If you are looking for a way to optimize your supply chain management, you might have heard of the term fourth-party logistics (4PL). But what does it mean and how does it differ from third-party logistics (3PL)? In this article, we will explain the concept of 4PL, its benefits and challenges, and how to choose the right partner for your business.
A 4PL provider is a logistics integrator that manages and oversees the entire supply chain of a client, from sourcing and procurement to transportation and warehousing. Unlike a 3PL provider, which offers specific services or functions, a 4PL provider acts as a single point of contact and a strategic partner for the client, coordinating and optimizing the performance of multiple 3PL providers and other suppliers.
If you read one comment read this one. If a 4PL has an "in house" brokerage watch out. Some of those really just put out all your loads like a big broker, set up all the low hanging fruit for their broker (favorable appointments etc.) to make max profit, then effectively sabotage the rest of the loads so they can come to you with reports about how much better their broker performs. It's a MASSIVE conflict of interest.
A key differentiating factor between many 4PLs, is who owns the contract with the carriers, warehouses, and other providers. I have seen several variations that include: a. all contracts are owned by the client. The 4PL provides consultation on the contracts, operational support, and technology. b. some contracts are owned by the client and some by the 4PL. A common example, LTL contracts owned by the 4PL but FTL is owned by client. c. all contracts are owned by the 4PL. A key factor I think is often missed, is that if your 4PL owns your carrier contracts then they are functioning as a broker. Using terms like 4PL, freight management, managed services, etc are just fancy terms in that scenario.
Engaging a 4PL provider streamlines supply chain complexities. Enjoy a holistic approach as they oversee end-to-end operations, enhancing efficiency. By consolidating various 3PL providers, a 4PL ensures seamless coordination and optimization, reducing operational silos. Leverage their expertise in strategic planning, data analytics, and technology adoption. Collaborate closely to align their services with your evolving business needs. The 4PL model offers strategic advantages, transforming your supply chain into a dynamic, responsive, and integrated ecosystem.
Working with a 4PL provider can bring several advantages to your business, such as cost savings, efficiency, flexibility, visibility and control, as well as innovation and improvement. Through its network and expertise, a 4PL provider can leverage better rates and terms with 3PL providers and other vendors. Additionally, they can design and implement a customized and scalable supply chain solution that meets your specific needs. Furthermore, they can provide you with real-time data and insights on your supply chain performance to monitor and measure key metrics. Finally, a 4PL provider can use advanced technology and tools to analyze and optimize your supply chain processes, identify best practices, and suggest new opportunities.
My top five; - Flexibility - Possible cost reduction - Operational expertise - Technology - The possibility to focus in your core business
Key comments from customers of 4PL's are the ability to provide their organization with better supply chain reliability and visibility.
When entering into a contract with a 4PL it is imperative that you identify how their performance will be measured. How is your company performing under the 4PL versus before? And how are they performing against the market? In logistics, there are always market risks and opportunities. For example, cost savings can be relative. Was the cost savings found via a combination of best practices and the market, or would those cost savings had happened regardless of the 4PL due to the market itself?
Collaborating with a 4PL yields diverse benefits. Enjoy cost savings through optimized negotiations and economies of scale. Flexibility arises from tailored, scalable solutions meeting your unique requirements. The 4PL's expertise enhances visibility, granting real-time insights and control over your supply chain. Embrace innovation through advanced technology, fostering continuous improvement. With a 4PL, you gain a strategic partner committed to enhancing efficiency, reducing costs, and navigating your supply chain toward sustained success.
Working with a 4PL provider can present some challenges, such as losing direct contact with 3PL providers and other suppliers. You must also trust the 4PL provider to act in your best interests and fulfill their promises. Additionally, managing a complex and dynamic supply chain network with multiple stakeholders, contracts, regulations, and contingencies can lead to errors, delays, or disputes, increasing the risk.
I have seen a lot of companies fear being too dependent on 4PLs and eventually losing in-house capability and capacity to manage on their own or even replace the 4PL with another one. With the right approach and organisation, companies have some much to learn and benefit from a 4PL (outside-in) - to keep them updated with latest techs/ methods etc.. and to bring their supply chains to the next level rather than fearing to lose control
Providing a 4PL model where the customer maintains the contracts with suppliers/carriers in the initial phase of the 4PL operation can improve customer confidence and reduce risk with the 4PL model. The 4PL can initially focus on the systems integrations, performance measurements and visibility.
Who is responsible for ensuring optimal cost? Is your 4PL incentivized to ensure that the best cost and service are found? For example, when sourcing full truckload carriers for your shipments, are they going to take the first rate they get or spend time shopping for the optimal rate? If they are not incentivized to spend more time and resources finding optimal pricing, they are likely to go with first options available. This can add up over time. See my previous comment regarding who owns the carrier/provider contracts.
Operational day to day details can be handled by a good 3PL but the capacity to transfer your company’s operational value proposition through a 3PL will be a challenge for the best ones. The real challenge is; decide when and who is the partner that makes the perfect fit with your business without losing flexibility and scalability.
Navigating challenges with a 4PL partnership requires strategic considerations. While you may lose direct contact with individual 3PL providers, establish robust communication channels with the 4PL to maintain transparency. Building trust is key; choose a provider with a proven track record and clear communication protocols. Mitigate risks by implementing stringent monitoring mechanisms, clear contractual obligations, and periodic performance reviews. Proactive management and open communication ensure that potential challenges are addressed swiftly, fostering a resilient and successful 4PL collaboration.
If you decide to work with a 4PL provider, you need to consider several factors before selecting one. This includes a provider's experience and reputation in the industry, as well as their capabilities and resources to handle your supply chain requirements. Additionally, it is important to ensure that the provider aligns with your vision and values, and is transparent and accountable for their actions and results. Collaboration between the provider and your stakeholders is also necessary to create and execute a successful supply chain strategy. Clear communication and reporting should also be provided by the 4PL provider.
The most important factor for me (after technical and capability assessment) is the “cultural fit” between both the organisations, as its often an “unofficial joint venture” style engagement and you can’t get the best out of it if both the organisations are on different pages in terms of perspective, culture, outlook
4PL providers that are part of a global logistics organization such as GEODIS and maintains a neutral status within their organization can be a good place to begin your journey. Make sure you allocate significant time to explore and manage an RFP in order to dive deeper into a 4PL's capabilities and experience.
See my previous comment regarding who owns the carrier/provider contracts. The client should strongly consider whether they want to own the contracts or the 4PL. What would this look like if they were to leave the 4PL? An exit plan should be included in the contract.
Selecting a 4PL provider demands careful evaluation. Assess their industry experience, reputation, and resources to ensure they match your supply chain needs. Compatibility with your vision and values is vital, fostering a collaborative and aligned partnership. Prioritize transparency and accountability in their actions and outcomes. Effective communication and reporting mechanisms are non-negotiable, facilitating a streamlined and successful execution of your supply chain strategy. By considering these factors, you lay the groundwork for a fruitful and enduring collaboration with your chosen 4PL provider.
Get referrals from some of the current clients. Leverage case studies and backchannel to discuss with those brands themselves as to how the 4PL has helped them scale more effectively.
In experience, 4PL providers can hamper current ops when it comes to alignemnt on the basis that they're not aligned with current SLA's and comapny systems at hand Eg. if there's not a thorough handover done with regards to which systems are used in line with how 4PL providers do their day-to-day processes, it can causes misalignment. Some businesses have a different style/method of work when it comes to SAP for Warehouses and Distribution on Tier 2 Such as Fleet communication and Allocation. There will be hiccups in the beginning but clear line of sight is key in order to streamline and improve ways of working to Benefit overall KPI's.
Go on warehouse tours of multiple facilities to ensure there is congruency among processes. Ensure all the warehouses follow the same SLA’s