4PL Relationships: Realities and Misconceptions – LogiSYM September 2019
The term 4PL was first introduced by Arthur Andersen (now Accenture) in 1996. Now, almost a quarter century later, there are still various misconceptions about what a 4PL does and how it adds value to customer supply chains.
In 2018, the 4PL estimated global market size was US$54 billlion. By 2027, this number is expected to grow to over US$84 billion. For this reason, we must take a second look at what the 4PL industry is and how it delivers on it’s promise.
In this article, we’ll set the record straight on what a 4PL does and debunk myths regarding what a 4PL player can and cannot accomplish.
Are All 4PLs Created Equal?
A Fourth Party Logistics (4PL) player, simply put, is an extension of a Third Party Logistics (3PL) solution.
3PLs came about due to customer frustation over having to deal with hundreds or even thousands of suppliers; 3PLs bundled these relationships and consolidated services within one provider.
4PLs take this one step further by going beyond the physical movement of goods. A 4PL integrates elements of procurement, IT, and the financial requirements of logistics into one solution, becoming the sole point of contact for its customers.
Customers who have decided supply chain and logistics management is not a core competency look to 4PLs to provide the technology, process consistency, and complete and timely information to generate proactive alerts on issues, visibility to data and budgets, and optimization projects that deliver long term sustainable, operational, and financial improvements. This is not possible when working with 3PLs who provide disparate services and technologies which only offer a fragmented view of operations.
A 4PL provider is much more than a just a Control Tower, it provides more than just shipment visibility. It is not akin to a Lead Logistics Provider (LLP) either; while an LLP provides a fairly comprehensive solution with a common IT system and freight bill validation, it does not take ownership of supplier contracts as a 4PL would.
With this in mind, the next time you hear a solution called 4PL, a closer look at what services are offered can help you better assess whether it is a truely integrated solution.
Will a 4PL Relationship Limit My Flexibility?
One of the most common misconceptions about 4PL services is that they lock their customers into a predetermined set of services thereby leaving the customer with limited ability to make changes or decisions.
This does not reflect reality. A 4PL provider will have variability in its solutions; typically, a menu of services is offered with no pre-conditions to selecting all of them. This allows customers to decide what services they need and, just as importantly, when to select them.
In short, 4PL offerings can evolve in line with it’s customer’s competencies, pain-points, and objectives.
For example, a customer can decide not to transfer all of their logistics contracts to the 4PL at the same time – if they transfer any at all. Additionally, language on how the transfer transpires can be drafted to secure both parties’ strategic interests.
Instead of limiting flexibility, 4PLs actually offer their customers a wider range of options. They open up a choice of services, service providers, and contract types which would otherwise not be available, or too difficult to manage.
How Long Should I Commit To The 4PL Model?
Like any other serious partnerships, strong 4PL relationships are built on trust and tested over a long period of time. For this reason, taking things slowly when implementing a 4PL contract can be crucial to long-term success.
Resist the temptation and inevitable management pressure to utilize a ‘big bang’ approach on such a complex undertaking as this. Rather than rushing decisions regarding financial saving or operational improvements, it is recommended to agree on a transition period that defines priorities, identifies challenges, and sets up a robust governance model.
Through the implementation of a phased-in project plan that prioritizes long term improvements over short term gains, 4PL players are able to deliver expected gains in serviceability and asset utilization, and a reduction in supply chain spend.
Signing up with a 4PL player is a long term investment and should be treated as such. Contract periods of 5 years or more are recommended to fully leverage the 4PLs value.
Am I Chained To My 4PL Forever?
As customer strategies and requirements evolve, so will relationships with service providers. It simply requires the proper planning to transition oneself from such a long term and integrated relationship.
4PLs offer reversibility to their customers, allowing them to bring certain processes back in house if needed. One such example is the practice of assigning back supplier contracts that are used to perform the customer’s physical moves. Another could be reversibility clauses for IT services. This guarantees transmission of the information necessary for the takeover of services. A reversibility plan can be put in place to establish solutions that are up to market standards and insure business continuity during the transition.
Given the near certain probability that some, if not all, service requirements will change, customers need to work with their 4PLs to put disengagement provisions in their contracts and ensure that smooth transitions can be made if needed.
Will the 4PLs Enable Growth?
Continued global economic expansion presents many opportunities and challenges to firms in the near and mid-term. 4PLs can help these firms successfully navigate the potentially complex and often diverse landscape by offering the following:
- Scale: logistics operator provides scale that many single customers can’t generate
- Cost Variability: ability to share fixed costs in a multi-client environment
- Menu of Services: provide multiple service and pricing options, giving customers the ability to select what exactly suits their business requirements
- Fewer Relationships to Manage: a partner manages the complexity of the many disparate relationships that have no commonality in data and KPIs.
- Expansion: new / emerging markets capabilities are obtained instantly by leveraging the 4PL’s existing footprint
- Process consistency: establish global best-in-class operational and financial processes required to manage and improve performance
- Asset Utilization: leveraging logistics information to improve inventory turns, production planning, facility sizing, and resource scheduling for receiving / shipping
- Information management: a single global repository of supply chain information to effectively see, manage, recover, communicate, plan and optimize the logistics networks
If you’re interested to learn more about what 4PL solutions can do to overcome your logistical constraints, visit https://geodis.com/en/activity/supply-chain-optimization or drop a line to the author (firstname.lastname@example.org).
1 Joseph O’Reilly ,”4PLs Take Control”, Inbound Logistics, https://www.inboundlogistics.com/cms/article/4pls-take-control/
2 The Insight Partners, “Fourth Party Logistics Market to 2027 – Global Analysis and Forecasts by Type and End User”, https://www.theinsightpartners.com/sample/
Considering 4PL Services? 5 Questions To Ask
1 – Do you lack consistent, timely and complete supply chain information to manage your business more effectively?
2 – When you need information is it fragmented, incomplete and found across many platforms?
3- Do you have too many complicated supplier relationships?
4 – When you enter new markets, does it take too long to establish supply chain capabilities?
5 – Are you spending too much time on managing logistics and supply chain activities versus focusing on your businesses true core competencies?
Answering YES to any or all of these questions should give you impetus to consider learning more about 4PL solutions and how they can help address these pain points.
He has more than 10 years of experience supporting clients in the areas of network design, strategic sourcing, and driving operations in an LLP and 4PL setting with a specialized focus in both the high tech & industrial sectors.
Improvement and optimization are at the core of Joseph’s approach and he passionately believes that individuals and businesses alike are at their best when processes and tasks are carried out in the most efficient way possible. Joseph received his MBA from the National University of Singapore (NUS) with a specialization in Strategy.
Joseph is based in Singapore, has worked in multiple Southeast Asian locations, and speaks three languages.