surrounding Supply Chain makes it a difficult task to narrow down

on common best practices that each organization should follow in order to have a

fool-proofsystem in place. shares some very interesting practices which should

be a part of any company's supply chain management system and which in

today's market condition can be termed as the 'best practices' that one can

follow.

Page 368: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 345 of 384

CHAPTER 13

MAJOR FINDING

Page 369: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 346 of 384

CHAPTER 13

MAJOR FINDING

Major Findings of the Research

1. The level of decision making depends on job profile of the managers i.e

whether he is logistics managers, financial, production managers, or Director of

the company it has an Positive impact on the profitability of company.

2. There is significant association between activities (Outbound transportation,

pack & labels, transportation management, inventory management, distribution

network planning) and job positions of the managers of the companies, i.e

Logistics Managers contribute significantly to the profitability of the company

through competitive advantage.

3. There is significant positive association between manager‘s view on efficiency

of important parameters like production, distribution and sales. Production

aspects depends on number of packaging lines, uncertainty of production output

time. At the same time Distribution aspects depends on number of customers

domestics or international, warehouses, channel variety, delivery frequency,

order lead time, & sales & demand fluctuations.

4. Logistics performance of a company depends on certain prime factors. They

include low logistics cost, promised delivery time, ordered quantity. This can

directly affect the long-term profitability of the company.

Page 370: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 347 of 384

5 .Processed Food Usually have a small Shelf life and therefore the long chain of

intermediaries between the farmer and the market, adds cost but no value to the

product. The escalation in the cost of the produce is to an extent of 250% of the

cost of production at the farm level .

The concept of an Agri-Logistics Hub (ALH) is essentially a strategically located

multi-modal logistics platform, allowing efficient operations by including truck-stop

facilities, such as container cranes and gantries, terminal stacking, warehousing

facilities, high end food processing facilities and other value added services. ALH

tackles these issues effectively as they would enable supply chain/logistics to

function much efficiently by removing the cargo bottlenecks in the transitrelated

activities. Integration of such facilities helps in reducing the supply chain for the

producers who had to deal with long marketing channel to reach the market due

to unavailability of the necessary infrastructure. From a mere combination of

transportation and storage services, agri-logistics is fast emerging as a strategic

function that involves end-to-end solutions that improves efficiencies and which

would enable apportionment of associated capital costs across a larger base of

users leading to significant costs reduction.

6. The need for Positioning arises out of the fact that a product cannot be

‗everything to everyone‘ and that it has to be something to some segment.

Normally, some unique feature of the product, some special needs of the market,

or some noticeable gap in competing offers is picked up and the product offer is

positioned around them in a manner appropriate for the target audience.

Identifying such features and using them imaginatively as the plank on which to

project the product is the essence of positioning, products are positioned in

Page 371: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 348 of 384

different ways, depending on what they have to offer and to whom they are

offered. Some products may be positioned for the higher segments of the market;

some may be positioned for the middle segments; Products can be positioned on

claims of luxury, distinctiveness, convenience, economy, uniqueness, novelty or

usage. They can also be positioned directly against competing brands.

The Companies that undertake Logistics outsourcing activities can positioned

themselves as Outbound transportation, or Transportation Management or

Inventory Management, or Distribution Network planning expertise and good

logistics will help positioning the product to be timely delivered and will be made

available on retail counters for maximum period, without affecting the quality of

the products.

7. Food wastage has been a perennial problem for India with estimates ranging

from 58000 crores in 2004 to 30000 crores in 2010, with over 30 percent of

produce being wasted. The perishable nature of products makes it necessary to

have adequate storage facilities, optimal handling of produce and efficient

transportation and distribution network percentage of produce stored in

temperature ambient conditions only 2% of produce that needs to be stored in

temperature controlled environment are currently being handled this way.

To make these processed food freely available in interiors & rural areas, one

requires good logistics in the form of refrigerated or Chilling van & warehouse, so

that the product does not perish.

8. There is lack of awareness among the common man about some of the

processed food made by S.B.U these products to popularize them, one requires

Page 372: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 349 of 384

to do promotion through ATL OR BTL activities, along with this they need to do

R& D and innovate new products to bring some major revolution to get the

product into Blue Ocean strategy.

9. The disadvantageous position that exist in the current system of marketing of

fresh produce in the country. Some of them are as set out below.

i. High level of wastages due to lack of proper handling, storage and transport

infrastructure.

ii. Lack of grading facilities based on the quality.

iii. Long and inefficient value chain with many intermediaries.

iv. Lack of packaging facilities.

v. Lack of price-sharing mechanism.

vi. Lack of efficient prices discovery mechanism.

vii. Inefficient linkages between the producers and the off-takers (retailers/

institutional off-takers/consumers).

Efficient logistics may help marketers to make better strategies & gives Marketing

Manager flexibility in adjusting Marketing Mix, So the Sales could

improve, If buyers are targeted to adjust the demand as per the requirement it will

increase the market size.

10. Government should acts like a Santa in constructing Warehouses with Cold

Storage facilities to prevent the food from being perished, In interior‘s of the

nation this facilities needs to be improved.

13.1 Limitations of the Study 1.This study was conducted in the city of Mumbai which is considered to be

representative of the Companies Outsourcing Logistics activities.Companies

Page 373: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 350 of 384

outsourcing logistics across the country and the sample frame was determined

accordingly at the time of deciding the research design . However, this research

does not cover other metros and hence might not have captured regional factors

affecting Companies outsourcing Logistics Activities.

2.Researcher has assumed that the information provided by the Logistics

Executives and managers is transparent and accurate. However there can be

constraints while sharing information by the Logistics executives & Managers for

general and academic survey. Hence more accurate information can be gathered

only if such survey is commissioned by large Outsourcing Companies for their

own use.

3 The literature search and review was dependent upon the availability and

access to research information on the subject in India. It must be acknowledged

that as organized logistics outsourcing is in fledgling state and hence not many

research projects in this field has been conducted and consequently only limited

authentic published work is available and a source for secondary data.

4. It must be mentioned that in an academic research work of this nature only

illustrative factors affecting Logistics Outsourcing research hypothesis could be

included in the survey. To get deeper insight about the holistic picture of

companies Logistics outsourcing many more specific parameters needs to be

included.

Page 374: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 351 of 384

CHAPTER 14

CONCLUSION

Page 375: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 352 of 384

CHAPTER 14

CONCLUSIONS

Conclusion

Last couple of years have been packed with several significant developments for

Indian Logistics industry, including the entry of many large corporate houses and

growing acceptance of modern formats. Though Logistics outsourcing is

relatively new in India . It is heartening to note that they have quickly adopted

required processes in their operations.

Given the industry‘s changing landscape and emerging challenges, the focus of

Logistics industry players too is changing. They are concentrating on

strengthening the existing operations and assessing options for profitable growth

through enhancing efficiency in Supply chain, embracing appropriate technology

, upgrading skills of employees and are moving towards consolidation and

innovation of processes.

In today‘s world of Internet and wide media reach and connectivity, consumers

are well informed and are able to exercise their option in deciding their preferred

area of Outsourcing. One of the major challenge logistics outsourcing

companies are facing is in attracting and retaining new customers. This explains

the reason why all Logistics Outsourcing Companies are working on improving

supply chain alignment with consumer demand. This is a right focus for the

Companies as can clearly be concluded from the research that supply chain

alignment has important bearing on achieving customer satisfaction which is the

Page 376: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 353 of 384

only way to remain viable and ensure sustainable growth. Only happy customers

come back for repeat and regularly buying and help in consolidating base of loyal

customers.

Further the study reveals that they are focusing on enhancing employee

productivity and operational efficiency and outsourcing of logistics to improve

delivery of goods and services and managing inventory to remain profitable.

However, the focus differs among different Logistics outsourcing companies in

general barring few exceptions have still a lot of ground to cover in adapting to

their processes modern Logistics activities

Further the Study reveals that while taking Major decision of logistics

outsourcing 75% of logistics Managers are involved and decision is being taken

at Multi-factory Level (91%), Further it has been seen that there is 10-20%

increase in total sales Volume after outsourcing logistics activities by the

companies at Single & Multi factories level. Interesting fact which comes out that

initially the Directors are reluctant to outsource the Logistics activities, but after

outsourcing these activities 10 – 20% increase is seen.

Further, the Directors, Financial Managers & the Logistics Managers are of the

opinion that Distribution Network Planning contribute highly competitive

advantage to the companies, and further they are of opinion that Packing & Label

and Transportation Management are costly to outsource these activities.

Further Logistics Managers & Directors find the Inventory Management difficult

in measuring the performance of logistics service, at the same time they are of

the view that perishability of end product complicates the logistics process.

Page 377: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 354 of 384

Further the study revealed that there is a high level of enthusiasm and

commitment among executives and employees of Logistics companies in

implementing the technology. They all feel that technology helps them in their

work and also improves efficiency. This augurs well for the organized logistics

industry.

The study also showed that though a lot of data is collected on items like

wastage, slow moving items , customer complaints , there is no structured

approach in processing this data and comparing it with any set target. Logistics

companies have to move to the next phase and make use of this information in

achieving measurable targets for operational efficiency improvement.

14.1 Recommendation & suggestions

Upgrading technology to improve efficiency

There is a scope to upgrade the application of technology to improve

operational efficiency For this it is recommended that logistics

outsourcing companies should hire the services of reputed technology

solution providers to optimize their processes for Improving forecasting

accuracy, reducing stock outs, increasing sourcing efficiency and product

movement, reducing lead time and optimizing transportation.

Data Tracking

At present there is hardly any effective system in place at the logistics

outsourcing companies which generates data to track individual customer

spends and their outsourcing preferences. This data is extremely

Page 378: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 355 of 384

important for stores as it has to be integrated into sourcing design to

ensure that companies aspirations are met and he gets the goods that he

needs and prefers. It is recommended that a system like companies

loyalty cards need to be effectively implemented using appropriate

technology. Data generated from this must be regularly monitored and

used for sourcing.

Similarly, it is recommended that companies explore new tracking and

identification system like RFID. Online information on stock availability will

give accurate feedback on stock as this system will capture the sales.

This will help a great deal in planning, procurement and avoiding stock

outs.

Manpower Skill Upgradation

With sudden increase in logistics outsourcing companies acute shortage

of skilled and trained manpower is already being felt . Since trained

manpower is scarce it is recommended that compaies have a proper

training module which ensures that all new employees are exposed to

orientation program before being deployed for the operations. Also

properly designed regular skill upgrading and refresher courses for the

employees to be implemented. Companies must focus on ensuring that

their employee separation rate is at manageable level by providing them

with working environment which has opportunities for career growth.

Manpower Development

Logistics operation involves long working hours and fluctuating

quantum of work both during the day and during the week. Thus it is

Page 379: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 356 of 384

necessary to find innovative solutions for optimizing manpower deployment.

One of the suggestion in this regard is to have a minimum number of

permanent employees which are required for the normal operation and to

meet the requirements of peaking during rush hours, promotional days,

weekends have a pool of trained manpower who can be employed

temporarily on part time basis for this work as an when required. Such

temporary resource will be cost effective and can consist of men/women who

have spare time and want to supplement their income, students in

companies who want to have exposure to and experience of logistics

management from this. The companies can benefit from their fresh ideas.

Customer Feedback &complain redressal system

A proper customer feedback and complaint redressal system goes a long way in

ensuring customer loyalty and improving the image of the company. It is

recommended that company have a range of options for the customers to give

feedback. It could be through a Toll free number, online website, customers

feedback box placed in the store or even logistics manager periodically mingling

with the customers and asking them relevant questions to get feedback on their

experience. However this feedback must be seriously deliberated and proper in

time action must be taken so that customer feels that the company is responsive

to their feedback which will enhance his image of the company.

Page 380: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 357 of 384

REFERENCE SECTION

Page 381: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 358 of 384

Reference section

Annex 1

Questionnaire

Logistics Outsourcing & its Effect on Stakeholders

(Food Processing Industries)

Part 1 : General Information

1. Your job position? Logistics manager Financial manager Production manager Director Other---------------

2. In your company, at what level the decision of logistics outsourcing is taken? One factory level Multi-factories level

3. To what degree, are you involved in decision making of logistics outsourcing ? Highly Moderately Little bit Not involved

4. How many full-time employees are there at your company? Less than 40 41- 50 51-100 101-150 151-200 More than 200

5. What was the development of your total sales volume over the last three years ? 2008-2010----------% ( increase or decrease in %) & the expected development of your total sales volume over the last three years ? 2005-2007------------% ( increase or decrease in % )

Page 382: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 359 of 384

6. Pl rank your product groups w.r.t. sales 1= highest, 5= lowest ?

1. 4. 2 5. 3. 7. What is the sales percentage of this group to your company? 1. 2. 3. 4. 5. Part 2 : Outsourcing of Logistics activities in your product group We would like to obtain the insights of your current practice of logistics outsourcing in your product group we would also like to know the reasons why you outsource some of the logistics activities.

Strongly disagree Strongly agree

1 2 3 4 5 6 7

1. Outsourcing of outbound transportation. 2. Outsourcing of Pack & labels 3. Outsourcing of Transportation Mgt 4. Outsourcing of Inventory Mgt 5. Outsourcing of Distribution Network Planning

Page 383: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 360 of 384

1. The following activity contributes highly to the company‘s competitive

advantage

a. Outbound transportation b. Pack & labels c. Transportation Mgt

d. Inventory Mgt e. Distribution Network planning

2. The following activity is essential to support our core activities

a Outbound transportation b. Pack & labels c. Transportation Mgt

d. Inventory Mgt e. Distribution Network planning

3. Compared to our rivals, this activity is performed efficiently

a Outbound transportation b. Pack & labels c. Transportation Mgt

d. Inventory Mgt e. Distribution Network planning

4. We have invested in special equipment to conduct this activity

a Outbound transportation b. Pack & labels c. Transportation Mgt

d. Inventory Mgt e. Distribution Network planning

5. We have acquired special knowledge and skills to perform this activity

a Outbound transportation b. Pack & labels c. Transportation Mgt

d. Inventory Mgt e. Distribution Network planning

Page 384: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 361 of 384

6. It is very costly to outsourced this activity a Outbound transportation b. Pack & labels c. Transportation Mgt d. Inventory Mgt e. Distribution Network planning

7. We specify precise measures for evaluating the performance of this activity a Outbound transportation b. Pack & labels c. Transportation Mgt d. Inventory Mgt e. Distribution Network planning

8. It is difficult to measure the performance of logistics service providers for this activity. a Outbound transportation b. Pack & labels c. Transportation Mgt d. Inventory Mgt e. Distribution Network planning

Part 3: Logistics complexity in your product group

We would like to know to what extent you agree if the following factors complicate the management of logistics process in your product group. 1= strongly disagree,

7= strongly agree

End product characteristics

A Perishability of end product complicates the logistics process B. Logistics process is effected with number of SKU

C. Logistics process is effected with number of product group

D Variety of product in storage condition complicate the logistics process

Page 385: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 362 of 384

Production Characteristics

Number of packaging lines 1 2 3 4 5 6 7

Uncertainty of production- 1 2 3 4 5 6 7

output time, quantity and quality

Sales / Demand Characteristics

Annual demand volume 1 2 3 4 5 6 7

Demand uncertainty 1 2 3 4 5 6 7

Demand fluctuation 1 2 3 4 5 6 7

Distribution characteristics

Number of customers 1 2 3 4 5 6 7

Number of International Customer 1 2 3 4 5 6 7

Number of warehouses 1 2 3 4 5 6 7

Distribution channel variety 1 2 3 4 5 6 7

Delivery frequency 1 2 3 4 5 6 7

Order lead time 1 2 3 4 5 6 7

Distribution size time 1 2 3 4 5 6 7

Uncertainty of distribution time, 1 2 3 4 5 6 7

quantity, & quality

Page 386: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 363 of 384

Part 4: Your logistics strategy

Please indicate at a scale of 0- 100 points the relative importance of the following objectives

Logistics objectives Points

Low logistics cost

High reliable & consistent logistics service

Short delivery lead time

High flexibility to accommodate demand changes

Total 100

If there are other objectives, please specify

Part 5 : Your logistics performance

Please provide the following information with respect to your current logistics performance. 1= strongly disagree, 7= strongly agree

Comparing with our competitors…

Our logistics costs are relatively low 1 2 3 4 5 6 7

We always meet the promised delivery time 1 2 3 4 5 6 7

We always meet the ordered quantity 1 2 3 4 5 6 7

We quickly respond to the needs of 1 2 3 4 5 6 7

our key customers

We offer shorter lead-time 1 2 3 4 5 6 7

We relatively offer longer shelf life 1 2 3 4 5 6 7

Page 387: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 364 of 384

ANNEX 2

BIBLIOGRAPHY

Page 388: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 365 of 384

Hsiao, HI; J. G.A. J. Van der Vorst; R.G.M. Kemp; S.W.F. (Onno) Omta;

International Journal of Physical Distribution & Logistics Management 40.5

(2010): 395-414

Aghazadeh, S. (2003), "How to choose an effective third party logistics

services", Management Research News, Vol. 26 No. 7, pp. 50-8.

Al-kaabi, H., Potter, A. and Naim, M. (2007), "An outsourcing decision

model for airlines' MRO activities", Journal of Quality in Maintenance

Engineering, Vol. 13 No. 3, pp. 217-27.

Anderson, E. (1985), "The salesperson as outside agent or employee: a

transaction cost analysis", Marketing Science, Vol. 4 No. 3, pp. 234-54.

Anderson, E. and Schmitteln, D.C. (1984), "Integration of the sales force: an

empirical examination", Rand Journal of Economics, Vol. 15 No. 3, pp. 245-

55.

Andersson, D. and Norrman, A. (2002), "Procurement of logistics services-a

minutes work or a multi-year project?", European Journal of Purchasing &

Supply Management, Vol. 8, pp. 3-14.

Arnold, U. (2000), "New dimensions of outsourcing: a combination of

transaction cost economics and the core competencies concept", European

Journal of Purchasing & Supply Management, Vol. 6, pp. 23-9.

Aubert, B.A., Rivard, S. and Patry, M. (2004), "A transaction cost model of

IT outsourcing", Information & Management, Vol. 41 No. 7, pp. 921-32.

Page 389: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 366 of 384

Bagchi, P.K. and Virum, H. (1996), "European logistic alliances: a

management model", International Journal of Logistics Management, Vol. 7

No. 1, pp. 93-108.

Barney, J.B. (1991), "Firm resources and sustained competitive advantage",

Journal of Management, Vol. 17 No. 1, pp. 99-121.

Barney, J.B. (2007), Gaining and Sustaining Competitive Advantage, 3rd

ed., Pearson Education, Upper Saddle River, NJ.

Berglund, M., Laarhoven, P.V., Sharman, G. and Wandel, S. (1999), "Third-

party logistics: is there a future?", International Journal of Logistics

Management, Vol. 10 No. 1, pp. 59-70.

Bolumole, Y.A. (2001), "The supply chain role of third-party logistics

providers", International Journal of Logistics Management, Vol. 12 No. 2, pp.

87-102.

Canez, L.E., Platts, K.W. and Probert, D.R. (2000), "Developing a framework

for make-or-buy decisions", International Journal of Operations & Production

Management, Vol. 20 Nos 11/12, pp. 1313-30.

Coase, R.H. (1937), "The nature of the firm", Economica, Vol. 4 No. 16, pp.

386-405.

Conner, K.R. and Prahalad, C.K. (1996), "A resource-based theory of the firm:

knowledge versus opportunism", Organization Science, Vol. 7 No. 5, pp. 477-

501.

Page 390: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 367 of 384

Forza, C. (2002), "Survey research in operations management: a process-

based perspective", International Journal of Operation & Production

Management, Vol. 22 No. 2, pp. 152-94.

Franceschini, F., Galetto, M., Pigaatelli, A. and Varetto, M. (2003),

"Outsourcing: guidelines for a structured approach", Benchmarking: An

International Journal, Vol. 10 No. 3, pp. 246-60.

Holcomb, T.R. and Hitt, M.A. (2007), "Toward a model of strategic

outsourcing", Journal of Operations Management, Vol. 25 No. 2, pp. 464-81.

Insinga, R.C. and Werle, M.J. (2000), "Linking outsourcing to business

strategy", The Academy of Management Executive, Vol. 14 No. 4, pp. 58-70.

LaLonde, B.L. and Cooper, M. (1998), Partnership in Providing Customer

Service: A Third-party Perspective, Council of Logistics Management, Oak

Brook, IL.

Leiblein, M.J. and Miller, D.J. (2003), "An empirical examination of transaction-

and firm-level influences on the vertical boundaries of the firm", Strategic

Management Journal, Vol. 24, pp. 839-59.

Lieb, R.C. (1992), "The use of third-party logistics services by large American

manufacturers", Journal of Business Logistics, Vol. 13 No. 2, pp. 29-42.

Lieb, R.C. and Randall, H.L. (1996), "A comparison of the use of third-party

logistics services by large American manufacturers, 1991, 1994, and 1995",

Journal of Business Logistics, Vol. 17 No. 1, pp. 305-20.

25. Lieb, R.L., Millen, R.A. and Van Wassenhove, L.N. (1993), "Third party

logistics services: a comparison of experienced American &Bibliography

Page 391: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 368 of 384

Bask, A.H. (2001), "Relationships among TPL providers and members of supply

chain - a strategic perspective", Journal of Business & Industrial Marketing, Vol.

16 No. 6, pp. 470-86.

Bardi, E.J. and Tracey, M. (1991), "Transportation outsourcing: a survey of US

practices", International Journal of Physical Distribution & Logistics

Management, Vol. 21 No. 3, pp. 15-21.

Beresford, A.K.C., Pettit, S.J. and Whittaker, W. (2005), "Improving supply

chain performance through quality management in a global distribution

environment", International Journal of Services and Operations Management,

Vol. 1 No. 1, pp. 75-89.

Bhote, K. (1989), Strategic Supply Management, AMACOM, New York, NY.

Bolanos, R., Fontela, E., Nenclares, A. and Paster, P. (2005), "Using

interpretive structural modeling in strategic decision making groups",

Management Decision, Vol. 43 No. 6, pp. 877-95.

Bowersox, D.J. (1990), "The strategic benefits of logistics alliances", The

Harvard Business Review, July-August, pp. 36-45.

Bowersox, D.J., David, J.C. and Theodore, P.S. (2003), "How to master cross-

enterprise collaboration", Supply Chain Management Review, Vol. 7 No. 4, pp.

18-27.

Boyson, S., Corsi, T., Dresner, M. and Rabinovich, E. (1999), "Managing

effective third party logistics relationship: what does it take?", Journal of

Business Logistics, Vol. 20 No. 1, pp. 73-100.

Bradley, P. (1994), "Contract logistics: it's all about costs", Purchasing, 20

October, A3-A14, p. 56.

Page 392: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 369 of 384

. Bullington, K.E. and Bullington, S.F. (2005), "Stronger supply chain

relationships: learning from research on strong families", Supply Chain

Management: An International Journal, Vol. 10 No. 3, pp. 192-7.

Byrne, P.M. (1993), "A new road map for contract logistics", Transportation &

Distribution, April, pp. 58-62.

Chen, I.J. and Popovich, K. (2003), "Understanding customer relationship

management (CRM) people, process and technology", Business Process

Management Journal, Vol. 9 No. 5, pp. 672-88.

Christopher, M. and Towill, D. (2001), "An integrated model for the design for

agile supply chains", International Journal of Physical Distribution & Logistics

Management, Vol. 31 No. 4, pp. 235-46.

Daugherty, P.J. and Pittman, P.H. (1995), "Utilization of time-based strategies:

creating distribution flexibility/responsiveness", International Journal of

Operations & Production Management, Vol. 15 No. 2, pp. 54-60.

Deming, W. (1986), Out of the Crisis, MIT Center for Advanced Engineering

Studies, Cambridge, MA.

Dixon, L. and Porter, A.M. (1994), JIT II: Revolution in Buying and Selling,

Cahners Publishing, Newton, MA.

Dobler, D. and Burt, D. (1996), Purchasing and Supply Management, McGraw-

Hill, New York, NY.

Dyer, J.H. (1996), "How Chrysler created an American keiretsu ", Harvard

Business Review, July-August, pp. 42-60.

Page 393: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 370 of 384

Ellram, L. (1991), "Key success factors and barriers in international purchasing

partnerships", Management Decision, Vol. 29 No. 7, pp. 38-44.

Ellram, L. (1995), "Partnering pitfalls and success factors", International Journal

of Purchasing and Materials Management, Vol. 31 No. 2, pp. 36-44.

Faisal, M.N., Banwet, D.K. and Shankar, R. (2006), "Supply chain risk

mitigation: modeling the enablers", Business Process Management Journal,

Vol. 12 No. 4, pp. 535-52.

Foster, T.A. and Muller, E.J. (1990), "Third parties: your passport to profits",

Distribution, October, pp. 30-2.

.Gadde, L.E. and Snehota, I. (2000), "Making the most of supplier

relationships", Industrial Marketing Management, Vol. 29 No. 4, pp. 305-16.

Ganesan, S. (1994), "Determinants of long-term orientation in buyer-seller

relationships", Journal of Marketing, Vol. 58, pp. 1-19.

. Goldberg, D. (1990), "JIT's next step: moves cargo and data", Transportation

& Distribution, December, pp. 26-9.

Gooley, T.B. (1994), "How to meet the 'Big 8' logistics challenges", Traffic

Management, November, pp. 57-61.

Gooley, T.B. (2000), "Growth spurt", Logistics Management and Distribution

Report, Vol. 39 No. 11, pp. 77-84.

Gooley, T.B. (2002), "One-stop shopping: shippers want it: can they get it?",

Logistics Management, Vol. 41 No. 5, pp. 40-50.

Hacker, S., Israel, J. and Couturier, L. (1999), "Building trust in key customer-

supplier relationships"

Page 394: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 371 of 384

. Hanan, M. (1986), Growth Partnering: How to Manage Strategic Alliances for

Mutual Profit, American Management Association, New York, NY.

Handfield, R.B. and Bechtel, C. (2004), "Trust, power, dependence, and

economics: can SCM research borrow paradigms?", International Journal of

Integrated Supply Management, Vol. 1 No. 1, pp. 3-32.

Hendrick, T. and Ellram, L. (1993), Strategic Supplier Partnering: An

International Study, Center for Advanced Purchasing Studies, Tempe, AZ.

Hill, S. (1994), "Logistics takes new road", Manufacturing Systems, pp. 28-32.

Jung, H., Chen, F.F. and Jeong, B. (2005), ""A production-distribution

coordinating model for third party logistics partnership", Proceedings of the

2005 IEEE International Conference on Automation Science and Engineering,

Edmonton, Canada, August 1 & 2, pp. 99-104.

Knemeyer, A.M. and Murphy, P.R. (2004), "Evaluating the performance of third-

party logistics arrangements: a relationship marketing perspective", The

Journal of Supply Chain Management, Vol. 40 No. 1, pp. 35-51.

Landeros, R., Reck, R. and Plank, R. (1995), "Maintaining buyer-supplier

partnerships", International Journal of Purchasing and Materials Management,

Vol. 31 No. 3, pp. 3-11.

Langfield, S.K. and Greenwood, M.R. (1998), "Developing co-operative buyer-

supplier relationships: a case study of Toyota", Journal of Management

Studies, Vol. 35 No. 3, pp. 331-51.

Langley, C.J. Jr (2000), "7 Immutable laws of collaborative logistics", available

at: http://idii.com/wp/7ImmutableLaws.pdf.

Page 395: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 372 of 384

Lehtonen, T. (2004), "Attributes and success factors of partnering relations - a

theoretical framework for facility services", Nordic Journal of Surveying and

Real Estate Research - Special Series, Vol. 2, pp. 67-80.

Lieb, R.C. (1992), "The use of third-party logistics services by large American

manufacturers", Journal of Business Logistics, Vol. 13 No. 2, pp. 29-42.

Lieb, R.C. and Bentz, B.A. (2003), "The use of third-party logistics services by

large American manufacturers: the 2003 survey", Transportation Journal,

Summer, pp. 24-33.

Lieb, R.C. and Miller, J. (2002), "The use of third-party logistics services by

large US manufacturers, the 2000 survey", International Journal of Logistics,

Vol. 5 No. 1, pp. 1-12.

Lieb, R.C. and Randall, H.L. (1996), "Comparison of the use of third-party

logistics services by large American manufacturers, 1991, 1994, and 1995",

Journal of Business Logistics, Vol. 17 No. 1, pp. 305-20.

Lieb, R.C., Millen, R.A. and Van Wassenhove, L.N. (1993), "Third party

logistics services: a comparison of experienced American and European

manufacturers", International Journal of Physical Distribution & Logistics

Management, Vol. 23 No. 6, pp. 35-44.

McHugh, M., Humphreys, P. and McIvor, R. (2003), "Buyer-supplier

relationships and organizational health", Journal of Supply Chain Management,

Vol. 39 No. 2, pp. 15-25.

McQuiston, D.H. (2001), "A conceptual model for building and maintaining

relationships between manufacturers' representatives and their principals",

Industrial Marketing Management, Vol. 30 No. 2, pp. 165-81.

Page 396: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 373 of 384

Malone, D.W. (1975), "An introduction to the application of interpretive

structural modeling", Proceedings of IEEE, Vol. 63, pp. 397-404.

Malhotra, P. (2002), "Report says 40% of outsourcers unhappy", American

Banker, Vol. 167 No. 159, p. 10.

Maltz, A.B. and Ellram, L.M. (1997), "Total cost of relationship: an analytical

framework for the logistics outsourcing decision", Journal of Business Logistics,

Vol. 18 No. 1, pp. 45-65.

Mandal, A. and Deshmukh, S.G. (1994), "Vendor selection using interpretive

structural modeling (ISM)", International Journal of Operations & Production

Management, Vol. 14 No. 6, pp. 52-9.

Mohr, J. and Spekman, R. (1994), "Perfecting partnerships", Marketing

Management, Vol. 4 No. 4, pp. 34-43.

Moody, P. (1993), Breakthrough Partnering, Oliver Wight Publications, Essex

Junction, VT.

Muller, E.J. (1991), "Selling the process, not just the product", Distribution, Vol.

90 No. 1, pp. 1-42.

Muller, E.J. (1992), "Third party catches on", Distribution, Vol. 91 No. 2, pp. 60-

67.

Poirier, C. and Houser, W. (1993), Business Partnering for Continuous

Improvement, Berrett-Kohler, San Francisco, CA.

Rackham, N., Friedman, L. and Ruff, R. (1996), Getting Partnering Right,

McGraw-Hill, New York, NY.

Page 397: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 374 of 384

Rahman, Z. (2004), "Use of internet in supply chain management: a study of

Indian companies", Industrial Management & Data Systems, Vol. 104 No. 1, pp.

31-41.

Rahman, Z. and Qureshi, M.N. (2007), "Integrating the supply chain flows for

business effectiveness", Studies in Business and Economics, Vol. 13 No. 1, pp.

5-20.

Ravi, V., Shankar, R. and Tiwari, M.K. (2005), "Productivity improvement of a

computer hardware supply chain", International Journal of Productivity and

Performance Management, Vol. 54 No. 4, pp. 239-55.

Razzaque, M.A. and Sheng, C.C. (1998), "Outsourcing of logistics functions: a

literature survey", International Journal of Physical Distribution & Logistics

Management, Vol. 28 No. 2, pp. 89-107.

Richardson, H.L. (1993), "Push the service level higher", Transportation &

Distribution, July, pp. 41-3.

Sage, A.P. (1977), Interpretive Structural Modeling: Methodology for Large-

Scale Systems, McGraw-Hill, New York, NY.

Saxena, J.P., Sushil and Vrat, P. (1990), "Impact of indirect relationships in

classification of variables - A MICMAC analysis for energy conservation

system", System Research, Vol. 7 No. 4, pp. 245-53.

Schultz, J. (2005), "7 Principles of a successful 3PL relationship, Logistics

Management (2002)", Highland Ranch, Vol. 4 No. 3, p. 39.

Sharma, H.D., Gupta, A.D. and Sushil (1995), "The objectives of waste

management in India: a futures inquiry", Technological Forecasting and Social

Change, Vol. 48 No. 3, pp. 285-309.

Page 398: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 375 of 384

Sheehan, W.G. (1989), "Contract warehousing: the evolution of an industry",

Journal of Business Logistics, Vol. 10 No. 1, pp. 31-49.

Sheffi, Y. (1990), "Third party logistics: present and future prospects", Journal

of Business Logistics, Vol. 2 No. 2, pp. 27-39.

Sheth, J. and Sharma, A. (1997), "Supplier relationships: emerging issues and

challenges", Industrial Marketing Management, Vol. 26 No. 2, pp. 91-100.

Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. (2000), Designing and

Managing the Supply Chain, Irwin-McGraw- Hill, New York, NY.

Sinclair, D., Hunter, L. and Beaumont, P. (1996), "Models of customer-supplier

relations", Journal of General Management, Vol. 22 No. 2, pp. 56-75.

Singh, M.D., Shankar, R., Narain, R. and Agarwal, A. (2003), "An interpretive

structural modeling of knowledge management in engineering industries",

Journal of Advances in Management Research, Vol. 1 No. 1, pp. 28-40.

. Sink, H.L. and Langley, C. Jr (1997), "A managerial framework for the

acquisition of third party logistics services", Journal of Business Logistics, Vol.

18 No. 2, pp. 163-89.

. Sloper, A. (2004), "Meeting the challenge of outsourcing", Engineering

Management Journal, Vol. 14 No. 3, pp. 34-7.

Sohail, M.S. and Sohal, A.S. (2003), "The use of third party logistics services: a

Malaysian perspective", Technovation, Vol. 23, pp. 401-8.

Trunick, P.A. (1989), "Outsourcing: a single source for many talents",

Transportation & Distribution, July, pp. 20-3.

Page 399: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 376 of 384

Wagner, B., Macbeth, D. and Boddy, D. (2002), "Improving supply chain

relations: an empirical case study", Supply Chain Management: An

International Journal, Vol. 7 No. 4, pp. 253-64.

Warfield, J.W. (1974), "Developing interconnected matrices in structural

modeling", IEEE Transcript on Systems Men and Cybernetics, Vol. 4 No. 1, pp.

51-81.

Webb, L. and Laborde, J. (2005), "Justin Crafting a successful outsourcing

vendor/client relationship", Business Process Management Journal, Vol. 11 No.

5, pp. 437-44.

Wisner, J.D. (2003), "A structural equation model of supply chain management

strategies and firm performance", Journal of Business Logistics, Vol. 24 No. 1,

pp. 1-26.

Yilmaz, C., Sezen, B. and Ozdemir, O. (2005), "Joint interactive effects of trust

and (inter) dependence on relational behaviors in long-term channel dyads",

Industrial Marketing Management, Vol. 34 No. 3, pp. 235-48.

Ying, W. and Dayong, S. (2005), "Multi-agent framework for third party logistics

in E-commerce", Expert Systems with Applications, Vol. 29 No. 2, pp. 431-6.

Ahn, H. (2005), "How to individualise your balanced scorecard", Measuring

Business Excellence, Vol. 9 No. 1, pp. 5-12.

Arnold, U. (2000), "New dimensions of outsourcing: a combination of

transaction cost economics and the core competencies concept", European

Journal of Purchasing & Supply Management, Vol. 6 No. 1, pp. 23-9.

Atkinson, A.A., Kaplan, R.S., Matsumura, E.M. and Young, S.M. (2007),

Management Accounting, 5th ed., Pearson, Upper Saddle River, NJ.

Page 400: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 377 of 384

Aubert, B.A., Rivard, S. and Patry, M. (2004), "A transaction cost model of IT

outsourcing", Information & Management, Vol. 41 No. 1, pp. 921-32.

Ax, C. and Bjørnenak, T. (2005), "Bundling and diffusion of management

accounting innovations - the case of the balanced scorecard in Sweden",

Management Accounting Research, Vol. 16 No. 1, pp. 1-20.

Busi, M. and McIvor, R. (2008), "Setting the outsourcing research agenda: the

top-10 most urgent outsourcing areas", Strategic Outsourcing - An International

Journal, Vol. 1 No. 3, pp. 185-97.

Chavan, M. (2009), "The balanced scorecard: a new challenge", Journal of

Management Development, Vol. 28 No. 5, pp. 393-406.

De Boer, L., Gaytan, J. and Arroyo, P. (2006), "A satisfying model of

outsourcing", Supply Chain Management - An International Journal, Vol. 11 No.

5, pp. 444-55.

Dekkers, R. (2000), "Decision models for outsourcing and core competencies in

manufacturing", International Journal of Production Research, Vol. 38 No. 17,

pp. 4085-96.

Dibbern, J., Goles, T., Hirschheim, R. and Jayatilaka, B. (2004), "Information

systems outsourcing: a survey and analysis of the literature", The DATA BASE

for Advances in Information Systems, Vol. 35 No. 4, pp. 6-102.

DiRomualdo, A. and Gubanxi, V. (1998), "Strategic intent for IT outsourcing",

Sloan Management Review, Vol. 39 No. 4, pp. 67-81.

Page 401: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 378 of 384

Drury, C. (2008), Management and Cost Accounting, 7th ed., South-Western,

London.

Eisenhardt, K.M. (1989), "Building theory from case study research", Academy

of Management Review, Vol. 14 No. 4, pp. 532-50.

Espino-Rodríguez, T.F. and Padrón-Robaina, V. (2006), "A review of

outsourcing from a resource-based view of the firm", International Journal of

Management Reviews, Vol. 8 No. 1, pp. 49-70.

Ezzamel, M., Morris, J., Smith, J.A. and White, A. (2002), "Accounting for new

organisational forms: initial findings on sub-contracting and outsourcing in the

UK", Management Research News, Vol. 28 No. 1, pp. 54-7.

Ghodeswar, B. and Vaidyanathan, J. (2008), "Business process outsourcing:

an approach to gain access to world-class capabilities", Business Process

Management Journal, Vol. 14 No. 1, pp. 23-38.

Gonzales, R., Gasco, J. and Llopis, J. (2006), "Information systems offshore

outsourcing", Industrial Management & Data Systems, Vol. 106 No. 9, pp.

1233-48.

Gottschalk, P. and Solli-Sæther, H. (2005), "Critical success factors from IT

outsourcing theories: an empirical study", Industrial Management & Data

Systems, Vol. 105 No. 6, pp. 685-702.

Gottschalk, P. and Solli-Sæther, H. (2006), "Maturity model for IT outsourcing

relationships", Industrial Management & Data Systems, Vol. 106 No. 2, pp.

200-12.

Page 402: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 379 of 384

Grover, V., Cheon, M.J. and Teng, J.T.C. (1994), "A Descriptive study on the

outsourcing of information systems functions", Information & Management, Vol.

27 No. 1, pp. 33-44.

Harland, C., Knight, L., Lamming, R. and Walker, H. (2005), "Outsourcing:

assessing the risks and benefits for organisations, sectors and nations",

International Journal of Operations & Production Management, Vol. 25 No. 9,

pp. 831-50.

Hoffjan, A. and Wompener, A. (2006), "Comparative analysis of strategic

management accounting in German- and English-language general

management accounting textbooks", Schmalenbach Business Review, Vol. 58

No. 3, pp. 234-59.

Holcomb, T.R. and Hitt, M.A. (2007), "Toward a model of strategic outsourcing",

Journal of Operations Management, Vol. 25 No. 2, pp. 464-81.

Jiang, B. and Qureshi, A. (2006), "Research on outsourcing results: current

literature and future opportunities", Management Decision, Vol. 44 No. 1, pp.

44-55.

Johnson, R.E., Johnson, T. and Arab, R.A. (2006), "Coping with outsourcing:

an interaction and network perspective", Problems and Perspectives in

Management, Vol. 4 No. 2, pp. 78-85.

Juma'h, A.H. and Woods, D. (1999), "Outsourcing implications for accounting

practices", Managerial Auditing Journal, Vol. 14 No. 8, pp. 387-95.

Kakabadse, N. and Kakabadse, A. (2000), "Outsourcing: a paradigm shift",

Journal of Management Development, Vol. 19 No. 8, pp. 670-728.

Page 403: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 380 of 384

Kaplan, R.S. and Norton, D.P. (1992), "The balanced scorecard: measures that

drive performance", Harvard Business Review, Vol. 70 No. 1, pp. 71-9.

. Kaplan, R.S. and Norton, D.P. (2004), Strategy Maps: Converting Intangible

Assets into Tangible Outcomes, Harvard Business School Press, Boston, MA.

Lacity, M.C., Willcocks, L.P. and Rottman, J.W. (2008), "Global outsourcing of

back office services: lessons, trends, and enduring challenges", Strategic

Outsourcing - An International Journal, Vol. 1 No. 1, pp. 13-34.

Lonsdale, C. and Cox, A. (2000), "The historical development of outsourcing:

the latest fad?", Industrial Management & Data Systems, Vol. 100 No. 9, pp.

444-50.

McIvor, R. (2000), "A practical framework for understanding the outsourcing

process", Supply Chain Management: An International Journal, Vol. 5 No. 1,

pp. 22-36.

McIvor, R. (2008), "What is the right outsourcing strategy for your process?",

European Management Journal, Vol. 26 No. 1, pp. 24-34.

McIvor, R. (2009), "How the transaction cost and resource-based theories of

the firm inform outsourcing evaluation", Journal of Operations Management,

Vol. 27 No. 1, pp. 45-63.

Malina, M.A. and Selto, F.H. (2001), "Communicating and controlling strategy:

an empirical study of the effectiveness of the balanced scorecard", Journal of

Management Accounting Research, Vol. 13 No. 1, pp. 47-90.

Martinsons, M., Davison, R. and Tse, D. (1999), "The balanced scorecard: a

foundation for the strategic management of information systems", Decision

Support Systems, Vol. 25 No. 1, pp. 71-88.

Page 404: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 381 of 384

Müller, M. and Seuring, S. (2007), "Reducing information technology-based

transaction costs in supply chains", Industrial Management & Data Systems,

Vol. 107 No. 4, pp. 484-500.

O'Reilly, C.A. (1983), "The use of information in organizational decision making:

a model and some propositions", Research in Organizational Behavior, Vol. 5

No. 1, pp. 103-39.

Platz, L.A. and Temponi, C. (2007), "Defining the most desirable outsourcing

contract between customer and vendor", Management Decision, Vol. 45 No.

10, pp. 1656-66.

Quélin, B. and Duhamel, F. (2003), "Bringing together strategic outsourcing and

corporate strategy: outsourcing motives and risks", European Management

Journal, Vol. 21 No. 5, pp. 647-61.

Sciulli, N. (2004), "The use of management accounting information to support

contracting out decision making in the public sector", Qualitative Research in

Accounting & Management, Vol. 1 No. 2, pp. 43-67.

Seuring, S. (2003), "Outsourcing into service factories. An exploratory analysis

of facility operators in the German chemical industry", International Journal of

Operations & Production Management, Vol. 23 No. 10, pp. 1207-23.

Seuring, S. (2006), "Supply chain controlling - summarizing recent

developments in German literature", Supply Chain Management - An

International Journal, Vol. 11 No. 1, pp. 10-14.

Seuring, S. (2008), "Assessing the rigor of case study research in supply chain

management", Supply Chain Management - An International Journal, Vol. 13

No. 2, pp. 128-37.

Page 405: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 382 of 384

. Smith, J.A., Morris, J. and Ezzamel, M. (2005), "Organisational change,

outsourcing and the impact on management accounting", The British

Accounting Review, Vol. 37 No. 1, pp. 415-41.

Stuart, I., Mc Cutcheon, D., Handfield, R., McLachlin, R. and Samson, D.

(2002), "Effective case research in operations management: a process

perspective", Journal of Operations Management, Vol. 20 No. 5, pp. 419-33.

Tate, W.L. and van der Valk, W. (2008), "Managing the performance of

outsourced customer contact centers", Journal of Purchasing & Supply

Management, Vol. 14, pp. 160-9.

Weimer, G. and Seuring, S. (2008), "Information needs in the outsourcing

lifecycle", Industrial Management & Data Systems, Vol. 108 No. 1, pp. 107-21.

Williamson, O.E. (2008), "Outsourcing: transaction cost economics and supply

chain management", Journal of Supply Chain Management, Vol. 44 No. 2, pp.

5-16.

Yin, R.K. (2003), Case Study Research - Design and Methods, 3rd ed., Sage,

Thousand Oaks, CA.

Zimmermann, K. and Seuring, S. (2009), "Two case studies on developing,

implementing and evaluating a balanced scorecard in distribution channel

dyads", International Journal of Logistics Research and Applications, Vol. 12

No. 1, pp. 63-81.

Vijay Paul Sharma2, Kalpesh Kumar and Raj Vir SinghDeterminants of

Small‐ Scale Farmer inclusion in Emerging Modern Agrifood Markets: A Study

of the Dairy Industry in India1 IIM A research Journal W.P. No. 2009-02-01

Page 406: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 383 of 384

Balsevich, F., J. Berdegue, and T. Reardon, (2006), ―Supermarkets,

New‐ Generation Wholesalers, Tomato Farmers, and NGOs in Nicaragua,‖

World Bank, 2006(3).

Berdegué, J.A., F. Balsevich, L. Flores, and T. Reardon. (2005), "Central

American Supermarkets‘ Private Standards of Quality and Safety in

Procurement of Fresh Fruits and Vegetables," Food Policy, 30(3), 254‐ 69.

Birthal, Pratap S., P.K. Joshi, and Ashok Gulati (2007), ―Vertical Coordination

in High‐ Value Food Commodities: Implications for Smallholders‖ in R. K. Joshi,

Ashok Gulati, and Ralph Cummings Jr. (Ed.);

―Agricultural Diversification and Smallholders in South Asia, New Delhi:

Academic foundation, New Delhi. Dries L. and Swinnen J.F.M. (2004), ―Foreign

Direct Investments, Vertical Integration and Local Suppliers: Evidence from the

Polish Dairy Sector,‖ World Development, 32 (9), 1525‐ 44.

Greene, W.H. (2000), Econometric Analysis, New Jersey: Prentice‐ Hall.

Hamilton, B. H., and J.A. Nickerson (2003), ―Correcting for Endogeneity in

Strategic Management Research,‖ Strategic Organization, 1(1), 53‐ 80.

Hu, D., T. Reardon, S. Rozelle, P. Timmer, and H. Wang (2004),

―The Emergence of Supermarkets with Chinese Characteristics: Challenges

and Opportunities for China‘s Agricultural Development,‖ Development Policy

Review, 22, 557‐ 86.

Joshi, P. K., Ashok Gulati, and Ralph Cummings Jr. (2007), Agricultural

Diversification and Smallholders in South Asia, New Delhi: Academic

foundation.

Page 407: IMPACT OF LOGISTICS OUTSOURCING ON THE PROFITABILITY · PDF filePROFITABILITY OF FOOD PROCESSING INDUSTRIES ... CBD Belapur, Navi Mumbai – 400 ... entitled “Impact of logistics

Page 384 of 384

McFadden, D. (1976), ―Quantal Choice Analysis: A Survey,‖ Annals of

Economic and Social Measurement, 5, 363‐ 90.

Ministry of Agriculture (2006), ―Basic Animal Husbandry Statistics 2006,

Department of Animal Husbandry, Dairying and Fisheries, Ministry of

Agriculture, Govt. of India, New Delhi.

Ministry of Agriculture (2007), National Dairy Plan 2007‐ 08 to 2021‐ 22,

Department ofAnimal Husbandry, Dairying and Fisheries, Ministry of

Agriculture, Govt. of India,New Delhi.