Supply chain logistics — a discipline that stretches from filling the manufacturing hopper with parts to delivering finished goods to customers — is the last frontier of cost savings. Compared to the sometimes intangible benefits of e-business, conserving warehouse space, reducing truck rolls, avoiding shipment delays, and the like have an immediate impact on the bottom line.
But squeezing out inefficiencies from logistics is a specialized endeavor that requires a clear overview of every link in the chain. That’s why many companies are looking for outside help in managing a part of their business that frequently falls outside their core competency.
In most cases, enterprises still use regional 3PLs (third-party logistics providers) to manage everything from transportation to final assembly of products, while keeping control and coordination inside the enterprise. But as companies worldwide outsource even their manufacturing to China and Vietnam, supply chains and distribution channels are more and more dispersed, with many more companies participating.
Enterprises are increasingly turning to the 4PL (fourth-party logistics provider) to manage and run complex logistics operations. Trademarked by Andersen Consulting (now Accenture) in 1996, the term 4PL has come to refer to large integrators that provide full-service logistics solutions — including information management and coordination of multiple 3PLs. According to Accenture, the “radical” view of 4PL can extend as far as outsourcing the entire supply chain.
The rise of 4PLs stems in part from the fact that outsourcing is now a global endeavor. The management and integration of dispersed logistics players — each bound by local variations in language, currency, trade law, and so on — is an enormous undertaking. In hiring a 4PL, an enterprise must find a partner that understands its special logistics needs, one that can share in the risks and rewards of reinventing a significant portion of its business.
The core value offered by 4PLs is in managing and integrating the flow of information between hundreds of outsourced supply chain partners and the enterprises that employ them. “4PLs manage other 3PLs and transportation carriers to execute the work and oversee the solution design and performance of those entities that work for them,” states Tom McKenna, senior vice president of logistics engineering at Penske Logistics.
Like the old game of trust, where one player is willing to fall backward, trusting that his partner will catch him, senior management at the enterprise places its trust in the 4PL. When an enterprise lacks the supply chain expertise to manage a global logistics operation, there may be little choice.
4PLs bring a layer of standardization to supply chain logistics management. “In the world of logistics, standardization is not fully evolved because it is based on transactions initiated by many suppliers,” says Kushal Dutta, vice president of
e-services for Optum, a supply-chain event management software company. “21Nobody runs their supply chain the same way, and each has a different way to deal with business processes.”