Role of Third Party Logistics(3PL) in the Pharmaceutical Industry A Case of Local Pharmaceutical Companies in Karachi

Role of Third-Party Logistics (3PL) in the Pharmaceutical Industry:
A Case of Local Pharmaceutical Companies in Karachi
A thesis submitted
By
Atif Ahmed (4306)
Huzaifa Tariq (4107)
Hammad Usmani (4121)
Mahhum Khalil (4108)
Osama-bin-Hasib (4327)
To
Department of Business Administration
In partial fulfillment for
Degree of
BACHELOR OF BUSINESS ADMINISTRATION
In
Supply Chain Management
This thesis has been
Accepted by the faculty
FACULTY OF BUSINESS ADMINISTRATION
Prof. Syed Ali Raza
Advisor
Prof. Tehseen Jawaid
Manager Research

1
Chapter 1

2
1. Introduction
1.1 Background: -
In the past, businesses believed in the theory of carrying out every business
function by themselves. Moving away from this traditional view today’s
organization focuses on performing core activity or which they have developed
expertise in. Other non-core activities/functions are then outsourced to those firms
that specialize in that particular field. When firms start outsourcing activities,
economic benefits can be achieved like reduced costs, greater flexibility and
additional focus on their core discipline1
.
As per the Council of Supply Chain Management Professionals, the third
party logistics can be best explained as the organizations that provide a number of
logistical services for make use of by customers. Basically, organizations are
referred as customers in the definition. Most commonly Third-party logistics
providers are firms on which many MNCs are increasingly relying on. The
services that are being provided by 3PL firms include distribution, warehousing,
customs clearing, packaging and freight forwarding. Companies decide on
whether to partially or completely utilize their services2
.
Due to the rapid increase in trade activities globally the demand for 3PL has
also been increased which in turn has given rise to competition among several
competitor in 3PL industry. These 3PL firms compete on lead time, cost
structures, their expertise in inventory control and reaching the economies of scale
(eliminating the burden from their clients). Even though there are organizations
that showed reluctance in marshaling the services of 3PL largely due to the reason
of not having control on their goods and other operations, the role of 3PL service
1
Booz et al (2001)
2
Rao and Young (1994)

3
providers has been widely accepted and day by day new businesses are acquiring
there services3
A pharmaceutical industry develops, produces, markets drugs for use as a
medication. It’s allowed to deal in generic, brand medication and medical
devices.3PL in pharmaceutical is very common now days the three big names
which provides logistics to industry are fisher scientific, UPS and Kuehne+nagel.
Pakistan has growing in pharmaceutical industry, many companies selling a
various range of drugs and pharmaceutical product. Today pharmaceutical sector
is one of the most develop hi-tech sector in Pakistan economy.
1.2 Problem Statement: -
Several researches have been carried out to investigate the role of outsourcing
logistics on the performance of the organizations.4
It is evident from past
researches that the outsourcing of different activities by organizations has
increased with the passage of time. The research concluded their findings about
the firms and highlighted the following benefits; reduction in capital investment,
decrease in customer response time, help in achieving competitive advantage and
economies of scale5
. This study has tried to fill the dependency of organizations
on outsourcing firms for logistic functions. No research has been conducted in the
pharmaceutical industry of Pakistan. The significance of this study is to give the
organization a vision of how beneficial outsourcing of business activities can be.
Companies can focus on those factors by which they can establish and maintain a
better relationship with the service providers and can get the most out of it.
3
Bhatnagar et al (1999)
4
K. Tyler Marvin (2011), Solakivi et al (2011), Hilletofth and Hilmola (2010), Wallenburg et al (2010)
5
Bhatnagar et al (1999), Wilding and Juriado (2004), Sahay and Mohan (2006)

4
1.3 Research Objective: -
The study is conducted to identify the factors that contribute to current
decision making process by pharmaceutical organizations, with regard to Third-
party Logistic providers.
 To find out the factors those lead the organization towards outsourcing
logistics in pharmaceutical industry of Karachi.
 To identify the hurdles arise during the outsourcing contract in
pharmaceutical industry of Karachi.
 To identify the procedure and criteria of selecting an Third Party Logistics
in pharmaceutical industry of Karachi.
 To identify the benefits that organizations can achieve by outsourcing
logistics in pharmaceutical industry of Karachi.
 To identify the possible drawbacks of this outsourcing decision in
pharmaceutical industry of Karachi.
1.4 Research Questions: -
The study has tried to find out the basis for outsourcing decision by
pharmaceutical organization. It will develop a criterion by which it is easy to
understand that what are those variables that organization values the most when
going on to develop a working relationship with 3PL. some of those variables are
as follow:
1. What are the factors that lead the organization towards outsourcing
logistics in the pharmaceutical industry of Karachi?
2. What are the hurdles that arise during the outsourcing contract in the
pharmaceutical industry of Karachi?

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3. What are the procedures and criteria’s of selecting a Third Party Logistics
in the pharmaceutical industry of Karachi?
4. What are the benefits that organizations can achieve by outsourcing
logistics in the pharmaceutical industry of Karachi?
5. What are the possible drawbacks of an outsourcing decision in the
1.5 Scope of the Study: -
This study is intended to supplement the concept of outsourcing and in that
particularly Third-party Logistics and its overall impact on organization’s
performance. Moreover, this study has also examined those factors that could
influence the decision making process regarding outsourcing. Importance is given
to pharmaceuticals operating in Karachi area and how well they are utilizing the
services provided by 3PL.This study are also benefits to the consumers of
Pharmaceutical - by cutting the cost of products, government -by taking the
appropriate tax and Pharmaceutical Industry – by increase the performance of
their organizations.
1.6 Limitation of the study: -
This study is limited to only pharmaceuticals and 3PL companies of Karachi
region. So, the findings cannot be generalized as companies operating in other
industrial sectors or different geographic region might have completely different
goals and objectives when outsourcing logistics and may also have different
outcomes.

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Chapter 2

7
2. Literature Review
2.1 Theoretical Background: -
Supply Chain includes all the activities which the company and business
chooses to design, manufacture, and distribute a finish goods and services.
Organizations depend on their chain of supply that they provide the customer
what they need and carry on to their business activities to remain successful6
.
Outsourcing can be simply defined as, purchase, procure and sourcing of raw
material and the desired services by the clients. Most typically outsourcing
includes the make-or-buy decision and logistical functions by many
manufacturing firms7
.
Third Party Logistics (3PL) are services providers or intermediary in the
logistics part of supply chain that are dedicated to offer a number of logistical
activities for example: warehousing, inventory management, transportation,
shipment and else over a given period of time8
.
When company goes toward outsourcing they achieve a number of benefits
some of them are cost reduction, focusing more on core competence, increase
efficiency and accomplishing economies of scale. It is because when all the non-
core activities are outsourced now the firms have the opportunity to give attention
to core activities which leads to the maximum and effective utilization of new and
available resources. Also when companies do outsource it would result in less
cash outflows that will reduce the cost.
Outsourcing also comes with some drawback as well. Some of those
drawbacks are loss of control, change in management, and loss of customer
information. It is due to the reason that sometimes outsourcing companies are not
6
Michael H. Hugos (2003)
7
Vincent Jacques (2006)
8
Kulkarni and Sharma (2004)

8
concerned with the wellbeing of their customers which in turn makes the
organizations reluctant to outsource. An organization loses control means once
the product is shipped now it becomes the responsibility of outsourced firm to
take care of which in general they don’t do. Also different management work
styles will result in different objectives which might be conflicting to each other.
Organization cannot directly interact with the customers which could ultimately
result in bad customer service.
2.2 Empirical Studies: -
Vintar and Stanimirovic (2011) described that the projects of outsourcing
must reduce costs and help organizations in improving service and quality by
focusing on the core business processes. The purpose of the research is analysis of
the situation in the field of outsourcing at the municipal level in Slovenia, which
includes analysis on organizational factors. There was a survey conducted in 2010
at the institute which contains both qualitative as well as quantitative methods
with a sample size of 85 municipalities. Methodology within the survey focuses
particularly on the financial, organizational, developmental and human resources
perspective. The result which is obtained by the survey was that there was a
partial and valuable understanding of outsourcing of IT-projects in the Slovenian
sector.
Solakivi et al (2011) explored the present state and the expectations in future
on the subject of the execution of the outsourcing of logistics activities in low-to
mid- sized companies and to evaluate and measure the relations between logistics
outsourcing, performance and costs, monetary functioning, and the environment
of the company. The data were collected from 223 manufacturing and trading
SMEs from Finnish logistics survey and financial report-based data from Finland.
The data was referring to the year 2008. ANOVA and factor analysis used to
analyze data. The observation was no Loss or Gain in the performance of logistics

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due to outsource. The authors suggest that further more research is needed to
explore more about logistics.
K.Tyler Marvin (2011) they examines the problem surrounded with
outsourcing, strengths and benefits of outsourcing and off shoring, author give his
view that outsource is a part of many companies strategic goal. He analyzes the
study from IBM’s Global location Trends reports and study of chief human
resource officer. He connects the study done in the past for present and looking
towards future, he gave an example of digital River Inc. from India whose
manufacture were outsourced to Chinese company, the result shown that in 2009
Philippines was at no one destination of outsource of business support services
while in production USA China. In R&D India was at top other destination
country are UK, Mexico, in 2007 china is at top in production for outsource then
Thailand. The reason for outsource given by author is that primary factor is cost
saving and others are lower expenditure, focus on core competencies. Some of the
problem of outsource are mismanagement of outsourced project, lack of proper
feedback, and outsource biggest mistake is that they expect vendors to be behave
in a manner similar to their own employees. According to writer In future there
were china and India are the biggest offshore destination.
Rahman and Wu (2011) investigate the differences between Chinese
manufacturers as well as suppliers in their logistics services make available to
nationally and globally. The data was collected through questionnaire-based
survey among the manager of manufacturing firms in four different industrial
sectors located in the region of Shanghai. Likert scale of five points was used to
find out the magnitude of provided services, and asses client fulfillment level.
Result points out that foreign customer forces their local business partners for
better services. An important distinction between manufacturer’s level of
satisfaction with local and foreign customer is also considered. This study find out
that for outsource logistics service in china, the firm should have to restructure
their organization and readjust their operations strategy.

10
Hsiao et al (2010) described the findings of the paper which is to know the
structure of decision making for outsourcing levels of logistics activities. Supply
chain department has been focused for the study. A survey based on exploratory
themes was done to identify the factors effecting outsourcing of different
activities. Questionnaires were sent to 385 companies but the sample size was 62
because of wrong addresses, less interest, etc. It was concluded that a structure of
decision making was meant to be for analyzing and observing outsourcing of
logistics activities on different levels.
Hilletofth and Hilmola (2010) described the research paper that is to identify
the effects of outsourcing logistics in the region of Northern Europe. A survey
was conducted in Finland and Sweden’s largest companies of service sector.
Likert scale was used to conduct a survey from 1 to 5. Different departments of
companies were focused to get responses about the survey. After the survey the
result has shown that number of key activities could have impact on some
managerial and strategic aspects of supply chain. Outsource of warehousing
functions and IT functions are playing important roles in purchasing
internationally. The responses were low of survey. Difference on profiles is also a
factor of the research finding which shows that logistics and trade companies are
dissimilar in comparison to manufacturing.
Wallenburg et al (2010) conducted a research paper for the purpose to
establish a scale for measuring proactive cost and service based improvements in
arranging logistics outsourcing. There are five phases in scale measurement.
Qualitative and Quantitative pilot testing has been done in which a sample of 220
logistics managers of Germany are involved. It is a survey based research paper.
Service provider’s ability is the main factor in the success of logistics outsourcing
relationships.
Geurtz (2009) studied to examine the effect of outsourcing on employment
growth at the level of the individual firm. The data was collected from employers
of Belgium. Ordinary least squares (OLS) regression and instrumental variables

11
(IV) technique is used to analyze the data. The data was collected from the period
of 2003 to 2008. The result showed that outsourcing has positive effect on firm`s
labor demand. R&D outsourcing has a negative relation between employment
growth and outsourcing. Author suggests that by including employment growth in
the year before the observation period, and by applying comprehensive method, a
healthy estimation of the parameters of model could be achieved.
Manoj et al (2009) described in their research paper to know that how
mathematically a model is used for solving 3pl distribution problem of fish. To
come up to a solution of the problem of six different strategies, defined in the
paper by using lexicographic goal programming. The efficiency and usefulness of
the method for a third party logistics is investigated and identified. Fish supply
network is a case which they have gone through. This will help the managers to
decide and make policies for the selection of 3pl and also help for researchers.
Jay Joong et al (2008) examine the impression of logistics potential and
outsourcing on firm’s working in electronic commerce market. Result shows that
there is a positively relation between logistics capability and the firm’s
performance in the electronic commerce bazaar. Data is collected from top
management of firm by mailed and reliability was performed by means of SPSS
and LISREL was used for the confirmation of results. Logistics ability is
significant for increased performance in e-commerce. On the other hand no
positive relation exist between logistics outsourcing and performance of firms so
study find that firm should avoid logistics outsourcing. Furthermore, the
connection between the logistics capability and outsourcing were negative which
mean logistics capability should avoid outsourcing.
Sohail et al (2008) conduct research to assume the relative study on the use of
third party logistic service of Malaysia and Singapore. The approach of this study
is questionnaire survey conducted in Malaysia and Singapore in 1998 and 2000
respectively. Limited sample size and the overview of results to all manufacturing
firms in Singapore and Malaysia manufacturers ignoring possible district

12
differences in each context are limitations in this study. Sample size is 126 on
Singaporean firms and 124 on Malaysian firms. This paper also deals with the
main issue on third party logistic services. The result shows the similarities on the
exercising of third party logistic services in Malaysia and Singapore.
Sahay and Mohan (2006) conducted a research to get to know the impact of
third party logistics services on business. Statistical analysis was done through a
survey questionnaire and survey was also done through e-mails. Top 500
organizations of India were the target population. It was found that due to
logistics activities there would be increase in outsourcing in the next 2-5 years.
The main focus of the research was; the importance of logistics activities, usage
of services and reasons for outsourcing. The third party logistics service is
improving business results in India.
Arroyo et al (2006) investigate the 3PL in Mexico and compare with data of
Europe and USA in manufacturing sector of Mexico. Researchers asked 13 closed
questions through internet, a total of 243 in which 94 are considered as usable. It’s
finding 3PL logistics is less practices in Mexico then the USA and Europe.
Mexican firms aim to improved customer services, operational logistics activities
and concentration on core activities as well Europe and USA are more focused on
the returns by combining functions and cost cutting. The local providers of 3PL
are more expensive as compare to international providers. Case studies are also
investigated how international firms administer 3PL judgment process on both
organizational and regional levels. A positive correlation was found between
company size and foreign investment in Mexican firm. This is an opening study
conducted in Mexico on outsourcing logistics and practices. Outsourcing is
supposed to be seen as a way to enhance efficiency.
Jiang et al (2006) discussed in empirical research that the result of outsourcing
on organization and providing about outsourcing influence on firm’s efficiency in
cost, profitability and production. Sample size is of 51 listed firms that outsourced
their operations. This research uses publically accounting data to see the result of

13
outsourcing decision of operations. This research presents that outsourcing can
decrease firm’s costs without compromising firm’s profitability and productivity.
Singh and Zack (2006) examine the impact of outsourcing information
technology. They look at it from two perspectives, one in the form of cost
reduction and the other in the form of knowledge and learning associated with
outsourced activities. The research is conducted through interviews and different
theories. Therefore, it is qualitative in nature. They start by defining the
outsourcing, then move on to survey the major theoretical approaches used to
examine outsourcing such as reducing costs (TCE), closing strategic resource
gaps (RBV) and imitating competitors (institutional theory). Then they move on
to the Knowledge Based View (KBV) of outsourcing and discuss the strategic
costs of forgone knowledge due to outsourcing. Results indicate that the
performance due to outsourcing many dimensions of the firm is still unclear as it
can improve a firm’s flexibility but can also cause depreciation of existing
capabilities. They recommend that knowledge should be upheld as the most
critical factor to the growth of individual firms and those organizations must learn
from an activity that is being considered for outsourcing.
Khong (2005) observed the perceived impact of outsourcing on customer
service management. The data was collected by the survey of sample size 124
companies in the country of Malaysia. Author used Structural Equation Modeling
(SEM) to estimate the model. The author used the variables customer service
management and successful outsourcing from Elmuti (2003). The result showed
that outsourcing has a positive relation with Customer Service Management. The
suggestion was that Companies should do successful outsourcing to improved
customer satisfaction and relationship with customer.
Naidu et al (2005) investigated the need for western companies to relocating
for outsourcing business to India or other cheaper countries. This paper answered
two key questions i.e. (1) what are the factors Western companies’ feel important
in order to outsource functions to India (2) the effect of outsourcing on

14
commercial location requirements in India. A survey was conducted from
property dealers in both UK and India. Response rate of 30% was achieved. On
the whole the results of this paper confirmed that low cost is an important factor
for outsourcing business activities to India. Other factors that were analyzed are
governmental costs, infrastructure and service levels.
Wilding and Juriado (2004) investigates the perceptions of customers on
outsourcing of logistics in the consumer goods industry of Europe. The questions
that the research tries to find: why should they go for outsourcing, which activities
should be outsourced and how the satisfaction can be increased between third part
logistics providers and institutional customers? Questionnaire and interview is
used to collect the data. The survey is conducted from the FMCGs manufacturing
companies across the Europe. Total 330 questionnaires were sent and lastly 50
questionnaires are usable for research. Regression is used to evaluate data. The
result showed that 3PLs (third party logistics) outsourcing in FMCG industry
rarely takes cost into account for decision-making. But the most common logistics
outsource is transportation.
Sankaran et al (2001) tell us of a research investigation in the region of New
Zealand on the topic third party logistics. The research evaluated the
management’s perception about the successful outsourcing of logistics that could
be suitable to the specific location of New Zealand. The data was collected
through interviews which suggest that the research is qualitative in nature. For
data gathering and its analysis a technique known as formal coding was used. The
study exposed that third-party logistics providers holding back themselves from
early financial obligation is one variable in the success of third-party logistics in
New Zealand. They recommend that recent performance is not sufficient to
differentiate between contracts going successful. Rather, then that such measures
should be taken for business growth which could also be beneficial for both the
providers of logistic functions and their clients.

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Aktas and Ulegin (2001) try to find out the current circumstances faced by the
outsourcing of logistical activities in Turkey. Samples of 250 were collected from
the top ranking 500 Turkish companies as listed by the Istanbul Chamber of
Commerce. Since surveys were used in the research, it is quantitative in nature.
Evaluation of responses was done by using Statistical Package for the Social
Sciences software. The study demonstrates that the third-party logistics providers
in Turkey are not performing to the maximum extent which they can. The firms
that contract out their activities have foreign capital making up to 95% of the
total. They conclude that Turkish entrepreneurs still believe in traditional model
which says that every activity should be performed by the business themselves.
They recommended that outsourcing should be promoted in Turkey as it joins
Europe to the Asia.
Elmuti and Kathawala (2000) explore how and why organizations use global
outsourcing and try to identify predicaments that can affect the success rate of
outsourcing across the world. The research reviewed a lot of literature on
worldwide outsourcing and extracted a number of questions. To answer those
questions, a survey on strategic importance of global outsourcing was constructed
and circulated to 2000 organizations across the US. This makes it a quantitative
approach. It then gathered the results and pull out full answers to specific
questions. They concluded that organizations normally believed that they are
successful at outsourcing global. However, they were able achieve significant
success; they were not having the amount of perfection qualified for outsourcing.
They recommend that by managing major risk factors and developing a plan with
accurate objectives and by picking partners that can work for longer periods based
on their know-how in the related business, supervisors can go for outsourcing as a
very useful instrument to improve as well as sustain their competitiveness.
Gilley and Rasheed (2000) observed the extent to which the outsourcing of
peripheral and near-core tasks influence organization’s financial and non-financial
performance. The sample size for this research was 31 CEOs of different
organization. The firm size ranged from 50 to 250 employees. The variables that

16
were analyzed in the research are namely outsourcing activity, strategic
significance of activity, firm performance, firm dynamism, and firm strategy. The
research methodology of double respondent survey was used. The results of the
research showed that organizations following different strategies or operating in
different environment have a completely different impact of outsourcing which is
not similar to any organization in the sample size. The study also explained that
the organizations operating in a more dynamic environment are equally exposed
to the benefits as well as the losses due to increasing costs. The one limitation of
this research was that all of the firms in the sample were manufacturing firms so;
generalizing the findings to service industry may be difficult.
Bhatnagar et al (1999) in Singapore have studied the conditions of third-party
logistics in Singapore business sector. They solely focused on three dimensions
that are (1) Extent of use (2) The decision making process (3) Contract logistics
services used. Survey instrument was used for data gathering. The sample
population was of 1000 organization. Out of which only 126 firms replied the
survey with a response rate of 12.6%. The study concluded that out of 126 firms,
75 firms’ uses third party logistics remaining firms not utilizes contract logistics
services.
Razzaque and Sheng (1998) explore the practices of outsourcing logistics
functions. This research is a literature survey which means that a qualitative
approach has been used. The research prepares to close the gap and plan in
establishing an extensive literature on outsourcing. They further discuss the types
of contract logistics vendors, the advantages and the obstacles in outsourcing.
They conclude that subcontracting function especially that of logistics can badly
impact on business’s customer relationships and that the advantages of
outsourcing are clear by joint collaboration which requires extensive sharing of
information from co-businesses on continuous basis. They recommend that
buying firms work very much strongly among their alliances to get better
logistical performance.

17
Dapiran et al (1996) in Australia, the study has tried to find out the impact of
outsourcing logistics functions in Australian perspective. The study focused on
why companies in Australia opt for subcontracting logistical activities because in
past some companies have deployed their own logistics and warehousing which
can either be outsourced. The method for collection of data uses survey
instrument supported by questionnaire with minor changes so as to be effective in
Australian environment. The sample population was of 500 firms excluding banks
and insurance companies. Out of those 500 firms 220 were actually surveyed. 127
senior executives were then contacted to contribute their knowledge about
outsourcing logistics. 84 responses from those senior executives were in usable
from, the study showed the response rate of 27%. The themes on which the
questions were developed are (1) Extent of use (2) The decision making process
(3) Contract logistics services used (4) implementation (5) Training (6)
commitment to the concept and expenditures (7) Contract usage with service
providers (8) Organizational impact (9) Plans for the future. The study concluded
that many firms use contract logistics extensively not only that many of these
have outsourced logistics to more than company.
Rao and Young (1994) in United States and Europe, the study showed the
important factors in outsourcing of logistics by multinational manufacturing firm
and the growing amount business partnerships between these two entities. The
study has gathered the data by using case study approach, from side to side
personal interviews from 44 organizations working as shippers, container
terminals, port authorities, freight forwarders, and etc. Out of which 21 were
American based and 23 were European. The products offered by logistic
companies were planning, administrative, related to machinery, goods managing.
Factors that play a key role in making decision for outsourcing activity are the
importance of the logistics functions to core competency, probability of losing
control, cost versus benefits, information systems, and market reputation.

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Chapter 3

19
3. Methodology
3.1 Research Approach: -
The research approach that has been employed in this study is qualitative
research approach. The qualitative research is “the process that tells us that how
and why the things are happened.” It is used to describe, explore, translate and
interpret the natural process that is occurring in the social world9
.
3.2 Research Purpose: -
The purpose of this research is Exploratory, in which we explore the new area
of our research. Exploration is a well-planned strategy for researchers. It enables
them to design and plan all the methods and operations in advance. As a result
they are ready to face possible problems and at the same time they are prompt and
efficient.10
3.3 Research Design: -
The research design that has been applied in this study is phenomenology.
Phenomenology can be explained as a research design that “specifically deals
with the understanding of behavior from the individual’s own point of view”. This
research design supposes that people will do something that is irregular and
contrary to already setup norms.11
3.4 Data Source: -
The data source for this study is primary. For gathering data we will take
interviews from the managers who deal in logistic functions of organization.
9
Cooper and Schindler (2006)
10
Cooper and Schindler (2006)
11
Colin Neville (2007)

20
3.5 Target Population: -
Target population for this study is local pharmaceutical companies located in
the region of Karachi.
3.6 Sample Size: -
Interviews are conducted from five different pharmaceutical companies.
Those companies’ names are Getz Pharma, Mediate Pharma, Hilton Pharma,
Scilife Pharma, and OBS Pharma.
3.7 Data Collection Technique: -
The data collection technique that has been employed for this study is in-depth
interview. In-depth interviews are the one in which “the interviewer wants to find
out a specific topic in detail with the interviewee”. Normally these types of
interviews are unstructured. However, in some situations interviewer had already
decided the list of topics that are to be discussed.12
3.8 Sampling Technique: -
The sampling technique used for this study purposive sampling technique. It is
a type of non-probability sampling which is used in special situations. Purposive
sampling can be best described as “the research technique in which the researcher
uses his/her knowledge about the topic to select the participants that will represent
the target population”.13
12
Colin Neville (2007)
13
Cecilia Elizabeth (2007)

21
Chapter 4

22
4. Data Analysis
This chapter will focus on the analysis of interviews that has been conducted
to pinpoint the role of 3PL in the local pharmaceutical companies that are
operating in Karachi and that the 3PL is not the core competency of
Pharmaceutical firms. Also this analysis will explain the possible factors, hurdles,
selection criteria, benefits and drawbacks that notified by the respondents.
This study has collected five interviews from four different pharmaceutical
companies that include; Hilton Pharmaceutical (Pvt) Ltd, Scilife Pharma (Pvt)
Ltd, OBS Pharmaceutical (Pvt) Ltd, Getz Pharma (Pvt) Ltd and Mediate
Pharmaceuticals (Pvt) Ltd. The respondents for the interviews are selected from
managerial level positions that are directly supervising logistics functions in their
respective organization.
Research Question 1
What are the factors that lead the organization towards outsourcing logistics
Non-Core Activity:
R1: In Hilton Pharma, Outsourcing may be done according to the company policy
and there is no outsourcing being done of logistics. The company has outsourced
the labor on the manufacturing sites. The factors that push us toward outsourcing
depend on the policy of permanent head counts and in which it is clearly
mentioned, that excessive head counts may be outsourced. The Hilton Pharma has
major operations in manufacturing and marketing.
R2:The factors that motivated Scilife Pharma toward outsourcing logistics is the
burden of work over employees, Because the company’s core objective is to
market the product and make it available to the customer. The outsourcing is
being done by the “City Channel”.

23
R3: In OBS Pharma logistics includes, transportation, distribution and warehouse
that has been outsourced. Firstly we hired TCS as a third party distributor for our
consignments and to have more area coverage we hired Leopard Courier. OBS
outsourced logistics because they don’t have expertise in logistics.
R4: As Mediate Pharma is a small company, so the main factor is the financial
limitation. Because in logistics we require vehicles, labor, management and
assets. So, the distribution has been outsourced in Mediate Pharma.
R5: In Getz Pharma, Logistics is not the specialty of the company due to that
reason we have outsourced the logistic area. Another reason is that the Getz
Pharma wants to focus on their core competency which is the manufacturing of
pharmaceutical products.
Author’s Conclusion:
According to the respondents the logistics is categorized a noncore activity
which is already outsourced in their firms except Hilton Pharma where they have
their own logistics operations. The respondent describe that the mediate Pharma
has outsource their logistics due to limited investment.
Low Cost:
R1: Did not answer.
R2: The factors that motivated Scilife Pharma toward outsourcing logistics is the
burden of work over employees. To relief the labor, improve work load, cost
cutting and increase the quality of work.
R3: We hire TCS as a third party distributor for our consignments. The key
factors are Low cost is one of the factors and expertise of third party is required to
reduce cost. Specialized team that has the expertise over logistics just as TCS,
Recently we hired leopard courier for our grey areas known as hard destinations
and cold storage like; injections or medical equipment.

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R4: The reasons for outsourcing are many some of them are mentioned as the
sales is not enough to cover the expenses of distribution, the budget couldn’t
allow us to afford own distribution unit, we are not covering the pan Pakistan
(small network) and it is cheaper to outsource the distribution department.
R5: Logistics is not the specialty of Pharmaceutical industry that’s why we go for
outsourcing that have the expertise in the logistic area. Also one of the reasons
that companies go for outsourcing is that the company want to incur their cost in
the core objective of a company. Other important factors are Cost Saving, Proper
utilization of service and capacity, Quality Control, Over motion / movement cost
saving, Repo Building, Business Enhancement and Focus on core competencies.
The respondent of two pharmaceutical illustrate that low cost is the main
reasons in the factors of outsourcing. Whereas two of them indirectly mentioned
that mediate do to minimize their operational expense and Getz outsource to incur
their cost into the manufacturing site. Lastly Hilton doesn’t answer about any cost
that may lead to outsource.
Research Question 2
What are the hurdles that arise during the outsourcing contract in the
Responsibility is over 3rd
Party:
R1: As such there are no hurdles faced by Hilton Pharma and if there are any so it
is the responsibility of third party to take care of it and sometime HR consultant
with third party on the behalf of company.
R2: Scilife don’t have to face any problem because if any problem arises so it is
the responsibility of third party. The main hurdle would occur because the third

25
party doesn’t deliver the goods after 7:00 p.m. Another difficulty is that the
payment cycle is interrupt due to third party intervention. These entire events
happened once in a blue moon.
R3: As we are the customer of third party so we have an edge over term and
condition. And the 3rd party has to take all responsibility of any unconditional
event. The hurdles while contracting with leopard are Transportation issues
(Shipment or transport costs are more), Area coverage and credit terms.
R4: There is no as such serious hurdles arise in contract. But there may be some
issues of delivery time because the vehicle has to deliver other goods in other
destinations. Also on some occasions the order is small and there are other goods
loaded that puts safety of medicines at risk. It is difficult and complex job to track
the good when the vehicle is on the way.
R5: Either the third party service provider is qualified or not is one of the major
hurdles. Ensuring timely delivery is also a hurdle for which every company has its
own criteria. And in Getz`s objective it is decided that we will have higher 3PL
next year, one or may be more than one.
It is found out from the responses, that when any particular activity is
outsourced which in this case is logistics than it becomes the responsibility of
third party to manage. Also the pharmaceuticals are clients of 3PL that’s why 3PL
providers have to satisfy their customers.
Time of delivery:
R1: Did not answer.
R2: The main hurdle would occur because the third party doesn’t deliver the
goods after 7:00 p.m. Another difficulty is that the payment cycle is interrupt due
to third party intervention. These entire events happened once in a blue moon.

26
R3: did not answer.
R4: There may be some issues of delivery time because the vehicle has to deliver
other goods in other destinations. Also on some occasions the order is small and
there are other goods loaded that puts safety of medicines at risk. It is difficult and
complex job to track the good when the vehicle is on the way.
R5: Time bound is a hurdle, every company has own criteria. And in company
objective it decided that we have to hire 3PL next year, one or may be more than
one. If your business expands and your current supplier is not fulfilling your
requirement so you need to move to another 3PL for that.
The respondents indicates that during the contract delivery time of product is a
hurdle for the company except two companies who did not mentioned this kind of
hurdle.
Research Question 3
What are the procedures and criteria’s of selecting a Third Party Logistics in
the pharmaceutical industry of Karachi?
Credibility:
R1: Hilton is highly focused on the management and credibility of third party.
And also the company focuses the third party ability that how they manage
serious issues like; strikes, labor law and political issues.
R2: The main criteria are the value of third party in the market that our company
works with. Then the financial stability of outsources company and their
association with other companies.

27
R3: Did not answer
R4: Did not answer
R5: Did not answer
The Two respondents highlight that the credibility of third party is analyzed
when they are selecting the third party. Other respondent don’t talk on the
credibility of criteria of third party.
Area Coverage:
R1: Didn’t answer
R2: The main criteria are the value of third party in the market that our company
works with. Then the financial stability of outsourcing company, association with
other companies and payment system, Number of labors, means of transportation
and the area covered by 3rd
party.
R3: The first criteria is that the area coverage of leopard. Around 89 destinations
they were giving their services and for rest of the areas they use public
transportation due to security reasons, The Issue regarding theft of goods because
the area that the third party covers is unsafe. Cold storage capacity, air
transportation, financially stable to pay damage and business growth are also
considered while selecting 3PL.
R4: The procedure and criteria is that the physical examination of the means of
transportation, inspect the destinations, the routes that they follow. We have hired
different distributor according to different cities. Like Ali medico (Shahdadkot),
Ammar medico (Larkana) The procedure also includes that the goods deliver on
time, transporter should only be deal in moving of pharmaceutical products and
commodities should be moved safely.

28
R5: Supplier should be qualified, if we talk about manufacture firms it includes
quality assurance, quality control, finance, supply chain and you visit vendor area
and take trial for check. In 3rd
Party the most important is qualification of supplier
if you done this in pre stage it will help you at post stage.
These responses has reached the conclusion that selecting the third party
logistics includes two most important aspects that are credibility of that third party
in the market and the area network that they are covering by their service.
Research Question 4
What are the benefits that organizations can achieve by outsourcing logistics
Focus on Core Objective:
R1: Hilton is enjoying many benefits by outsourcing like time saving, easy salary
taken, focus on core objective, reduce work load and so on.
R2: The benefits that Scilife enjoy from outsourcing logistics are the effective
utilization of field force, successful supply of product, relief in the work load of
employees, oriented toward objective and credibility in market through third
party. There is also a benefit that third party has a strong and detailed record of
sales that give us ease in weekly sales report.
R3: We can focus on our core competencies instead of other activities. We are
benefited in a sense that TCS has a strong and saturated network within one area
like Gulshan we can see 2 to 3 outlets.
R4: Did not answer.

29
R5: First benefit is capital you spend on logistics it saved due to outsourcing,
second we are expert in our work and it will help to response our customer
quickly. In Getz Pharma customers are distributor and user who buy medicine
directly from company. 3PL gives over all benefits to us.
The benefits that these respondents have shared vary from company to
company because the objectives and the nature of work are different from others.
But the common benefits are that the third party allows the organization not to be
involved in those activities in which they don’t have the expertise and main
emphasis is on core competency.
Time Saving:
R1: Hilton is enjoying many benefits by outsourcing like time saving, easy salary
taken, focus on core objective, reduce work load and so on.
R2: Did not answer.
R3: In our department we prepare our packages and consignments till 5pm,
courier services load the packages and give a tracking code through which we can
track our consignments easily. So, time saving is another benefit.
R4: Did not answer.
R5: Did not answer.
Time saving is also a benefit for an organization by outsourcing their logistics,
because third party gives an ease to their client by providing their service
efficiently. As a result the company saves time because now the noncore activity
has been outsourced to the firm that has the expertise to carry out those tasks
efficiently.

30
Research Question 5
What are the possible drawbacks of an outsourcing decision in the
Loyalty and trust:
R1: I think that the main possible drawback of outsourcing of labor is the lobby
system that has been developed in the manufacturing site. In additional, loss of
control over worker, loss of information and reduce the loyalty of employees.
R2: Didn’t answer
R3: Didn’t answer
R4: Didn’t answer
R5: Yes there are some drawbacks, sometime you trust on supplier and suppliers deceive
with you. In Pharma ministry of health has a directly influence on Pharmaceutical, so
documentation is very important, make official documentation with supplier. As you saw
what happen with Afroz Pharma and it is ban in Pakistan. So trustworthiness with you
and your supplier should be high.
According to the respondents that drawback of outsourcing logistics varies
organization to organization. These two respondents emphasize on lack of trust and
loyalty is the possible weakness by outsourcing because in business everyone got rational
for the sake of their own interest. So this may lead to bad relation between two parties.

31
Loss of Control and Loss of Information:
R1: I think that the main possible drawback of outsourcing of labor is the lobby
system that has been developed in the manufacturing site. In additional, loss of
control over worker, loss of information and reduce the loyalty of employees.
R2: There is no as such drawback that faced by the Scilife. One more point is that
the goods are not physically on our hand, so we cannot control the inventory. And
the information of our company and product are on the hand of our distributor, so
distributor credibility.
R3: The biggest drawback is that shipment is not physically in our hand so there
is invisibility of product. It has also happened that our some consignment is lost
or stolen. The next drawback is a chance of leakage of information to our
competitors. Our competitor also gives a bribe to the TCS employee to delay our
shipment. Sometime it is also heard that the material is deliberately delayed on the
wish of competitor.
R4: The possible drawback can be the damage of goods due to accident of truck,
goods can be stolen, and the good are misplaced while moving through
transporter This all would lead to loss on company. This kind of harmful event
isn’t done frequently and it is in rare in nature. But the problem is that the small
company`s bone back is very weak a small loss or damage is dangerous for them.
R5: Didn’t Answer
As the respondent told that the goods are not physically in our hand so this
would lead to the problem like, goods cannot be delivery at the desired time and
there is a possibility that the goods can be stolen. Another drawback is that the
loss of information because the third party is working for number of companies.

32
Chapter 5

33
5. Conclusion and Recommendation
5.1 Conclusion: -
These days outsourcing is more and more used as a way of reducing the costs
and attaining long term objectives. The possible impact of outsourcing can be
observed across many business activities. The major reason of doing it is that
outsourcing has the possibility of transferring the risk and management tasks to
the third parties.
In this research paper, that has been carried out on pharmaceutical sector of
Karachi and the role of 3PL in this sector have addressed five key questions of
factors, hurdles, procedure and selecting criteria, benefits and drawbacks of using
3PL which are explained very much in detail and they can be used as standards
for other organizations as well.
According to the responses gathered from the interviews of different
pharmaceutical companies indicate that these firms are entering into outsourcing
contracts with third-party service providers especially the 3PL “Third-party
Logistics” on the basis of several elements. Some of these elements are namely
non-core activity; responsibility is over 3rd
party; credibility and area coverage;
focus on core objective and time saving; lobby system; lack of trust and loss of
control and loss of information.
This research paper has concluded that there might be convincing reasons in
terms of commercial aspects for outsourcing in pharmaceutical sector, which are
prospective for considerable cost reduction by outsourcing to a service operator
who has already developed the economies of scale in logistics field. But every
pharmaceutical company is either not that much financial strong to enjoy the full
benefits of outsourcing or they don’t see any significance in outsourcing logistics.

34
5.2 Recommendation: -
By analyzing and evaluating the results that is discovered in this research is
the outsourcing of logistics is playing a beneficial for the pharmaceutical
companies with respect to their objectives. Here are some suggestions for the
local pharmaceutical industry of Karachi that this research has experienced from
the answers to the questions.
More analysis could also deal with how stability of power problems are
managed and is also important in learning the third-party logistics provider views
on the same aspects of logistical outsourcing as the study did on the client views.
Lastly, a more comprehensive list of the factors of performance with outsourcing
could be analyzed.
1. Outsourcing is only good for those who have small market share because
when you are entering in the strong competition so this third party might
be a threat for the company because they are also working for other
companies in that same business.
2. The pharmaceutical companies who want to initiate their business in
Karachi should outsource their logistics to those service providers that
have the expertise in that particular field because it would be feasible for
the companies divert attention from noncore activities to focusing strategic
purpose of their company.
3. The pharmaceutical should outsource their logistics to enhance the core
competency and to be focus on the company’s objective. Because the core
business of pharmaceutical is to manufacture and market their product.
4. The company main objective is to reduce the cost and boost their profit.
So by outsourcing their noncore activity effectively the company can
achieve their maximum profit through less capital, less operating expense,
less burden of work and focus on the competitive advantage.

Role of Third Party Logistics(3PL) in the Pharmaceutical Industry A Case of Local Pharmaceutical Companies in Karachi

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