Tim Fawkes, MD of 3T Logistics, a transport solutions provider looks at the role of 4PLs in the transport industry in this article on the benefits of 4PL logistics on page 6 of Logistics Business Magazine.
The benefits of 4PL
The outsourcing of transport via the 3PL route has long been an effective way of reducing costs, utilising expertise and improving processes. Whilst this continues to offer benefits for many businesses, 4PLs are increasing in popularity as multi-service providers, enabling a company to outsource its entire transport operation, from planning through to reporting.
So what can a 4PL offer above and beyond a 3PL – and is outsourcing your entire supply chain always the best way to go?
The 3PL in a nutshell
A 3P consists of the 1st party (the shipper), the 2nd party (the receiver) and the 3rd party (the carrier). These range from small independent carriers, often used for managing local deliveries up to the mega carriers and large logistics organisations.
Fundamentally, they all work on the same basis of utilising their vehicles as effectively as possible. Irrespective of size, 3PL optimise resources and manage volume fluctuations and seasonality through subcontracting excess activity to other 3PL. The key is minimising “empty” running and ensuring vehicles are constantly utilised.
The additional party making up the 4PL is the independence and systemised intelligence managing the 3PL, whilst systems and independence differentiate a 4PL from a freight forwarder/clearing house /freight exchange. A true 4PL has an integrated transport management system which automates the large administration activity involved in a multi carrier solution.
A true 4PL agreement is based upon a partnership involving a management fee and savings gain share agreement. The actual transport rates the 4PL is utilising are transparent to the shipper, although in many cases the 4PL will provide a rate card as some shippers prefer this payment structure.
The level of information visibility that a 4PL is able to obtain from its systems allows it to drive savings and service improvements. A 4PL system will also highlight areas of inefficiency within the shipper’s/customer’s operation. Most 3PL arrangements are more reactive, lacking the incentive to drive out waste as this reduces transport spend and flexibility in their own asset based network.
As with most areas of transport management, utilisation and timing are key. The longer the notice period of demand, the more optimised the 4PL solution will be for the client. The 4PL provider has the same issues as any shipper when little notice is given, but their database of options is far larger than a 3PL. Their overall objective is to drive down cost for a given service level, and they will have a good understanding of the carriers offering the best synergy for any given lead time, geographical or delivery size combination.
When is a 4PL not a 4PL?
A true 4PL relationship should be a proactive partnership with the 4PL highlighting waste in the business as well as an explanation of where and why it occurs. Cost to serve/supply is an important part of the information, identifying customers or suppliers who are under or over serviced. Many freight forwarder organisations refer to themselves as 4PL, whilst some carriers or 3PLs have a 4PL division. However, without the systems or processes and expertise, automatic 4PL classification is not guaranteed. 3PLs with a 4PL division are unlikely to be aligned from a business vision perspective to really offer a 4PL service as the core values of the different business are diametrically opposed.
3PLs, freight forwarders and 4PLs all have the same generic issues of time and utilisation. The 4PL solution is geared up to make savings and give control back to the customer, providing them with the information to make decisions and the flexibility to meet fluctuating transport needs. It seems likely that in the future the 4PL operation will become increasingly automated and optimised, providing data to drive the continuous improvement necessary for the most efficient and cost effective operation possible.