Increased visibility has a direct effect on the “financial plumbing” of a company, according to one industry analyst. “It impacts cash flow, order to cash, inventory levels. All the things that a CFO looks at,” says Adrian Gonzales, director of the Logistics Executive Council at the ARC Advisory Group.
To ensure that 4PLs work, the hot ticket in contracting with a 4PL is the gain share agreement. In a gain share, the 4PL signs an agreement to save the customer a set percent of current costs and agrees to forfeit some proportional amount if that percentage isn’t met. If, on the other hand, the savings are greater, the 4PL earns a higher fee.
Sharing the risks and rewards of increased logistics efficiencies highlights the integral relationship between 4PLs and the enterprises they serve. But even though the job of the 4PL is in many ways to make the logistics problem go away, customers should think twice before giving total control to a 4PL provider, Gonzalez advises.
The ultimate responsibility for getting the job done still resides within the enterprise. When a company outsources its logistics, it must retain control over logistics data. That’s exactly what Lucent’s Damelio had in mind when he insisted that its 4PLs use its TradeStream logistics software solution.
“They [4PLs] are not the savior on the white horse,” says Damelio. “It’s a partnership and a collaborative effort. There is no off-the-shelf solution.”