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Collaboration and Competition between 4PL and 3PL: A study of a fast-food

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Article in Journal of Operations and Supply Chain Management · December 2008

DOI: 10.12660/joscmv1n2p17-29

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The Flagship Research Journal of International Conference
of the Production and Operations Management Society
Volume 1• Number 2 • July - December 2008

Collaboration and Competition between 4PL and 3PL:

A study of a fast-food supply chain

Mauro Vivaldini
Professor of Logistics
Methodist University of Piracicaba (UNIMEP)
[email protected]

Sílvio R. I. Pires
Professor of Operations and Supply Chain Management
Professor at Methodist University of Piracicaba (UNIMEP)
[email protected]

Fernando Bernardi de Souza

Professor of Operations Management
Professor at São Paulo State University (UNESP)
[email protected]

ABSTRACT: This paper analyzes, in the form of a case study, the coordination of ten 3PL (Third-Party Logistics)
by a logistics leader (4PL - Fourth-Party Logistics). The study contributes to the understanding of the factors that
differentiate 3PL as collaborators and as potential competitors, revealing that the services they render complement
each other within the same operation.

Keywords: Supply Chain Management; Collaboration; Third-Party Logistics; Fourth-Party Logistics

INTRODUCTION ture. Additionally, the paper highlights the factors

that differentiate 4PL and 3PL as competitors or co-
Over the last few decades, the consolidation and operators.
practice of Supply Chain Management (SCM) con-
cepts has led the logistics service provider business The study does not intend to define a position about
(3PL – Third-Party Logistics) to play a more com- the 4PL but to contribute to a better understanding
prehensive and integrated role with its clients. Fol- of the subject. Because it is a relatively new theme
lowing this trend, new configurations of this role within the literature, we believe this is an opportune
have appeared, such as logistics integrators (4PL – moment to explore it in greater depth, particularly
Fourth-Party Logistics), which combine the manage- since there are still a variety of definitions of con-
ment and operation of supply chain logistics (Sahay, cepts and ideas, or even of propositions of what a
2003). 4PL actually does.

In this context and based on a case study, this article Based on a survey about Logistics Providers by Lan-
focuses on the theme, examining the management gley and Allen (2005), the next three to five years will
by a 4PL of ten other logistics service providers (3PL) see a growing trend for the adoption of 4PL solutions
for a large multinational fast-food chain operating in (or logistic integrators). The reason for this is that
Brazil. Although this study deals with a specific case companies are increasingly adopting the concepts
involving 11 companies, it reveals several character- of greater integration within their supply chain pro-
istics of this new type of logistics service operation. cesses, thus requiring 4PL service providers. These
providers should therefore offer multiple services
Therefore, based on the case analysis and on the 4PL of logistics information, operational knowledge and
theory, the authors aim to compare a practical case relationships, as well as participate directly in the in-
with descriptions of 4PL within the logistics litera- tegration of supply chain processes.
17
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
18 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

RESEARCH METHOD tegration with the management of the supply chain,

as well as practical cases involving this subject, are
In its initial phase, this work was founded on bib- still quite rare within the literature.
liographic research as a methodological approach,
focusing specifically on issues relating to the theme
of 3PL and 4PL and how they act within the ambit of LITERATURE REVIEW
the supply chain (SC). Therefore, in this initial phase, This study explored basic literature available on: (1)
the research aimed to identify in the literature infor- 3PL, (2) 4PL, and (3) cooperative management and
mation concerning these agents and their role in the the role of the logistics provider.
SC (Lakatos and Marconi, 1991; Gil, 1994). In this
phase, the authors also analyzed the theme based
on different sources of information, such as theses, 3PL Providers
specialized national and international journals and Characterized by a variety of organizational trans-
periodicals, articles from symposia and books relat- formations, outsourcing is a consolidated practice in
ing to the area, always prioritizing academically rel- several sectors, including logistics services. Initially,
evant and up-to-date sources. logistics management focused on storage and trans-
port, without involving a strong relation with more
In the second phase, the methodological approach
strategic processes of SCM.
adopted was the case study. In this kind of method-
ology the study is empirical, generally investigates According to Lonsdale and Cox (2000), outsourc-
a contemporary subject within its real context, and ing has occurred more frequently in support activi-
the frontiers between the subject and the real context ties than in the primary chain activities. In the case
are still not clearly defined (Yin, 2001). Furthermore, of LSP (logistics service providers), whether or not
the article fulfills a key characteristic of case studies, they take over primary activities, they are involved
that is, its focused to clarify the reasons for a de- directly in the client’s business. Surveys show that
cision process conducted, how it was implemented companies feel more comfortable about outsourc-
and what the results reached (Yin, 2001). ing less important activities rather than more vital
ones.
The main object investigated in this case study is a
large multinational fast-food supply chain operating Despite the logic of those studies, it can be stated
in Brazil which adopts the 4PL management stan- that outsourcing with a LSP is an exception, consid-
dard in its operations. During the study, the logistics ering that many logistic activities are very important
service provider of the fast-food chain (4PL) and ten for companies’ businesses. About 75% of the out-
other companies (3PL) were analyzed by the authors sourced activities are support services, since manag-
for about two years. This period enabled the authors ers believe it is more advantageous to assume risks
to understand not only each company’s business, but involving activities not fundamental to the compa-
also its behavior. During the research, interaction ny’s business (Lonsdale and Cox, 2000).
with several employees clarified doubts and aligned
the theoretical research to the practical observations. In a complementary vision, Svensson (2003) believes
In addition to helping the authors gain an under- that companies have been reducing the number of
standing of the companies, this interplay facilitated sub-contractors and concentrating an increasing
a comparison of the factors outlined by the theory number of activities at one sub-contractor. This aug-
and those observed in practice. However, this prox- ments their dependence on the supply chain, as well
imity between the authors and the companies did as the chances that the LSP will engage in greater
not permit to characterize the procedure as action number of activities for one company or supply
research, since its research method protocol was not chain. This opinion is shared by McIvor (2003), who
strictly followed (Coughlan and Coghlan, 2002). believes outsourcing should take into consideration
the logistics provider’s competence to integrate the
In addition, the experience of maintaining close con- activities and sub-activities contracted.
tact with the companies for a lengthy period enabled
the authors to garner a large amount of information According to Berglund et al. (1999) two factors lead
and numerous considerations concerning the pro- companies to outsource: the size of the demand and
cess. It is also important to mention that studies on the size of the supply chain. In an adaptation of the
the 4PL provider, particularly with respect to its in- topics suggested by Bolumole (2001) and Jaafar and
Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society 19

Rafiq (2005), below is shown a summary of the mo- advantages and facilitate supply chain integration
tivations and reasons for a company to outsource realized that the latter could be seen as part of the
logistics services and the possible reasons why they chain. Organizations that outsourced for operational
opt for a partner: and cost-related reasons restricted the LSP’s involve-
ment to the basic functions of logistics (Bolumole,
• Concentrating efforts on their own business and 2001; Christopher and Towill, 2001).
gaining new markets;
• Reducing logistics costs and avoiding invest- Stefansson (2005) identified from the literature an
ments in assets unrelated to the company’s busi- apparent mixture of terminology to describe the dif-
ness; ferent services rendered by LSPs. However, most of
the terms include the same activities or present slight
• The presence of a complex supply chain due to a modifications in the portfolio of services offered.
fragmented suppliers base;
• Increasing product restitution (reverse logistics); In a study that discusses and defines the theoretical
structure of the LSP based on commercial relation-
• Coordinating logistics activities in a wider context; ship between users and LSP, Knemeyer and Murphy
• Improving and controlling the quality of logistics (2005) point out the lack of more comprehensive
services and activities; definitions for LSP services, and the fact that studies
• Greater flexibility and efficiency in logistics op- tend to adopt a particular view of them. As Ashen-
erations; baum et al. (2005) pointed out, the terms used are
different, but the function or activity is the same, in-
• Access to new Information and Communication dicating that these differences are simply a matter of
Technology (ICT) and logistics knowledge. nomenclature.
Authors such as Christopher and Towill (2001), and
Knemeyer and Murphy (2005) point out that price The degree of outsourcing varies, and outsourced
is one of the most important criteria in the selection activities are highly complex. The LSP ranges from
of a LSP, second only to its experience, the activity the simplest activity to the most sophisticated logis-
to be outsourced and the qualifications of its staff. tics solutions (Stefansson, 2005).
This opinion contradicts the reasons presented and
discussed that this provider, through its activities, is The Logistics Service Market
essential in the development of the supply chain. If
Logistics is a key element used by companies to de-
the price of the service or activity is a determining
velop systems within their supply chains and which
factor, then there may be limitations and deficien-
companies that use LSP providers consider a key
cies in the chain, since it ignores the importance of
element in the development of their supply chains
integrated services and activities in the final results
(Rafele, 2004).
of selling the product to the consumer. It is clear that
this position cannot disregard the fact that, from the Svenson (2003) points out that companies tend to
standpoint of the hiring company, not investing in sub-contract more activities in the outbound flow
logistics is a way to reduce cost. For Ayers (2001), and fewer in the inbound flow, maintaining a great-
the LSP is an instrument of partnership in the sup- er dependence on outbound processes than on in-
ply chain due to its know-how and infrastructure. bound ones.
Langley and Allen (2005) consider the LSP an ex-
ternal organization that carries out all or part of the Regardless of the relation in the logistics flow, LSPs
logistics activities and functions for a company, but have gained space and rendered the client more de-
Stefansson (2005) proposes the name “logistics ser- pendent, for researches have shown the reduction
vices intermediary”, assigning it other complemen- in logistics assets as one of the main causes of out-
tary services. sourcing these services. Hence, it is naturally more
difficult for a company that does not invest in such
The initial tendency of outsourcing logistics process- assets to assume logistics operations instead of out-
es, contributing to the emergence of the LSP, origi- sourcing them.
nated from a lack of specialization in distribution
processes, centered particularly on the basic logistics Sinkovics and Roath (2004) pointed out that the rela-
functions of storage and transportation activities. tionship between the LSP and a manufacturer leads
Later, companies that used outsourcing to obtain to operational flexibility that increases the competi-
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
20 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

tive orientation through the impact of logistics on Langley and Allen (2005) asserted that, by incorpo-
later market performance. Thus, operational flex- rating new activities required by the market, the LSP
ibility is the most noteworthy factor. If a company has changed in recent years, a movement that dem-
satisfies its clients’ needs and expectations better onstrates the progress and maturity of these opera-
than its competitors do, a better relationship is built, tors. However, clients expect to achieve greater skills
increasing the possibility of retaining the client. in service development, relationship improvements,
Thus, manufacturers can leverage and improve their relevance in information and involvement of integra-
capacities by working with LSP providers. Accord- tion rules and concepts in the supply chain through
ing to these authors, the fact that the manufacturer the LSP, and to build expertise and dedicated opera-
does not need to develop logistics capabilities helps tions. Likewise, for these authors, the market turns
it internally and also improves its relationship with to solutions proposed by companies focusing on lo-
the market. gistics coordination. The following are expectations
for the LSP:
Chapman et al. (2003) see the logistics industry as
a classical example of birth and development of a • Evolve into a solution provider for the supply
new vital service, transformed from a transport chain;
service concept aimed at serving all the logistics re-
quirements of a client. This view indicates the LSP’s • Increase the portfolio of outsourced services
flexibility in the market with regard to the potential through a larger number of activities (expand
services it offers. Usually, the LSP accumulates roles services for its clients)
as it extends its relationship with its clients, reach- • Continuous improvement in technology and abil-
ing a higher level of understanding and trust in the ity to provide the necessary services;
operational process and in the services provided. • Focus on the client’s needs (provide the right so-
Thus, it gains confidence and enlarges its area of lutions, become involved in the client’s plans for
action, building up a wider portfolio of activities.
integration and understand the industry-client)
Halldórsson and Skjott-Larsen (2004) assert that the
LSP should be able to generate competencies for its • Expand its relationship with the client;
clients, creating a partnership of logistics solutions, • Continue to acquire companies and expand busi-
and should also be able to learn from its clients. nesses;
Therefore, each new client or change of clients gen-
• Act in global markets;
erates a learning curve, creating new abilities and
competencies for the LSP. • Move toward logistics coordination solutions as
a 4PL;
In this context, LSPs have expanded their services
• Search for long term relationships, based on con-
since 1994, seeking to fulfill their clients’ expecta-
tracts with duration exceeding two years.
tions of dedicated services. More recently, business-
es have focused on services at the end of the supply Chapman et al. (2003) reported that logistic organi-
chain, such as equipment installation, repair ser- zations are redesigning their structures and relation-
vices, kit assembling, etc. This market trend has led ships, creating a knowledge chain that facilitates and
LSPs to focus on a specific segment of companies or improves data, information and knowledge commu-
businesses, which has been considered a differential nication, as well as coordination, decision-making
factor for the competitiveness of LSPs (Lieb, 2005). and planning. They should mainly synchronize ac-
tivities between agents of the supply chain (aiming
4PL Providers to gain and integrate knowledge) and operate with
information and communication technology, thus
The LSP usually intends to maintain its services and providing greater efficiency and productivity for the
continue working as a logistics solutions provider. chain. Ratten (2004) highlighted that many logistics
However, the tendency in the contracts between alliances have been made based on technological
LSPs and their clients is for greater geographic cov- changes, and improved data transmission and trans-
erage and more activities, which is a challenge for actions. In this case, alliances with companies of the
LSPs. In the long run, the market tends to provide technology sector may be necessary for the LSP.
more opportunities for logistics companies dedicat-
ed to broader projects aimed at the coordination and Bienstock (2002) pointed out that the LSP should
integration of activities, such as 4PLs (Lieb, 2005). think strategically in terms of rules and external
Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society 21

information resources, to maintain its position and and provides studies for its client to improve the
support the relationships with its clients. Consid- chain. Thus, the 4PL suggests, designs and imple-
ering that the LSP is a natural candidate to evolve ments new solutions in the supply chain.
their services into a 4PL, Visser et al. (2004) and • The innovation is by the fact that the 4PL presents
Hoek (2006) argue that they must have well defined other priorities in relation to the traditional logis-
strategies to begin the transition process. Further tics company.
more, they must understand the importance of in-
vestments in information and communication tech- • A candidate for 4PL must invest in its image and
nology to achieve this objective. In their opinion, the reputation, specialize in certain activities and
lack of these skills may explain the slow develop- sectors, and find new ways to demonstrate its re-
ment of the 4PL. liability.

Visser et al. (2004), Hoek (2006) and the Supply Chain Hoek (2006):
Executive Board (2005) make the following observa- • The 4PL participates in the coordination of the
tions about the role of 4LP in this type of manage- chain, while the traditional LSP simply provides
ment. operational services.
Visser et al. (2004): • Becoming a 4PL lifts the traditional LSP to a posi-
• The LSP leads the operation, but its client con- tion of product flow coordinator, instead of sim-
trols the strategy for the basic concepts used in ply operating the physical transportation of the
the supply chain. The LSP improves the effective product.
operation of the chain, but does not get involved • The LSP model requires more assets than the 4PL,
in the discussion of strategy and logistics con- since the latter is more dedicated to the coordina-
cepts. tion process.
• The 4PL suggests how to reconfigure the supply
chain in terms of space and functionality in order Tables 1 and 2 summarize the considerations of
to cut costs and improve services. The 4PL devel- Hoek (2006), comparing the development of services
ops intense knowledge and logistics competence, provided by LSPs and 4PLs.

Table 1 – LSP and 4PL Factors (Hoek, 2006)

Factors 3PL 4PL
Involvement in services provided in Operation coordination and
Physical movement and execution
the supply chain administration
Low – information and
Intensity of assets to provide services High – vehicles, storage equipment
communications system

Intensity of knowledge Low – standard tasks High – organization of product flow

Dependence on the manufacturer to Medium – low cost change and several High – the manufacturer has orders to
supply the demand service providers fill and depends on its suppliers

Dedicated contract and strategic

Contact point at the manufacturer’s Negotiated contract
coordination of the supply chain

More wide-ranging measures,

Performance Possibly limited in gains and results involving client service and results in
the supply chain

Limited because it impacts only the More wide-ranging, including clients

Shared information
execution and suppliers, policies and priorities
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
22 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

Table 2 – Advantages and risks in the transition from LSP to 4PL (Hoek, 2006)

Advantages Risks
• Migration to added value service, and getting • Failure to serve the client by focusing on
away from low profitability jobs strategies that concern the LSP, which are not
• Expansion of relationship with the client, necessarily in line with the client’s needs
increased revenue and direct action in the • Corroding and compromising the relationship
client’s supply chain while implementing the competencies
• Keeping the client through high dependence • Few barriers to enter the market, with the
on the information system and low reliance on possibility of saturating the market and
own assets transforming its services into commodities
• Mixing different market and business models
in a single organization.

Supply Chain Executive Board (2005): • Many companies are reluctant to outsource activ-
ities to the 4PL, believing they will lose control of
• The 4PL offers logistics services for the supply the LSP performance and jeopardize the service
chain, such as managing the LSP, providing am- to their clients.
ple opportunity for cost reductions. The 4PL con- • Control tools can help the relationship and im-
solidates the logistics needs of many companies, prove the services contracted with the 4PL, such
which gain from this scale and obtain advantages as:
in negotiations with the LSP. In short, the 4PL acts • Agree on performance measures to evaluate op-
as a total provider within the supply chain. erations, such as operational performance, cus-
• With the LSP, the 4PL coordinates storage, ship- tomer service, management quality, and cost and
ment and deliveries. To this end, it must have on- control systems competencies;
line location tools and customer services able to • Implement objectives according to the level of
make the transport operations visible. It must also contracted services;
manage claims and payments of contractors.
• Share profits according to pre-established objec-
• With distribution services, the 4PL can use the tives;
LSP’s assets or its own to deliver products to the
A common denominator in the various consider-
client. Several other services can also be included,
ations concerning the evolution of LSP is the coor-
such as packaging and assembly.
dination of the supply chain activities with its cli-
• In consultancy services for the supply chain, the ents. The innovations of patterns presented lie in the
4PL can analyze the information flow process coordination of other outsourced companies and
to redesign a more efficient chain. This includes the greater strategic involvement with the SCM. In
identification of the best alternatives of transpor- short, the proposals confer new responsibilities on
tation, operation site, or delivery frequency. Its the LSP, as well as a new denomination.
technological capacitation is also essential for the
implementation and integration of services. Cooperative Management and the Role of LSP
• The types of activities of the 4PL depend specifical-
According to Sahay (2003), the LSP should not be
ly on each company’s needs, the most common be- seen solely as the outsourcing of logistics services,
ing management of the LSP. Like the LSP, the 4PL is but as a business relationship committed to the cli-
responsible for ensuring the most efficient and low ent’s business.
cost storage, shipments and delivery. Some compa-
nies use the 4PL as a logistics leader to manage the The diversity of activities executed by the LSP, as
LSP, transportation and storage site. well as its ability to act within the chain, taking on
Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society 23

new responsibilities for the client, is acknowledged al. (2004) highlight the scope and responsibility of
by several actors. The greater the number of services this provider in the supply chain, with the evolving
the LSP incorporates into its portfolio the more spe- trend of acting in the coordination of processes and
cialized it becomes, thus gaining more clients and the indirect management of third parties.
businesses (Lieb, 2005; Langley and Allen, 2005;
Chapman et al., 2003; Halldórsson and Skjott-Lars- Stefansson (2005) presents the idea of a logistics in-
en, 2004). termediary as a way to improve costs and widen ser-
vices, performing the role of coordinator and activi-
The LSP expertise in performing its activities, even ties manager through its own structure and, when
basic ones such as storage and transport, tends to needed, using third party structures. In general,
contribute to the businesses of companies that lack considering the different factors associated with the
such know-how. This idea is defended by Sinkovics supply chain, such as its complexity, need for agility,
and Roath (2004), and is complemented by the pos- and joint action with several agents and activities,
sibility of reaching new markets through the use of the business opportunities for the LSP can be consid-
LSPs that already act in differentiated markets. The ered innumerable.
synchronism of several activities coordinated by one
agent, such as the LSP, enhances the performance of Authors such as Cox (200b), Hoek (2006) and Fawc-
the chain. ett and Magnan (2002) mention the possibility of the
LSP gaining more space in the supply chain as com-
Chapman et al. (2003) report that clients want to have panies integrate their processes with their agents, as
an LSP with the ability to develop logistics services in demand management, which requires technology
so that it can carry out coordination and innovation and coordination.
actions. Pagell (2004) suggests several important
points the LSP should observe in the integration of The adoption of the LSP with multiple activities can
operational services in supply chains: reduce the number of suppliers, leading to what
was observed by Pires (2004) and Christopher (2006)
• Structure – Sufficient to serve the client’s flow; concerning the right choice of partners in the sup-
• Culture – Knowledge of how to deal with its own ply chain. These authors argue that for the SCM it is
internal culture and with the different cultures of better to have fewer committed suppliers than many
its clients; scattered and uncommitted ones.
• Communication – Be prepared for real-time com- It is important to understand the importance of as-
munication; sets for the LSP, not only its physical operational
• Measures and rewards – Ability to evaluate its in- structure such as facilities and equipment, but also
ternal and external operations, adding to results, technological components that facilitate its relation-
rewards and penalties; ship with the client. In this aspect, technological tools
allied to new management methods such as CPFR
• Consensus/Integration – Maintain consensus and
are instruments that should be part of the structure
integration between the agents during operation-
and knowledge base of the LSP.
al practices;
• Operational size – Ascertain with the client if These tools, according to Fliedner (2003) and Jhaukh-
there is operational capability to perform the con- aria and Shankar (2004), favor the integration process
tracted services. and can be used by the LSP to improve the operation-
al processes of the supply chain, involving several
Thus, technological support for data transfer and
agents as well as gaining new activities and clients.
transactions has become a powerful tool for the LSP.
With up-to-date information and communication
technology, new configurations are presented for lo- CASE STUDY AND RESULTS
gistics management by the LSP, as several authors
suggest (Hoek, 2006; Langley and Allen, 2005; Vis- The case study presented here was conducted based
ser et al., 2004) when defining 4PLs as integrators on three approaches and/or considerations: (1) con-
or logistics leaders in a coordinating function that is sidering the 4PL and the fast-food chain, (2) consid-
broader than a simple operation. ering the 3PL studied, and (3) considering the analy-
sis of factors that surround the relationships within
Hoek (2006), Langley and Allen (2005) and Visser et these companies.
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
24 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

4PL and the Fast-Food Network for more than ten years, and have worked with the
4PL for over five years. All of them have expanded
During its trajectory in the country, the fast-food
their activities over time, proving what the literature
chain has developed a relationship of commitment
identifies as the natural evolution within the seg-
with its suppliers, sharing missions, objectives, be-
ment. The ten companies were chosen due the im-
liefs and values. This position has clearly strength-
portance of their services to the 4PL, besides their
ened collaborative behavior. On the other hand, it
daily activities in the routine of the fast-food net-
has given most of its suppliers exclusivity with the
work. The companies, whose names have been omit-
restaurants, and its logistics services provider (LSP)
ted here, can be described as follows:
has assumed the responsibility of acting as the SCM,
coordinating not only delivery and distribution but Company 1 – Located in the state of São Paulo, it has
also the inbound process with its suppliers. In this about 35 employees, and has been operating in the
relationship, each agent’s role in the supply chain logistics market for 11 years. Although its business
can be summarized as follows: focuses on air shipping, its services and operations
have expanded in the last four years, taking advan-
– Fast-Food network: responsible for operating the
tage of its structure and relationship with its clients.
restaurants, defining promotions and advertising,
To support its operations, it now has its own vehicles
selecting suppliers, prices and products, develop-
for transporting cold and dry products, a storage
ing new products, creating strategic business plans,
warehouse in the city of São Paulo, and contracted
assessing and standardizing processes, and solving
sub-operators in every state of the country.
conflicts in the chain.
Company 2 – Has several branches specialized in
– LSP: responsible for stocking and purchasing man-
the storage of frozen and chilled products, retail dis-
agement, distribution and transport, supplying res-
tribution, and kit assembly. It has been operating for
taurants storage, transfer to other distribution cen-
25 years, has about 300 employees, uses its own ve-
ters within the country, financial management of the
hicles for transporting frozen products, and its op-
chain, logistics planning, field service and coordina-
eration focuses on the fast-food segment.
tion of the supply operations in the chain.
Company 3 – This firm has been operating in the
– Suppliers: responsible for the quality of produc-
market for 34 years. It has 450 employees and 12
tion, development of new products and the opera-
branches in the country, dealing with clients from
tion of inbound logistics.
different segments, such as Kraft-Foods, Sara-Lee,
Figure 1 illustrates the relationships between the BSG-Continental, Parmalat, and others. It operates
parties in the above mentioned supply chain. with transport, storage, assembly and packaging
services, maintenance, and outsourced services.
Focus Company
Company 4 – This is a large cooperative in the trans-
Information Information port segment which, in its 17 years of operation, has
been specializing and incorporating its operations to
Inbound LSP Outbound large clients. It has 350 permanent employees and 40
Supply storage branches in the states of São Paulo, Rio de
Janeiro and Paraná, and operates a container termi-
Figure 1: The Supply Chain of this study nal in Santa Catarina. Its main business is transpor-
tation, but it also has dedicated operations and stor-
It is important to note the this fast-food network age for clients of distinct industrial segments such
structure in figure 1, which delegates to the logistics as Sadia, Perdigão, Danone, Brasken, Nestlé, Suzano
provider the responsibility of supplying restaurants, Petrol, Firestone, etc.
favors the use of the 4PL pattern in the management
process. Company 5 – Dedicated to customs operations, this
firm services many large clients such as Arcor, Cabot
and Flint-ink. It works not only with the management
The 3PLs
of import and export processes, but also offers stor-
The ten companies from this study are logistics pro- age and transport solutions for its clients’ products. It
viders that have been in the Brazilian marketplace has been in operation for 16 years, with administra-
Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society 25

tive headquarters in the city of São Paulo, and has 90 Company 10 – This is a large customs warehouse
employees. It operates according to the 4PL pattern, facility for chilled and frozen goods. It provides se-
focusing on imports and exports, without using a lection and shipment services contracted by its cli-
dedicated physical structure, managing third parties ents, with some packaging lines on its premises for
directly involved in these types of operation. specific contracts. It also acts as an intermediary in
transport services with partner companies.
Company 6 – Specializes in kit line assembly, pack-
aging and re-packaging of goods and magazine in- Table 3, below, compares the activities executed by
serts. It has storage areas, equipment and assembly the 3PL and the 4PL providers. This table indicates
lines for these processes. The company has a great the similarity of their activities, which makes them
versatility and mobility of workers, performing large competitors in the market.
operations on a short-term basis. It also operates in
retail goods distribution, particularly for bookstores Since many activities in the supply chain are not
and newsagents. carried out by the 4PL, they are carried out for the
fast-food network by other companies from the 3PL
Company 7 – Works with dry goods storage, and group. Interesting aspects of this relationship come
has 4 storage units in metropolitan São Paulo. It also to light:
coordinates the transportation of goods to its units.
– Although they all compete with each other in many
Company 8 – Participates strongly in supermarket activities, the 3PLs generally do not allow this fact to
chains. It offers vehicle rental to several segments, generate a major conflict;
tailor-made, as well as management services and ve-
hicle maintenance. – Their mutual relationships favor the recommen-
dation of each other’s services, either among them-
Company 9 – This is a service provider with about selves or to other clients they serve. As an example,
30 employees, which acts in the maintenance and the 3PLs offer air transport, customs, packaging and
rental of storage equipment. It serves demand peaks maintenance services thanks to the recommendation
for several clients, providing temporary vehicles of the 4PL.
and workers. It has know-how in the internal man-
agement of storage and transport equipment, servic- – The fast-food network is aware of all these service
ing clients with technological tools developed over providers, what they do for the 4PL and what they
several years of experience. execute in the marketplace. This is a risk for the 4PL.

Table 3 – Main activities provided by the 3PL and 4PL of this study
Company
Service
1 2 3 4 5 6 7 8 9 10 4PL
Freight and fleet management x x x x x
Storage x x x x x x x
Distribution x x x x x x x x
Kit assembly / Packaging x x x x x
Customs services x X
Fleet maintenance x x x
Maintenance of storage equipment x x x
Vehicle and equipment rental x x x x
Customer service / Call center x x X x x
Product recovery / Reverse logistics x x x x x
Client stock management X x
Fiscal support / collection and administrative
x X x x
services
Logistics studies / Projects x x x X x x
Air fleet services x
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
26 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

The 4PL characteristics described in the literature correspond to those observed in this case study. There is
relative difference in terms of assets. In this case study, the 4PL provider is strong in assets and in the direct
execution of several activities, contrary to the literature, which suggests its role is restricted to the manage-
ment of 3PLs, the actual executors of operations. Table 4 compares the 4PL described in the literature to the
case studied here.

Table 4 – Comparison of the literature and the case study

Literature Comparison with the studied case

The 3PL tends to become a 4PL Three of the ten 3PLs clearly intend to become 4PLs

The 4PL is not based on assets, but on technology The 4PL is a combination of assets, technology and
and know-how know-how

The 4PL is strong on IT, which is not always the case

Having IT support is a key feature of a 4PL
with 3PLs

This aspect is important in the 4PL – its reputation is

The 4PL must build a strong commercial reputation
greater than that of the 3PL

The managerial scope of the 4PL is large in the chain The 4PL acts in practically the entire chain

The 4PL is responsible for the chain’s integration and

This a key aspect of the 4PL in the chain
focuses on adding value to the chain’s business

The logistics strategy and operational structure are

This also applies in the chain – 3PLs follow the 4PL
attributions of the 4PL

This is also true of the chain – with strong focus on

The 4PL focuses on the chain’s business results
key indicators for the chain

Complementary Considerations
Because the fast-food network has a strong name in with suppliers of the fast-food network.
the market, the agents mentioned in this study gen-
erally use the relationship with the 4PL as a differen- Another interesting fact observed here is the absence
tial in their efforts to recruit new clients. This seems of 3PL management centralized in only one sector or
to be one of the factors that improve the balance in department of the 4PL. Each 4PL manager is respon-
their relationship with clients. sible for conducting the relationship contracted with
the 3PL. If a 3PL can provide services in a different
The largest 3PLs, especially those that have contracts area, the 4PL managers reach an internal agreement
with other large companies outside the supply chain about which contracting area is to manage the 3PL.
of this study, display a certain interest in maintain- Although the 3PL should carry out several activities,
ing contact with the fast-food network, seemingly the 4PL tries to contract only their most specialized
believing this will make them available to compete services.
in an eventual new sourcing process. This indicates
that, even if the relationship between them is profes- Listed below are the main factors favoring the re-
sional and free of conflicts, their common interests lationship between the 3PL and the 4PL that makes
make them potential competitors. However, they them cooperators and the principal conflicts that
have generated new business with each other and make them competitors.
Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society 27

Cooperators: - In terms of quotations and service pricing, there is

implicit competition among the 3PLs and the 4PL.
- The 3PLs cover services that the 4PL is not able to
or not interested in executing. - Participation in the management pattern between
the 4PL and the fast-food network helps the 3PLs
- When contracted, the 3PL focuses only on the activ-
understand and learn this pattern.
ity that is the object of the contract.
- Most 3PLs lack the structure and assets that the
- The 3PLs know all the performance indicators they
4PL has, especially the information technology that
must satisfy, and the strict requirements of opera-
supports operations.
tions.
- The fast-food network does not appear interested
- The 3PLs trained employees in the 4PL to carry out
in having more than one agent working within its
the activities, guiding them in the characteristics of
supply chain operations.
the fast-food network business.
- None of the 3PLs develop projects, a fact that hin-
- The 3PLs explore the chain, gaining new contracts
ders their expansion to more comprehensive busi-
through it.
nesses in the supply chain.
- The 3PLs personalize assets for the operations of
the fast-food network, according to criteria defined
by the 4PL. FINAL REMARKS
- Results are shared, following indicators guided by Analyzing the real case presented here it is possible
the businesses with the fast-food company. to note a series of characteristics that help to under-
stand the role of a 4PL to the management of several
- Providing services linked to the fast-food network 3PLs. Also, the literature is clearly still in the phase
adds value to 3PL businesses. of outlining concepts on the theme, and a “standard
model” for this new logistics business has not yet
Competitors: been established. Even so, it was possible to estab-
lish a direct relation between the existing literature
- The 3PLs know that the 4PL can invest in activities
and the observations in this case study. Further
they execute, which would mean the end of business
more, one of the few points of consensus among the
with the 4PL and the fast-food network.
authors is that the 4PL will always be linked to the
- The 4PL knows that some of the 3PLs have the po- improvement of the SCM system and the service pat-
tential to work directly with the fast-food network, tern should be based on integration and logistics so-
either in regional actions or even taking over all the lutions. This is clear in the pattern adopted between
activities. the fast-food network and the 4PL studied here.

- Investments in technology belong to the 4PL, which A company operating along the lines of a 3PL would
renders the 3PLs dependent on it in this area. hardly be able to carry out all the activities in a sup-
ply chain. Furthermore, if companies began to con-
- The 4PL has, in the 3PLs, a tool to compare the tract logistics agents that are able to manage their
price of services. chain, this would lead increasingly to the emergence
of the figure of a 4PL.
- For some 3PLs the service executed is marginal,
representing little in terms of input, so they may The study also reveals that several factors character-
abandon the 4PL. ize positions that make the 3PL and the 4PL coopera-
tors, one complementing the deficiency of the other
- They all work with short-term contracts. or even generating business between them. Other
- Service prices are based on negotiations between factors make them competitors, like the interest in
the 4PL and the fast-food network, transferring the fast-food company accounts, which is a new sourc-
same adjustments to the 3PL. ing process. However, they work side by side and
manage the conflicts, making the relation an inter-
- As the 3PLs expand their business, they become a esting business for everyone, 3PLs and 4PL. With
threat to the 4PL. regard to competition, a key factor is information
 Vivaldini, M., Pires, Silvio R. I. and Souza, F. Bernardini: Collaboration and Competition between 4PL and 3PL
28 Journal of Operations and Supply Chain Management 1 (2), pp 17 - 29, C International Conference of the Production and Operations Management Society

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AUTHOR’S BIOGRAPHY

Mauro Vivaldini has a Master’s. in Administration and a Doctorate degree in Production Engineering. He
is a professor of Logistic at the Methodist University of Piracicaba (UNIMEP). He has 20 years of experience
in Industrial and Supply Chain Management in large industries and logistic providers. Nowadays he is the
Operation Director at Martin-Brower in Brazil. E-mail: [email protected].

Sílvio R. I. Pires has a Bachelor’s.from (UFSCar), and a Master’s..and a Doctoral degree from (EESC-USP) in
Production Engineering. He is a full professor of Operations and Supply Chain Management at Methodist
University of Piracicaba (UNIMEP). Formerly he was a Production Planning and Control manager in a large
heavy equipments company in Brazil, a visiting research-professor at IMD in Switzerland, and a visiting pro-
fessor at the (Instituto de Empresa) portugues Business School in Spain. He also conducted several projects
for large companies operating in Brazil. He has 25 years of practical experience in Operations Management.
E-mail: [email protected].

Fernando Bernardi de Souza is an associate professor of Operations Management at the São Paulo State
University, with focus on Production Planning Control and Supply Chain Management. He has a Doctor-
ate, Master’s and Bachelor’s degree in Production Engineering from (USP-EESC). He is an expert in Theory
of Constraints (TOC) with a Certification for Practitioners in the TOC Fundamentals Exam and in the TOC
Supply Chain Logistics by the TOC International Certification Organization (TOCICO), and uses intensely
the TOC in his under and graduating courses. He has conducted some consulting projects for large Brazilian
companies operating in Brazil. E-mail: [email protected].

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