Examining the Potential of Logistics Services (3PL & 4PL) and MSME Sector Collaboration
Manufacturing sector has been one of the worst hit sectors due to the pandemic. Demand-side slowdown, insufficiency of funds for expansion, lack of expertise, and declining market access have further dampened the situation for manufacturing industries. Logistics service (3PL & 4PL), by their very mode of operation, can help in solving these problems and offer a way out, especially to the medium, small, and medium enterprises (MSMEs). Governments, however, have to play the role of facilitator in forging this collaboration between the MSME sector and the logistics industry.
Disruptions in global supply chains was probably the biggest reason behind the sudden fall in the growth rate of several industries and economic sectors during the Covid-19 pandemic. Massive shortage of raw materials, stoppage of production and manufacturing activities, and decline in the demand and supply of finished goods adversely impacted the economy of majority of the countries across the globe. The breakdown of the logistics sector due to the lockdowns and travel restrictions contributed significantly in hampering the smooth functioning of the supply chains.
Two years after the pandemic subsided and economies started opening up again, eminent economists and market analysts have pointed out that logistics sector will play the most important role in post-pandemic recovery. A report published by Research Dive explains in detail how logistics industry, especially the global logistics services (3PL & 4PL) market, can help in shaping up the post-pandemic global economy.
Logistics Services (3PL & 4PL) to Fill in the Gaps of MSME Sector
A 3PL company or a third-party logistics company provides an inventory and distribution service for a company who looks to outsource this function. Thus, a 3PL company will pick, pack, store, and deliver goods and products of a company to its customers. A 4PL, i.e., fourth-party logistics, on the other hand, will take care of the entire supply chain management of the concerned company who wishes to outsource the same. Thus, the range of operations and the responsibilities handled by a fourth-party logistics company is much broader as compared to a third-party logistics company.
In the second decade of the 21st century, when economies are still facing the heat of demand-side slowdown and an impeding inflation, companies are shutting down businesses in areas where operations aren’t that profitable. Investors, in general, have shown reluctance to invest in those ventures, in which they would have happily invested five to six years back. Both these aspects have further affected the research and development departments of industries which has, in turn, put innovations and technological advancements on the back-burner. In such a scenario, outsourcing of non-core functions has become the go-to policy for many industries.
The global manufacturing sector is primarily dominated by medium and small enterprises; this is all the in developing countries like India, China, Brazil, etc. For these companies, outsourcing logistics services becomes not just a feasible but a profitable option. Key players of the logistics services (3PL & 4PL) market like DHL, FedEx, DB Schenker, etc., have infrastructure and operations set up all over the world, covering several continents and countries. Thus, the network of these companies is much larger as compared to the MSME (medium, small, and micro enterprises) sector. Thus, one advantage of outsourcing logistics services (3PL & 4PL) to these companies is the access to such global markets that were hitherto untapped.
Secondly, many of the small business and enterprises cannot afford to manage a large inventory. There can be several reasons behind this; the company may not have sufficient funds or the company deals in perishable goods. In both the cases, it becomes imperative for the company to ensure that the manufactured products get sold quickly.
Logistics services (3PL & 4PL) can chip in to solve this problem by offering state-of-the-art inventories and storage facilities. Also, the leading logistics companies have evolved their operations in such a way that shipping of perishables has become a lot easier. UPS, a multinational logistics company, is one such example; the company promises to deliver perishable goods to the desired location in a maximum of 30 days. This utility of logistics services (3PL & 4PL) can become important growth drivers for food processing and agriculture produce marketing companies, which faced a lot of issues during the pandemic period.
Another major advantage of outsourcing logistics services (3PL & 4PL) is increased focus and investments in R&D and innovation. Many a times, a company has the necessary skill and manpower to engage in research activities but lacks severely in supply chain management. This discourages investors to invest in that company which brings down the overall innovative approach in the industry. By partnering with players offering holistic logistics services (3PL & 4PL), such companies can instill confidence in the investors and can avail the necessary credit to pursue technological upgrades.
Increased Governmental Role in Pushing Logistics Services (3PL & 4PL)
During the pandemic, some economists pointed out the need to offer assistance to MSMEs in the form of subsidies and moratoriums. At the same time, a different perspective put forward by many market experts was to increase the role of logistics services (3PL & 4PL) in the post-pandemic world to bring back manufacturing sector to normalcy.
Though both these schools of thought adopted different approach to tackle the problem, they had one common underlying theme- increased role of government in creating conducive environment for MSMEs and the logistics sector. Digitalization of transactions, growth in public expenditure for infrastructure, and reducing bureaucratic hurdles to enhance investments in the logistics services are some of the best ways in which governments can support the ailing MSME sector. In this aspect, US Government’s FLOW project and India’s PM Gati Shakti - National Master Plan for Multi-modal Connectivity are proving to be shining examples of how government can help in forging a concrete partnership between the MSME sector and logistics industry.
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