Third Party (3PL) and Fourth Party (4PL) Logistics

OUTSORCING - paved way to 3PL & 4PL

—  Outsourcing is one of the important features of SCM . It is the usage of other agencies to carry out non-core activities of an organization.

—  First , the parent organization separate the value adding and non-value adding activities. They concentrate only on value-adding core functions and leave the other activities to those who have the expertise.

—  In other words ,  do what you are best at and leave all other non-value-added activities to more suited players. This is the concept behind 3PL & 4PL.

            Third Party Logistics or 3PL

—  3PL and 4PL are terms coined by Accenture, an international research and consulting firm to describe the outsourcing of certain key business fulfilment tasks to other companies.

—  The outsourced functions include service managements in - demand, supply, transportation , materials , production, green supply chain and financial supply chain

—  Outsourced tasks such as warehousing, picking, packing, shipping and inventory management helps to manage the supply chain more efficiently and effectively.

—  Some 3PLs might also help with the administrative side of these tasks, such as invoicing and accounts receivable.

—  Logistics planning, customized logistics  solutions, warehouse management, Inventory Management , shipment consolidations , carrier selection, rate negotiations, fleet management, LIS , tracking/tracing ….etc….. are the functions carried out by 3PL firms.

ADVANTAGES OF 3PL

ü  Cost Reduction

ü  Maximizing Revenues

ü  Facilities

ü  Cost control

ü  Working Models

 

WHY 4PL ?

ü  3PL often lack broad set of skills, integrating technologies, strategies and global reach.

ü  To build up this, 3PLs go for collaborations with consultancies and technology providers

ü  Corporations outsource their entire set of supply chain requirements to one organization, who will assess , design, make and run integrated comprehensive supply chain solutions.

ü  This evolution is Fourth – Party Logistics or 4 PL.

Fourth Party Logistics or 4PL

ü  In 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL

ü  Globally, about 75 % of the Fortune 100 companies and about 45% of Fortune 500 firms have now gone in for 4PLs.

ü  A 4PL provide effective transport along with an entire distribution system, high reliability, transparency, quality, efficiency and design new distribution scenarios

ü  A 4PL company serve as consultants who manage the relationship between the principal company and one or more 3PLs to make sure all operations are running smoothly.

ü  They can carry various levels of responsibility, from advice on choosing the best companies, right up to the day-to-day management of essential logistical tasks being performed for the principal company.

ü  4PL caters to various clients, economies of scale is attained as the investment is spread across clients.

STAGES  OF 4PL SOLUTIONS

ü  Reinvention - Align business strategy with supply chain strategy

ü  Transformation – Focus on improving supply chain functions. (sales, ops, distribution, customer support )

ü  Implementation – Implement recommendations for efficient use of SCM

ü  Execution – Takes operational responsibility for multiple supply chains functions and ops.

3PL / 4PL COMPARISON

—  3PLs adopt a scientific approach to logistics, to optimise cost and improve service levels and response. They also help clients achieve efficient inventory turnover and working capital management.

 

—  4PLs facilitate single-point reference for all logistics needs, possess knowledge of logistics to obtain most efficient and effective solutions, have manpower resources of higher quality to supervise vendors and ensure continuous process improvements and, above, all an IT base to network customer systems.