Fourth-Party Logistics

IT industry is playing a major role in logistics and supply chain management. Today, the integra­tion of logistics, which is a complex exercise, is totally dependent on the support of IT. Third-party logistics suppliers are providing logistics solutions to their clients, based on their experience and domain knowledge that they have acquired and developed over the years in the logistics business. However, a new trend has emerged wherein the IT firms are providing logistics solutions built around domain knowledge provided by third-party logistics companies. This new breed of compa­nies is the fourth-party logistics service providers or 4PL firms.

4PL—a term coined by the Anderson Consulting Company—is the next significant evolu­tion in logistics management. It is slowly gaining ground internationally. According to Anderson Consultants, “4PL assembles and manages the resources, capabilities and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” However, the dividing line between 3PL and 4PL is very thin. The leading 3PL companies in the United States believe that 4PL is a hype created by management and IT consul­tancy firms to appropriate the best part of the logistics business that has been built by 3PL com­panies through relentless effort over the years. The genesis of 4PL lies in forming a collaborative relationship among various logistics service providers based on IT as the backbone. A network arrangement of this kind can be termed as 4PL, provided it fulfils the following requirements:

  • Covers the entire supply chain of the customer
  • Collaboration between two or more logistics service providers on a resource-sharing basis to extend logistic solutions to a common customer
  • Alliances to be led by integrator with IT-based and not asset-based service provider
  •  Flexible arrangement

For example, a 4PL company of fast moving consumer goods (FMCG) Indian manufacturer operating in the Indian and overseas markets, which needs to integrate its entire logistics opera­tions handled by different 3PL firms in different geographical areas assigned to them, shall design and operate one single central information system instead of the different systems in different areas by each 3PL firms. A 4PL firm fulfils all the different needs of the client from a single source instead of getting into multiple 3PL alliances to achieve through multiple sources objectives.

Unlike the traditional methods that focus on reduction in operational cost and asset transfer, 4PL works in the following four ways:

  1. Increases revenue
  2. Reduces cost
  3. Reduces working capital
  4. Reduces fixed capital

4PL is an emerging trend and there are very few 4PL firms operating across the world. A com­plex model, 4PL offers greater benefits in terms of economies of scale. Recently, Hewlett Packard (HP) has appointed Circle International (CI) as their 4PL partner in the Asia Pacific region. CI operates from their central hub located in Singapore, where it buys and stocks HP’s inventory requirement in the region. The network of warehouse hubs, spread across the countries in the region, takes care of the distribution. The local HP office in the country draws its inventory require­ments by buying from the CI local hub. HP does not block its funds in inventory. Thus 4PL provides logistic services by blocking its own money in someone else’s products and components.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

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