A Report on Attitude of Organizational Market towards

INLAND ROAD TRANSPORT Pvt Ltd

Chapter 1

Introduction

1.1 Theoretical background

Transportation is the core sector and function of logistics. The annual logistics cost of the world
is about 3.5 trillion USD, logistic contribute around 13% of Indian GDP, which includes all
modes of movement along with other activities like warehousing etc. Now-a-days a new concept
of third party logistic comes into picture which means outsourcing logistic activities including
transportation and warehousing to outside firms, which are neither a consignee nor a consignor.
Indian logistic is rising at 20% in relation to average world logistics industry growth of 10%.
However, the road transportation alone contributes around Rs 2, 00,000 Cr and is supposed to
increase by 16% per annum. That means there is a huge opportunity for Indian Logistic
companies which are now in nascent stage. There is scope for Indian companies now to attract
clients. They have to identify the parameters which clients consider during selecting their
transport service provider and clients perception towards their service provider. The transport
provider is on evaluated how long the freight takes to get to the clients destination, what are the
problems encountered etc. Sometimes clients use the same service provider over a long period of
time resulting in long – term relationship. The present trend is that clients prefer transporters who
lay increased emphasis on security, resiliency and cost reduction.

The purpose of this research is to examine which parameters clients select their transport service
provider in Indian scenario. This study seeks to answer four questions:

1. What criteria do clients use to select a transport service provider?

2. What selection criteria are most and least important to clients?

3. What is client’s perception towards a particular transport service provider?

4. What is the impact of price in regularity of service, IT implementation in trace and track
process and marketing activity on regularity of service?

This report is divided into five parts. In first part literature about background of topic, apart from
this carrier selection process, statement of the problem, objective and hypothesis to be tested are
present. The second part, about the design of the study, Part three, the data analysis, Part four,
the findings of the study with special focus on the most and least important factors and clients
perception regarding the transport service provider is based. Finally part five presents specific
recommendations that provide to a transport service provider to gain competitive edge.
1.1.1. Industry profile

The constituents of distribution and logistics have been the important features of industrial and
economic life for countless years, but it is only in pretty recent past that distribution and logistics
is on stage for main purpose.

Logistics can be defined as providing the right type of products and/or services at the right price,
at right place, right time and in the right condition. A quick look back at some logistics history.

Logistics is the art and science of managing and controlling the flow of goods, energy,
information and other resources. (Wikipedia, 2006)

Logistics = Supply + Materials management + Distribution

Key component of logistics:-

 Storage, warehousing & material handling

 Information and control
 Packaging and unitization
 transportation
 Inventory

Historical perspective

The birth of Logistics can be traced back to ancient war period of Greek and Roman empires
when military officers titled as 'Logistikas' were assigned the duties of providing services linked
to supply and distribution of resources. This was done to put their soldiers in the front line
efficiently to get a vantage position to win the battle. This led to the development of a system
which we call logistic & supply chain management today. During Second World War (1939-
1945), logistics played an important role where United States utilized proper logistics
management that lead to their victory. The different stages in the development of distribution and
logistics management after world war are:

1950s and early 1960s

During this period distribution systems were unmanaged. Distribution was broadly represented
by the haulage industry and manufacturer’s own-account fleets.

1960s and early 1970s

During this period the concept of supply of physical distribution was evolved and also addition
of other activities like transport, storage, material handling, packaging etc takes place.

1970s and early 1980s

In this period many organization put distribution management into their functional areas and they
also made a proper structure for distribution chain.

1980s and early 1990s

Increasing professionalism within distribution management. Evolve of third-party distribution
service industry was also of major significance and also organizations are putting their efforts in
introducing information and equipment technology’s.

1990s and early 2000s

In this period organizations are giving more importance in adopting advance technology. The
term ‘Logistics’ was first introduced in the concept of distribution management. This led to
additional opportunities to improve customer service and reduce the associated costs. In this
period concept of ‘Supply chain management’ came into picture. The supply chain concept thus
recognizes that there may be several different organizations concerned in getting manufactured
goods to the marketplace.
2000 and beyond
Now the organizations are competing with other organization in providing services and adapting
new technology this lead to generating new ideas for improvement in the total system. Leading
organizations have identified that there is a positive ‘Value added’ role that logistics can offer,
rather than earlier views. Now a days logistic act as a key area in organizations business
improvement.

Third party logistics (3PL)

Recently the concept of third party logistic (3PL) also comes in picture. 3PL means outsourcing
logistics activities including transportation and warehousing to outside firms, which are not a
consignor or a consignee. The logistics companies cover a distribution network in place and so
are able to function at a lesser price. Logistics providers can bring into the relationship ‘cross
functional’ industry experience that their customers does not have State-of-the-art logistics
networks are characterized by connected databases, paperless transactions, analytic modeling and
real-time tracking and tracing capabilities, all of which direct to quicker time to market, lower
inventories. So, that company can focus on their core competencies. So outsourcing logistics is a
superior option, as it allows companies to stick to their core-competencies.

Size of global logistic industry

At present the annual logistics cost of the world is about USD 3.5 trillion. For any country, the
annual logistics expenditure stuck between 9% to 20% of the GDP. In 2004, the universal
logistic market size grew to USD 89 billion, and in 2005, it registered a remarkable growth rate
of 16% to cross the USD 100 billion mark for the first time and reach USD 103.7 billion (Foster
and Armstrong, 2004, 2005, 2006). But, in view of the fact that the logistics market in the US is
about 10% of its annual logistics cost (Foster and Armstrong, 2006), there is still massive
prospective for increase of 3PL in the US in particular, and in the world in general.
Size of Indian logistic industry

Logistics contribute to around 13% of Indian GDP, which includes all modes of movement along
with other warehousing and logistic activities. However, the road transportation alone is
considered to be around Rs 2, 00,000 corers and supposed to grow by 16% PA. This 13% consist
about 99% is accounted for by the unorganized sector (such as owners of less than 5 trucks,
affiliated to an agent or a transport company, small warehouse operators, customs brokers,
freight forwarders, etc.), and somewhat more than 1%, is contributed by the organized sectors.
So, we can see the position of Indian logistic companies which is in budding stage.

Competitive dynamics and other issues in India

The following troubles obtainable in the Indian logistics industry make it unpleasant for finances
and also make entry barriers. Logistics is a high-cost, low-margin business. The problem of
organized group of actors is compounded by unfair war with unorganized players, who can get
away without paying taxes and following operating norms stipulated in the Motor Vehicles Act
such as superiority of drivers and vehicles, capacity and weight restrictions, etc. Economies of
scale are not present in the Indian logistics industry. Though VAT (Value Added Tax) has been
implemented since April 1, 2005, failure in implementation of a uniform VAT structure across
different states has let the trouble continue even nowadays. On an average, a vehicle on Indian
roads loses 24-48 hours in complying with paperwork and formalities at different check posts en
route to a destination. Fuel worth USD 2.5 billion is washed-out on waiting at check posts
annually. This is why freight price tag is a major part of the cost of a product in India. Poor
physical and communications infrastructure is another deterrent to attracting investments in the
logistics sector. Road transportation accounts for more than 60% of inland transportation of
merchandise, and highways that constitute 1.4% of the total road network, carry 40% of the
goods movement by roadways. Sluggish movement of cargo due to terrible road conditions,
multiple check posts and documentation requirements, congestion at seaports due to inadequate
infrastructure, Bureaucracy, red-tapeism and delay in government clearances, coupled with
unreliable power supply and slow banking transactions, make it difficult for exporters to meet
the deadlines for their international customers. Low penetration of IT and lack of appropriate
communications infrastructure also effect in delays, and lack of visibility and real-time tracking
facility. There is short of skilled and knowledgeable manpower in the logistics sector.
Management Graduates do not believe logistics as a major job.

Challenges in Indian logistic industry

The three major hurdles faced by logistics industry in India are lack of enough understanding and
experience to the people of logistics solution providers, insufficient infrastructure, and lack in
best usage of information technology. At present, all Indian manufacturers and exporters have
realized the significance of well designed logistics and efficient supply chain management
techniques. Logistics companies contribute to around 13% of Indian GDP, which includes all
modes of movement along with other warehousing and logistic activities. However, the road
transportation alone is considered to be around Rs 2, 00,000 Cr and supposed to grow by 16%
annually. In India, the logistics costs are still higher than those in the developed markets like 9
per cent of GDP in the US. The transportation cost accounts for nearly 40 per cent of the cost of
production, with more than half the goods being moved by road in India. Lack of an integrated
transport policy has hampered the growth of the logistics sector, in India. An integrated transport
system is essential for cost effective movement of goods. Today, logistics has a paramount role
in ensuring growth in various sectors. The major problem of the industry is the road sector.
Though it is a major link in the system, it does not enjoy industry status. As a result of this, road
transport operators do not have access to low-cost funds. Besides, the industry has been bogged
down by the incidence of Octroi.
Future prospect for this industry

In spite of troubles, The Indian logistics industry is rising at 20% in relation to the average world
logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the
annual logistics cost, there is huge potential for growth of the sector. The major opportunities are
highlighted below.

• Many large Indian corporate such as Tata and Reliance Industries have been attracted by
the potential of this sector and have established logistics divisions. They started providing
in-house logistics services, and soon sensing the growth of the market, have started
providing services to other corporate as well.

• Large express cargo and courier companies such as Transport Corporation of India (TCI)
and Blue Dart have also started logistics operations. These companies enjoy the
advantage of already having a large asset base and an all-India distribution network.
Some large distributors have also forayed into the logistics business for their clients.

• Since logistics service can be provided without assets, there is growing interest among
entrepreneurs to venture into this business.

• Indian shippers are gradually becoming more aware of the benefits of logistics
outsourcing. They are now realizing that customer service and delivery performance are
equally important as cost to remain competitive in this global economy.

• The Indian economy is growing at over 9% for the last couple of years (compared to the
world GDP growth rate of 3%), which implies more outputs and more demand for
specialized logistics services.
• The Indian government has focused on infrastructure development. Examples include the
golden quadrilateral project, east-west and north-south corridors (connecting four major
metros), Free Trade and Warehousing Zones (FTWZ) in line with Special Economic
 Zones (SEZ) with 100% Foreign Direct Investment (FDI) limit and public-private
partnerships (PPP) in infrastructure development. It is expected that infrastructure
development would boost investments in the logistics sector.

• In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign
investment was not allowed in domestic logistics. Almost all large global logistics
companies have their presence in India, mainly involved in freight forwarding. For
domestic transportation and warehousing, they have tie-ups with Indian companies. As
the Indian logistics scenario looks promising, these MNCs are expected to play a bigger
role, probably forming wholly-owned subsidiaries or taking the acquisition route. The
latter may be the preferred route of investment since the target company is readily
acquired with its asset base and distribution network, and the need for building
everything from scratch can thus be avoided. The benefits for the acquired company
include the patronage of an MNC and access to the MNC’s global network. As an
example, DHL Danzas, the biggest logistics company in the world, has taken over Blue
Dart.
1.1. B. Company profile

Inland Road Transport Private Limited

Inland a name to reckon with among the business society in the eastern part of the country
made its presence felt in the seventies in the state of West Bengal. The group has been founded
and spearheaded by a visionary and an illuminate Sh. Chunni Lal Somani.

Inland started out as a small courier company headquartered in Hyderabad and catering to the
difficult eastern and north-eastern parts of the country soon fructified into Inland Road Transport
(P) Limited (IRTPL), offering point-to-point services and promising 50% reduction in stock
delivery time.

In its premature days, Inland commenced business with couriers, gradually went into
transportation. Further diversification in tea plantation, chemicals, jewellery, amusement park,
bottling (KINLEY), real estate’s development and investments created a strong portfolio.
Inland ambition with IRTPL is to knit India together so that commerce and industry can assess
any state with the union with minimum charge rates.

Inland is recognized with reputed ISO certification. Inland provide effective and reliable
distribution services to the through continuous development of human resources, operational
system, information technology and infrastructure by adhering to quality management systems.

Inland owns about 100 vehicles including cargo, tankers and trailers. Company can provide high
quality warehousing in minimum cost for long as well as short period of time.

Inland currently at Rs 350 Cr turn over company looks to grow by 40% in the current year.
Inland is presently located in 325 cities in India with a work force of 5000 employee. Now inland
is looking at merger and acquisition opportunities abroad.
1.2 Review of Literature

During selecting a transport service provider clients consider many attributes according to Kotler
(2000), the clients arrives at attitude toward the various brands through an attribute evaluation
procedure and most buyer consider several attributes in their purchase decision. The attributes
used by consumers for evaluation are also called choice criteria.

During selecting a transport service provider clients consider various attributes like freight rates,
timely delivery, damage of goods and other value added services. Some researcher find out value
added services as the main criteria rather freight rates then also freight rates play a major role.
Work done by McGinnis (1990) reveals that service is usually more important than freight price
when selecting carriers, priorities differ among service variables, and freight rates are more
important than service in some user segments. He fulfilled that during selection of transporter
this six variables found to affect freight transportation were (1) freight rates, (2) reliability, (3)
transit time, (4) loss, damage, claims processing, and tracing, (5) shipper market considerations,
and (6) carrier considerations. He also reveals that Freight rates are an important variable in
some cases that should not be ignored.

Murphy and Hall (1995) analyzed the effect of variables and come in a conclusion that reliability
accounts for 47 percent of the top three findings before deregulation and for 44 percent after
deregulation. Freight rate accounts for 5.3 percent before deregulation and 19.5 percent after
deregulation. Similarly, transit time accounts for 26.3 percent before deregulation and 9.8
percent after deregulation and finally over, short and damage accounts for 15.8 percent before
deregulation and 4.9 percent after deregulation. He finally conclude that fridge rates are an
important variable that should not be ignored by analyzing the data’s between pre- and post-
deregulation studies, during 1970s, 1980s, and 1990s, and between studies of motor carrier and
non-motor carrier selection.

According to Menon et al (1998) during selecting third party logistic, first step should be
documenting performance and requirements are taken in consideration. Performance includes
on-time delivery, exceed promises, and the availability of top management when necessary.
Capability low error rates, the ability to meet or requirements will emphasize management
creativity and financial stability of the provider. Second step will be the price selection.

According to Voss et al (2006) price is not the only vital aspect when shippers pick transport
providers. They have concluded by their research taking two methods, first one is traditional
method and second one is TRA method. Variables range from operational to strategic, and
transporter selection is influenced by the ultimate decision maker and his or her supervisor alike.
It is very difficult to understand which criteria are most significant to each party and the
associated influence on the ultimate carrier choice decision.

Study of Leahy et al (1995) state that out of twenty-five potential determinants of successful
third-party relationships, buyer orientation and dependability emerged with the greater
importance ratings; sharing human resources and exit provisions were assigned the lowest
importance ratings.

Work of Zsidisin et al (2007) revels that, on-time delivery is the most important criteria because
it is a direct assess of customer service. If trustworthy of on-time delivery is of great importance
to most shippers, then carriers have to build an ability to deliver goods on time into their day-to-
day operations.

Carr and Green (1998) conducted a survey how Ashland Chemical’s select their carriers to
transport goods in U.S and Canada. According to study shippers evaluate current carrier which
will provide long term service. Relation between both the parties will maintain a healthy relation
when service provider provides on-time delivery, reliability, efficiency and consistency.

According to Bowersox and Daugherty (1995) state that time plays a critical role for a logistic
company. For this information technology has notably impacted logistics plan practices. In future
more forceful changes will be seen by the logistic organizations to gain and maintain aggressive
advantage. Four specific trends which will guide for future service demand and maximize
organizational flexibility are development of more transparent logistics organization structure,
more strategic alliances, increased and focused emphasis on performance measurement and
greater reliance on time-based strategies.

According to Lambert et al (1993) cost is the fourth most important attribute. Respondents
placed greater importance to quality of dispatch personnel honesty, on-time pick up, on-time
delivery and competitive rates out of 166 attributes. Most of the least important attributes are
related to promotion components of marketing mix which includes direct mail, carrier sponsored
entertainment, promotional gifts and advertising in trade journals.

Evers et al (1996) came up with six selection factors: timeliness, availability, firm contact,
suitability, restitution and cost. Shippers overall perceptions are more greatly affected by
timeliness and availability. Cost is the last criteria for selecting a transport service provider.
1.3 Statement of the Problem

To find out whether clients are satisfied or not with the service provided by Inland Road
Transport (P) Limited. To develop a strategy for improving the company’s service.
Understanding of competitive landscape with respect to direct competitors, complimentary and
future threat to business.

The research problem is how to satisfy the market organization so that, we can get competitive
edge before our competitors.

1.4 Objective of the study

The objective of the study is to

1. Find out the important factors by which clients choose the transport companies. Which factor
is most and least important to clients.

2. Analyze the problem of Inland Road Transport Pvt. Ltd. Based on those factors.

3. Find out the impact of price in regularity of service, IT implementation in trace and track
process and marketing activity on regularity of service.

4. Compare Inland Road Transport Pvt. Ltd’s performance with the leading player.