Global Logistics: Demystifying the 4PL
April 01, 2011
Logistics management has long been a discipline fond of neologisms—newly coined words in the process of entering common use, but not yet been accepted into mainstream language. Take the now, relatively common term third-party logistics provider (3PL) for example. Simple enough until you add a strategic component; and then, say many providers, you have a model on steroids—or a more dynamic fourth-party logistics provider (4PL).However, if you gathered a group of 10 logistics professionals and asked them to define the difference between a 3PL and a 4PL you’d probably get 10 different answers.
Most industry experts contend that 4PLs are focused on the logistics processes of the client, from the way they handle operations internally, through the partners/logistics suppliers they use, to customer service. Still, they say, there remains a number of “pretenders to the throne,” and severe scrutiny is advised before making a commitment. After all, the 4PL is obligated to provide the best supply chain solution, not the one that it’s in the best position to implement.
“It is very difficult to make the distinction between a 3PL and a 4PL,” says Rosalyn Wilson, senior business analyst at Delcan Corporation, a supply chain consultancy in Vienna, Va. “During the recession everyone was trying to grab onto anything that would get them more business. Even small trucking companies were trying to get in on the action by saying they offered 3PL and 4PL services, but most were well out of their element.”
According to Wilson, 4PLs by definition must be non-asset based. She argues that many “wannabe” companies are hiding transportation assets somewhere under false advertising. And Wilson argues that it’s not good enough to have a separate division offering the service.
“There must be complete mode/vendor neutrality,” she says. “The element that complicates this issue even more is the fact that some non-asset based 3PLs say they offer 4PL services…but they are not really in a neutral position.” For example, the consulting arm of such an organization would be hard pressed when making recommendations not to include their 3PL services as an option. “They can’t have warehouses, transportation equipment, or even a software product that would be recommended,” notes Wilson.
Alan Van Boven, head of technology solutions for the consultancy Supply Chain Visions, Ltd., is on the same page with Wilson: “Ideally, a 4PL would never have assets. It would typically work as the single partner for a shipper, selecting 3PLs, freight forwarders, and customs brokers.” Van Boven allows that a 4PL could also be a 3PL with its own network, but must be mode neutral.
Armstrong & Associates Chairman Richard Armstrong insists that economic globalization and the need for more sophisticated management of global supply chains has already made the 4PL coinage obsolete. “Anderson Consulting is credited with creating the expression ‘4PL’ so that they could be charged with one more element of business,” Armstrong says. “For all practical purposes, though, the term has been eclipsed by global chain managers,’” he adds. “These are the companies that can manage transportation and inventory without doing the tactical work.”
Evan Armstrong, the president of Armstrong & Associates, agrees. He prefers to use the term “lead logistics provider” (LLP) to define this value-added function that has recently been tossed into the 4PL bucket. When the father-son team rolled out their 3PLAdvisor.com, a social network service intended to provide 3PL customers with a platform for sharing customer relationship experiences about their providers, the term “4PL” was conspicuously absent.
“The term has simply become too confusing,” says Evan Armstrong.
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