Case Study: Third Party Logistics (3PL) Search and Selection for a Pharmaceutical Distribution Company in India

Case Study: Third Party Logistics (3PL) Search and Selection for a Pharmaceutical Distribution Company in India

Client Overview:
Our client, a leading global pharmaceutical company headquartered in Europe, produces a wide range of medicines and vaccines that are critical for the healthcare of both humans and animals. With a significant presence in the Indian market, the company needed to streamline its distribution network to improve operational efficiency and reduce logistics costs across the country.

Background:
In response to expanding market needs and shifting logistics challenges, our client engaged Martins Consulting to assist with selecting third-party logistics (3PL) providers for its operations in India. This was part of a broader initiative to optimize its supply chain and distribution operations, following a recent decision to consolidate operations across two major distribution centers (DCs).

The company’s current distribution network in India was inefficient, with multiple small regional warehouses leading to high operating costs and slow delivery times. The goal was to centralize and streamline operations, selecting capable 3PL providers who could manage both the storage and transportation needs of the company’s extensive portfolio of temperature-sensitive pharmaceuticals and vaccines.

Project Scope:
Martins Consulting was tasked with identifying and selecting the best 3PL providers in India that could manage the new distribution centers and meet specific operational requirements. This included working with multiple potential 3PL providers to ensure they could meet the client’s logistical needs efficiently and cost-effectively.

The Distribution Center Locations:

• Central Distribution Center (CDC): Located in or near Pune, Maharashtra, to serve as the main hub for national distribution.
• Regional Distribution Center (RDC): Located in or near Bangalore, Karnataka, to cater to southern India and ensure faster deliveries in that region.

Services to be Provided by 3PLs:

• Managing and staffing operations at both the CDC and RDC to handle anticipated workloads, ensuring sufficient warehouse capacity, and maintaining temperature-controlled environments as per pharmaceutical regulations.
• Receiving shipments from domestic plants as well as international suppliers, some of which may be floor-loaded.
• Storing and handling temperature-sensitive pharmaceuticals, including those requiring controlled temperatures (15–25°C) and cold storage (2–8°C).
• Ensuring compliance with hazardous material storage requirements (e.g., certain vaccines are classified as hazardous materials).
• Picking, packing, shipping, and labeling of orders, with 98% of orders required to be shipped within 24 hours of receipt.
• Maintaining accurate inventory control, including lot tracking and inventory counts.
• Meeting service performance requirements, including on-time delivery rates of 95% or higher.

The 3PL Search and Selection Methodology:
Martins Consulting followed a comprehensive and structured methodology to select the most qualified 3PL providers in India. This process included:

1. Initial List Creation and Information Gathering:
   A broad initial list of potential 3PL providers in India was compiled, and preliminary information was gathered regarding their capabilities, service offerings, and geographical reach.
2. Request for Information (RFI):
   We issued an RFI to 20–30 potential service providers, asking for detailed information about their operations, facilities, compliance with regulatory standards, technology infrastructure, and capabilities in managing temperature-controlled pharmaceuticals.
3. Review and Refine Selection Criteria:
   The Martins Consulting team worked closely with the client’s management team to structure the selection criteria and refine the operating requirements based on the company’s priorities. This focused on service performance, compliance with regulatory standards, and overall capabilities in managing temperature-sensitive products.
4. Request for Proposal (RFP):
   After narrowing down the list to a short list of 10–12 providers, we issued an RFP that included detailed questions about pricing, facilities, service levels, and logistical solutions. The RFP also asked for references, examples of previous work in the pharmaceutical sector, and details about the 3PL’s experience with temperature-sensitive logistics.
5. RFP Evaluation and Candidate Shortlisting:
   The RFP responses were carefully evaluated using a comprehensive evaluation matrix. Key evaluation criteria included:
   • Cost: Start-up and operating expenses, including transportation and storage fees.
   • Service Performance: Ability to meet stringent delivery timelines, order fulfillment accuracy, and overall service reliability.
   • Financial Strength: The provider’s financial health and stability to ensure long-term sustainability.
   • References and Reputation: Industry-specific references and past experience with pharmaceutical logistics.
   • Physical Infrastructure: Warehouse facilities, temperature control capabilities, and capacity to handle hazardous materials.
   • Industry Expertise: Experience in managing temperature-sensitive pharmaceuticals and compliance with India’s regulatory standards.
6. Negotiation Strategy:
   After selecting two finalists based on the evaluation, Martins Consulting developed a customized negotiation strategy for each provider. This strategy was designed to help the client secure the best terms for both cost and service performance.

Results:
The selection process resulted in the identification of two highly capable 3PL providers that met all of the client’s requirements. The proposals from both providers were competitive, with operating costs that were significantly lower than the client’s initial projections.

• Cost Reduction: By consolidating operations with a single 3PL provider for each of the two DCs, the client achieved projected savings of 15–18% in annual transportation and warehousing costs.
• Improved Service Levels: With the right 3PL partner, the client was able to improve delivery times and meet its stringent service level agreements, ensuring that 98% of orders were shipped within 24 hours.
• Temperature Compliance: The selected providers demonstrated their ability to maintain stringent temperature controls and ensure the safe storage and handling of sensitive pharmaceutical products.
• Streamlined Operations: The new distribution network and 3PL partnership allowed for better inventory control, faster order fulfillment, and reduced stock-outs, ultimately improving the overall supply chain efficiency.

Conclusion:
Martins Consulting successfully assisted the pharmaceutical company in selecting the best 3PL providers to support their new distribution network in India. Through a meticulous search and selection process, the client was able to achieve significant cost savings, improve service levels, and streamline their supply chain operations. The final selection of the 3PL providers ensured compliance with regulatory requirements, enhanced product safety, and set the stage for continued growth and operational efficiency in the Indian market.