As shippers expand their networks and diversify their logistics partners, it can become a complex system that can be complicated and time-consuming to manage. Whether it’s due to capacity constraints or the lack of internal labor and assets, shippers are seeing the value in establishing partnerships with third-party logistics providers (3PL) with the expertise to store and deliver their goods. Gartner defines a 3PL as acommercial firm that provides one or more logistics functions on behalf of its customer, as a service, for a fees1. These logistics functions can be in the form of distribution, transportation, global freight forwarding, and more. Once a shipper decides to outsource the management of their logistics as well, the shipper can transition to a 4PL strategy model. The idea of utilizing a 4PL has had many shippers reevaluate their approach to logistics partnerships.
When to Bring in a 4PL
4PLs, also recognized as transportation management providers or lead logistics providers (LLP), are logistics providers that oversee and manage the entire logistics operation for a shipper2. Their objective is to be the single party and point of contact for the shipper in relation to their supply chain. Usually in these relationships, the 4PL and shipper are in a long-term agreement where the 4PL is delegated to manage all of the 3PLs and service providers involved in an operation, all while strategically looking for new logistical opportunities for the shipper. In most cases, the 4PL provider does not own any assets and are usually a software or service solution. However, there are 3PL providers who have the scope and capability to serve as a 4PL as well.
Capabilities of a Fourth Party
Shippers can choose to use internal resources to organize and manage their logistics; however, they usually have to invest heavily upfront in both labor and technology to manage their networks. Instead of the investment and time the shipper could encounter, they can choose to outsource to a 4PL. 4PLs have the capabilities to integrate with various logistics operations to leverage relationships within the industry and manage those relationships while providing additional service offerings. It’s as if the 4PL is an extension of the shipper’s business where the provider’s staff, technology, and expertise is leveraged. With a 4PL, their core competency is to integrate into a shipper’s supply chain, overseeing the operation and alleviating any potential issues3.
There are several benefits with partnering with a 4PL. The relationship between the shipper and the 4PL is a true partnership where the parties have aligned goals. A 4PL will focus on its core competencies so the shipper can focus on the growth of their business in other facets. David Broering, SVP of Integrated Solutions at NFI, shared his insight into the benefits of utilizing a 4PL:
The two benefits that I believe have the most value is the low capital expenditure for the user of 4PL services as it relates to using the 4PL’s software to provide them with the additional technological support the shipper desires. The other benefit would be the labor involved with a growing operation. The 4PL handles that growth instead of the shipper having to add additional staff allowing for flexibility as their business grows.
From labor to technology, 4PLs have expertise and resources to fully support the growth of a shipper across various industries and markets.
As the number of integrated supply chain networks grows, different 4PL and 3PL providers, which could compete for business, are now working together to meet capacity and improve customer service. This change within the industry may make supply chains more sophisticated than ever before. 3PL and 4PL providers are leading the industry in looking for new opportunities to work together with shippers and other providers to improve transportation and distribution networks.