Global Logistics: Demystifying the 4PL
April 01, 2011
Menlo Logistics’ 4PL Product Owner Carl Fowler says he does not take issue with Armstong’s assessment—but only to a point. Having launched the company’s 4PL division some years ago, he maintains that “synchronizing the supply chain” is still a unique service representing the 4th dimension of a logistics provider.
“And it’s important to note that just because we are asset-based, this does not mean that customers must use Con-way too,” he says. “In fact, fewer than 10 percent of our customers rely on us for that piece of the transportation solution.”
Given the increased complexity of the globalized business, shippers require more—not less—information from a single provider about their options, says Fowler.
“We take an agnostic approach to the enterprise,” he says. “After evaluating a customer’s long-term goals, we develop a strategic plan that can use all or part of Menlo’s offerings.” Even a company that chiefly offers software-as-a-service can call itself a 4PL if it can map the customer’s enterprise, Fowler concludes (See sidebar on page 44).
And then there’s the player we all knew as the modest freight intermediary. SEKO, for example, has been in the forwarding business for more than 36 years, but began offering 3PL/4PL services for the past eight years with accelerated success. According to Jim Wallace, vice president of global sales for SEKO, current logistics services include air, ground, and ocean. He says being “mode neutral” is an advantage when helping shippers move their goods and raw materials from vendor to factory to end-user in a JIT environment.
“Also, we provide warehousing services that help customers with space constraints or those who wish to outsource more of their logistics functions.”
For SEKO, its 4PL services manage the selection process for carriers and for warehouse management activities as opposed to handling the freight movement. According to Wallace, they can provide supplier management services, transportation and supply chain oversight, and manage vendor compliance—all key functions that fall under the definition of a 4PL.
“There is a fine line between the activities of the two, and frequently a 4PL has 3PL capabilities and takes advantage of those with its customers,” says Wallace.
This is a fine line indeed, say industry analysts, who contend that a hard and true differentiation between a 3PL and a 4PL is tough to nail down.
“Ask 10 people, and you probably will get 10 different answers,” says Clifford Lynch of C. F. Lynch & Associates, a supply chain consultancy. “In my view, a fourth party is a non-asset business process outsourcing provider. It may or may not be a consultant and often contracts out for the services it provides. It is mode neutral.”
Lynch adds that it’s similar to the function of the LLP, offering total supply chain or logistics solutions, utilizing its own facilities and systems through strategic alliances with other providers.
Charles Clowdis, Jr.,?managing director?of transportation advisory services for supply chain analyst firm IHS Global, says that while a 3PL or 4PL can certainly be asset-based, it has never particularly been his concern as long as the client is being served well with price and service. “I just never got too hung-up on who owned the assets unless the evaluating party was an asset-based 3PL who would have a vested interest in selecting their assets as the client’s solution,” he says.
Clowdis recalls one of his “most successful adventures” with a client seeking to outsource multiple logistics elements. In that case they came up with a 4PL that managed two 3PLs and provided another missing service themselves. At the same time, he had to be careful to avoid the appearance that the provider did not favor its own assets when maximizing the value for the client.
“Ideally, a 4PL should be mode neutral and asset-free, but there are exceptions. It all comes down to the element of trust—which is so vital in any 3PL or 4PL relationship. The asset-based provider who favors his assets to the detriment of the client makes for a short-lived relationship,” he says.
Relationships become even more important as the trend for “horizontal collaboration” gains traction, say analysts for Eyefortransport (EFI), a London-based research organization. In its most recent analysis on North American supply chains, “trust” was a word invoked by shippers and their 3PL/4PL partners.
“Shippers who responded to our survey were asked to identify the key drivers encouraging their company to consider or initiate horizontal collaboration,” says McKinley Muir, head of EFI’s Research & Market Insight.
According to Muir, cutting transport costs and satisfying customers were seen as the biggest drivers for shippers, though enhancing customer service, improving delivery times, and improving overall logistics operations were seen as being very important by more than 50 percent of the respondents.
“The final part of the survey looked at which key barriers are stopping respondents from investing (or further investing) time and money into horizontal collaboration,” she says. “There was not a great deal of consensus between the groups of shippers, though the most widely perceived barriers was fear of information disclosure.”
Muir notes that this, too, comes back to the difficulty of starting trusting relationships. “Finding appropriate partners is also a significant concern,” she said. “For carriers, the need for a legal framework is key, and for 3PL/4PLs, capacity control is perceived as the biggest barrier.
So when it comes to “breaking down walls” regarding the 3PL/4PL conundrum, does it really matter what they’re called if the transparency and trust are delivered as promised?
Clowdis may have the answer: “You may get some resistance from those in the industry favoring the expression 4PL, but I can remember when the word didn’t even exist. We called these companies ‘advisors’ before it became so complicated. Personally, I prefer LLP, or even something as benign as ‘Logistics Outsourcing Consultant.’”
All those interviewed agreed that acronyms stick around for a long time in this business; and despite the cache of LLP, we may wait for some time before it gains currency. One thing seems certain, however. The “5PL” is not a coinage that will command much attention.
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