3PL vs 4 PL

Common Differences &

Perceptions
 3PL-The Concept
• Third-party logistics (3 PLs) is the use of an
outside company to perform all or part of the
company’s materials management and product
distribution functions. The competitive
advantage for any company is to focus on their
core competencies, and let the 3PL firm handle
those supply chain functions in which they
specialize. In order to provide truly value-added
services, 3PL firms must interact with customers
to understand their needs and then adjust their
offerings to meet them.
 3PL-contd.
• 3PLs can provide technological and other
flexibility to client companies. For instance,
channel partners may need to change
their technology for implementing quicker
systems. Similarly, they may have
changing needs for warehousing and
transportation facilities. Such changing
demands can be easily taken care of by
third-party logistics companies.
 3PL-contd.
• Customers of 3PL companies look for four
dimensions of value to be derived from
outsourcing a process to a 3PL firm.
These values include trust, information,
capital utilization and cost control. The
3PL’s customer orientation, level of
specialization, asset ownership status and
the price at which the service is offered
form some of the main issues that a client
will consider
 3PL-contd.
• 3PL companies must provide reliable services
and solve channel problems so that smooth flow
of goods and information can take place. This
helps customers to trust 3PL companies.
• 3PLs can create value for their customers in the
accuracy, quality and timeliness of the
information that they provide their clients,
different channel partners and to ultimate
customers
 3PL-contd.
• 3PLs can help customers reduce inventory
and fixed assets, such as buildings and
equipment. This leads to better utilization
and financial returns on both working and
fixed capital. Although capital utilization is
important to 3PL customers, reduction of
supply chain costs and sharing the
savings with customers is probably the
most visible (though not the most
important) value
 3PL-contd.
• Each supply chain will have firms with
different levels of expertise and 3PL must
customize their services according to their
clients’ expectations. Firms using 3PL
services are seeking performance levels
where the overall net benefits exceed the
amount paid to the 3PL
 3PL-contd.
• An important contribution of the 3PL is
providing the leverage that its customers
cannot generate by themselves via the
provision of information, cost reduction
activities, service enhancements, or better
asset utilization. In addition, by becoming
more integrated into its customer’s
operations, the 3PL will be able to
recognize and understand changes in the
logistic needs of the customers.
 3PL-contd.
• An important disadvantage of third party logistics
for companies is the loss of control faced by the
company due to out sourcing a particular
function. Engaging reliable 3PL service
providers can offset this problem. Moreover, 3PL
companies can assure their clients of their
reliability by integrating their activities
seamlessly with latter’s operations. Painting
clients’ logos on transport vehicles etc. can
signify close integration between the client and
the 3PL service provider.
 4PL-concept
• The term “fourth-party logistics provider” is a
trademarked term owned by Andersen
Consulting. It refers to the evolution in logistics
from suppliers focused on warehousing and
transportation (third-party logistics providers) to
suppliers offering a more integrated and value
added solution Among other services, fourth-
party logistics providers include supply chain
management and solutions, change
management capabilities, and value added
services.
 4PL-contd.
• A 4PL leverages a full range of service providers
(3PLs, IT providers, contract logistics providers,
call centers, etc.) along with the capabilities of
the client and its supply chain partners. The 4PL
acts as a single point of interface with the client
organization and provides the management of
multiple service providers through a teaming
partnership or an alliance. A 4PL adds value to
the entire supply chain, through reinvention,
transformation, and execution.
 4PL-contd.
• Reinvention implies synchronization of supply
chain planning and execution activities across all
supply chain participants. This is achieved by:
• Leveraging traditional supply chain management
skills,
• Aligning business strategy with supply chain
strategy, and
• Creatively redesigning and integrating the supply
chains of the participants.
 4PL-contd.
• Transformation efforts focus on specific supply
chain functions including sales and operations
planning, distribution management, procurement
strategy, customer support, and supply chain
technology. This is done by:
• Leveraging strategic thinking and analysis,
• Process redesign, organizational change
management, and
• Technology to integrate the client’s supply chain
activities and processes.
 4PL-contd.
• Execution of the supply chain integration
strategy leads to increased revenue,
operating cost reduction, working capital
reduction, and fixed capital reduction while
traditional approaches tend to focus only
on operating cost reduction and asset
transfer.
 4PL-contd.
• Advantages -Dramatic customer service improvements
can be attained as the 4PL focuses on the entire supply
chain and is not limited to increasing efficiencies
associated with warehousing and lowest-cost
transportation. Operating-cost reductions are driven
through operational efficiencies, process enhancements
and procurement savings.

• Savings are achieved through the complete outsourcing

of the supply chain function instead of only a few
components as in the case of a 3PL solution. Savings
are also achieved due to the economies of scale that
accrue due to the large size of the operations involved in
the entire service chain.
 4PL-contd.
• Synchronization of supply chain activities by
channel partners leads to operating-cost
reductions and a lower cost of goods sold, due
to integration of processes, and improved
planning and execution of supply chain activities.
• Technology is proactively used to manage order
and inventory movement throughout the
pipeline, thereby minimizing the amount of
inventory required, and increases item.
 4PL-contd.
• availability to reduce cycle times. Thus,
working-capital reductions can be realized
through inventory reductions and reduced
“order to cash” cycle times. Fixed-capital
reductions result from capital asset
transfer and enhanced asset utilization.
4PL’s can undertake the ownership of
physical assets, thus freeing up assets
held by various companies that form part
of the supply chain
 4PL-contd.
• A 4PL can use any of the three operating
models to deliver supply chain solutions.
• A partnership can be forged between the 4PL
organization and a third-party service provider to
market supply-chain solutions that capitalize on
the capabilities and market reach of both
organizations. The 4PL provides a broad range
of services to the 3PL including technology,
supply chain strategy skills,capability to go to
market, and program management expertise.
 4PL-contd.
• The 4PL can operate and manage a
comprehensive supply chain solution for a
single client. This arrangement
encompasses the resources, capabilities,
and technology of the 4PL and
complementary service providers to
provide a comprehensive integrated
supply chain solution that delivers value
throughout a single client organization’s
supply chain components.
 4PL-contd.
• As a supply chain innovator, a 4PL
organization can develop and run a supply
chain solution for multiple industry players
with a focus on synchronization and
collaboration. The formation of industry
solutions provides the greatest benefits;
however, this model is complex and can
challenge even the most competent
organizations
 4PL-contd.
• The 4PL service provider needs to possess a
comprehensive set of skills to effectively deliver
an integrated supply-chain solution. These
include:
• Availability of a large body of trained supply
chain professionals, global capabilities, reach
and resources.
• Ability to manage multiple service providers.
• Ability to transition clients’ employees and other
assets smoothly to the new 4PL environment
 4PL-contd.
• Strong relationship and teaming skills.
• Delivery of world-class supply chain
strategy formulation and business process
redesign.
• Strength in integrating supply chain
technologies and outsourcing capabilities.
• Understanding of organizational change
issues
 4PL-contd.
• Fourth Party Logistics is the next generation of
supply chain outsourcing. Supply chain activities
are information-rich, complex and increasingly
global. At the same time, technology and e-
enabled capabilities are racing ahead. To enable
a firm to capture all the benefits of supply chain
collaboration and synchronization, a new
generation of integration must be deployed,
which is currently beyond the capabilities of
traditional outsourcing methods.