3PL vs. 4PL and why everyone’s getting all confused about it.

by Brooke Anderson on 2011-04-12 03:29:34

Brooke AndersonThere are many people willing to put their hand up and offer the ‘final word’ on a definition for 4PL. The reality is, it is a term used very loosely, with good reason. 4PL is still too new to pigeon-hole and its potential uses are still being realized. In the same way that Microsoft came up with ‘Cloud Computing’ (or the ‘Cloud’) and almost instantly lost control of the term (invention of nouns it seems; does not denote ownership) likewise the term 4PL is generally considered to have been introduced by Accenture, which registered it as a trademark in 1996.

This from Wikipedia;
Accenture described the 4PL as an "integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design supply chain solutions".

Wikipedia’s definition is quite contrived, “A fourth-party logistics provider is an independent, singularly accountable, non-asset based integrator of a client's supply and demand chains. To avoid any conflict of interest, it is important that this fourth-party logistics provider be non-asset based, as far as logistics, transportation, and supply chain management assets are concerned.”

Okay… So you can’t be a 4PL if you provide your own warehousing and distribution as this will be a ‘conflict of interest’? I think not. It sounds more like a consultant justifying their pay cheque... But I digress.

Warehousing and Distribution is just that. ‘You’ as the client are required to keep track of stock, ordering and replenishment processes and sometimes the transport aspect as well.

3PL’s offer more by providing internal Warehouse Management Systems to manage inventory, orders and shipments on your behalf.  Six years ago we tacked on software called XM Lava to Warehouses across Asia Pacific that allowed the first true cloud based online ordering and stock management system. This has been very successful with all three major oil companies, 12 of the top 20 FMCG’s and the two top pharmaceutical companies all using it presently.

Now this additional feature doesn’t add the magic ‘1’ to take a 3PL to a 4PL, but nor does 3PL with a sprinkling of consultancy magic dust.  Nor can a consultant call themselves a ‘4PL’ they already have a name are after all, ‘Consultants’. XM Lava did however open the door for what is coming next…

What a 4PL should be.
A full blown 4PL can provide all the functions of a 3PL (procurement, storage and distribution and processes for each) as well as the ability to provide a customer with the outsourced financial, customer services and computer systems to support commerce.

Let me  give you an example; Say I am an importer of bicycles. I maintain my own stock and warehouse as I move 10,000 units a year. However, by law (such as the Consumer Guarantees Act) I must carry spare parts to maintain my bicycles. Because my supply chain is set up to move entire bicycles, the parts side is not a core business (but one I must have) and is not profitable – often it is costly.

I would then approach a 4PL who would provide all the business functions I require for my spare parts at a fee that should at least break even, if not make this business unit profitable.

The 4PL then absorbs this business function into their warehouse facility and by leveraging their latest technologies (warehouse management, integrated ecommerce, ERP etc.)  they are able to run my parts business profitably, allowing me to concentrate on core business and keeping on the right side of consumer law.

How a 4PL could run your non-core business divisions more profitably than you is the same way that Coke can deliver  can to your local store for 20 cents, they have an efficient supply chain and systems in place to optimize wherever possible. Moving 10,000 bicycles a year doesn’t justify a $1 million spend on a warehouse management system with ecommerce and a 100,000 square foot warehouse, however for a 4PL that cost is spread over 100 clients so it is economically viable. Amazon is the biggest example of this, offering complete services and over 17.5 million square feet of DC space around the world.

We have yet to leverage the full capabilities of 4PL in our economies, but the time is upon us. Its definition, like the ‘Cloud’ will evolve and grow as we adapt it to our needs.

Necessity is not an established fact, but an interpretation.

View video of Brooke Explaining the difference between 3PL and 4PL

3PL vs 4PL Video

Further reading: amazon - http://logisticsviewpoints.com/2009/06/26/amazoncom-a-customer-centric-3pl/

Brooke Anderson
XM Developments