3PL and 4PL Suppliers in North America

Introduction

a)3PL and 4PL History

The introduction of 3PL happened between early 1900s and late 1950s and provided single services. 1950s and 1960s is characterized by separate services and is known as the awareness period. The necessity period happened between 1960s and 1970s where integrated services were introduced. Between late 19070s and 1980s, referred to as integration period, combined services were introduced. The differentiation period took place between late 1980s and 1990s where services were incorporated. The corporate period constitute time from 1990s to present and encompasses corporate services. The development of 3PL was influenced by factors such as internationalization, time, cost, competition, high customer awareness, and virtual organizations (Papadopoulou).

4PL started as an insourcing model between 1970s and 1980s and involved internal logistics operation. The onset of the model was influenced by the need for a further outsourcing process. The propulsion of the model to what is seen today was the work of the shippers who opted to spin of their logistics headcounts due to the pressure of the growing transportation cost elements. Between 1980s and 1990s, 4PL turned into an outsourcing service to clients. Between 1990s and 2000, it outsourced its services in form of consultancy, business process management, LSPs, technology, and financial engineering. From 2000 to present, 4PL entails outsourcing service that range from incentives, re-engineering, principal, technology, consultancy, op-expertise, banking, and LSP. Thus, 4LP has provided for a loose alliance of stakeholders/entities, which bring required capabilities to the table. However, stakeholders can always leave or join the consortium as appropriate, what has been termed as plug and play (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)).

b) 3PL and 4PL Impacts on Logistics

3PL

Third party logistics influences strategic planning in a company, determines operations efficiency and integrates logistics competencies that yields to speed, expertise and cost efficiency. 3PL provides logistical support for fair allocation of costs and revenues, opens flow of information, and provides a long-term view and a basis for contacts within different organizational levels (Gao). Other impacts on logistics are outlined below

Third Party Logistics model impacts on logistics through the following ways;
It reduces time and effort required for management
Provides an easy way of outsourced logistics services management
Improves overall efficiency on logistics and lowering of costs
Reduces the number of logistics business service providers
Provides a platform for quick responses, enhanced visibility on shipment and optimization of capacity utilization
Provides for custom-built solutions for complex problems
Provides an opportunity for sharing risks with integrated logistics service providers
Provides for proactive IT approaches, early problems detection and reduces inventory

4PL

4PL is an evolutional model of 3PL that possess better service responses, flexibility and customization. 4PL impacts on logistics by providing the supply chain management with skills, technology, program management expertise, and capability to go to the market. Thus, 4PL undertakes comprehensive supply chain resolutions for single clients through the available resources, technology and capabilities. The model runs and manages complex logistical operations that include supply chain infomediary, integrator functions, resources and control room (Gao). Other impacts on logistics are outlined below.

Controls place and time utilities while affecting possession and form utilities
Creation of value within the client’s organization
4PL adds value to client’s organization through enhanced inventory turnovers; reduced inventory investments compared to annual sales and improved value chain integrations.

Literature Review

a. 3PL and 4PL trends

3PL

The processes of outsourcing logistics continue progressively growing. According to Aghazadeh (2003), 3PL markets grow at a rate of 18-22% annually. Since studies began seven years ago, there has been a positive relationship and continued collaboration between third party logistics providers and shippers (The Logistics Institute). The 2015 survey according to the Logistics Institute suggests that 3PLs relationships with their customers have led to more proficiency to what they do both collectively and individually. The report further indicates that the relationship between 3PLs and their clients have been successful and have yielded to positive results. In recent years, the most regularly outsourced activities are those that are operational, transactional, and repetitive. 3PLs continue providing IT services to shippers as they have demonstrated greater ability to manage provisions of IT-based services since it is the core competency of any 3PL provider (The Logistics Institute).

Several factors are influencing progress towards the advanced end of a mature model for 3PLs-shippers relationships (Terry). While collaborating and gainsharing with other companies or competitors, to pursue or achieve effective logistics costs and improvement of services, there will be an improvement in the relationships between 3PLs and their clients. However, other factors such as economic instability and uncertainties globally continue dampening significant advancement, growth and technological innovations in the 3PL sector (Terry).

4PL

Fourth Party Logistics is leading in integrating logistics, which is far more superior compared to 3PLs (Hickson). 4PLs is strategic in nature and is focusing on improvement and management of client’s supply chains. 4PLs is discovering the roles and the needs of information technology in the management process. A few areas that 4PLs are becoming competent include management of more activities, managing utilization and availability of knowledge and IT (Hickson). With consideration of 4PL in the next generation’s tendency of supply chain outsourcing, prevalent research studies focuses on the roles 4PL plays in the supply chain management, operational advantages, design, dominant factors, and the optimization decision models (Hickson).

According to a study (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)), 4PL is the most complex form of LSP. 4PL proposes a complete integration of solutions through logistical management of different activities representing their clients. However, the mode in which 4PLs impacts on the success of it’s client’s production activities depends on institutional economic nomenclatures such as the North American Industry Classification System and the grouping of French activities (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)).

b. 3PL and 4PL usage

3PL

3PLs are grouped into service, industry, and contract. Service 3PLs entail simple services, combined services, and value added services (Papadopoulou). 3PLs include warehousing, trucking, ocean carriers, air freight, industry, logistics management, value added logistical services, and logistics consulting. In simple term, 3PLs comprises the use of outside companies to undertake part or all of a company’s material management and product distribution functions. Usually, relationships between third party and a shipper has customized offerings, which encompass a broad dimension of service functions. 3PLs are independent firms that offer single or multiple logistics services even though they do not hold ownership of the commodities for distribution. 3PLs enables clients to gain competitive advantage, adds measurable values to products, enhances customer service and assists opening of new markets alongside provision of dedicated resources. Moreover, 3PLs facilitates staffing with respect to needs, which enable avoidance of costs in staffing, puts best technology and capabilities at the disposal of the business free of charge (Gao).

4PL

4PLs are primarily concerned with document trade for large projects (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)). The services provided by 4PLs encompass information, documents, and data instead of physical goods. 4PLs are divided into four groups. Thus, the logistics services under group 1 of 4PLs include digitization, archiving, and circulation of documents and data to partners, development of structures for consultations, production, circulation and management of knowledge capitalization software and circulation of technical libraries (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)). For group 2, usages of 4PLs are creating models for supply chain components such as factories, suppliers, distribution networks, warehouses and clients. 4PLs in group 3 transforms trade operations and computer infrastructures, improves the flow of information during supply chain management, continuously improve budget and generally undertakes to plan and organize for logistics chain using integrated and global information systems. Group 4 4PLs represents large modest size companies that represent heterogeneous population. Group 4 4PLs are pure service companies that have no particular physical assets connected to their activities. All of them are owned and controlled by transporters such as ships, trucks, planes, and storage facilities. They act as integrators, expressing deployment of their own staff directly to interact with clients. In addition, they constitute the transfer of liabilities. The study also indicates how 4PL outsources software, which 4PL develops and runs through missions of facility management (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)).

c. 3PL and 4PL benefits

3PL

The benefits of 3PL has often attracted much attention from many practitioners and scholars (Gao). For instance, 3PL is a firm that simply outsources storage, transportation and other sophisticated activities, which include the outsourcing of entire logistical functions to outside service providers. The benefits of 3PL are; simplifies management of outsourced logistical services, reduces management effort and time, leads to higher overall logistical efficiency, enhances the visibility of shipments, leads to quicker responses, optimizes the utilization of capacity, provides solutions to even more complex problems, reduces the overall number of logistics services providers. Other benefits include; extension of global market reach, enables the focus on core competencies of the business, enabling proactive information technology approaches, reduction in inventory costs, and sharing of risks between service providers (Gao).

4PL

With reference to a research (Win), the use of 4PL adds value to client businesses. The process has been improved through improved inventory turnover and decreased inventory investments. When compared to 3PL, 4PL offers services fewer primary customers during its inception. The benefits include unique composition that enables primary clients to have corporate supply chain accountability and knowledge, improves costs savings and increases expertise, reduces in-house staffing, provides an opportunity for freight bill audits, speeds up implementation of projects, offers services at a fair transaction fee, provides information technology tools, and enables an exceptional monitoring and reporting system. Many shippers expect 4PL to possess high levels of IT excellence and innovation approaches that utilize up-to-date information technology tools. As an integrator, 4PL operates on a model that entails data integration and service integration. The consolidation of IT tools enhances visibility of logistical processes that offers customers up-to-date information on supply chain logistics management, storage and other logistical activities (Win).

d. 3PL and 4PL risks

3PL

Even though 3PLs are coined to possess several benefits in their activities, some risks are inevitable. The risks are; the likelihood of inefficient management, asymmetrical latent information, inadequate logistics innovative capabilities, hidden costs, reliance on 3PL providers, lost control over 3PL providers, issues of monitoring and evaluating 3PL provider progress, and conflicts of culture (Chuanxu Wang). According to Chuanxu and Wang (2003), inefficient management leads to poor logistics operational performance, which calls for outsourcing to third party logistics. Asymmetrical latent information includes incomplete or inadequate information about the users or the user having inadequate information about the logistics provider. As a firm outsources its logistics services, innovation capacity may be impaired that reduces the competitiveness of the firm. Hidden costs have the tendency to erode on the benefits. Most of the times, these costs go unnoticed by the managers. Dependence on one 3PL provider may lead to increase in vulnerabilities and even loss of control to part of logistical activities.

4PL

The risks involved in 4PLs encompass the loss of sight of the primary core-concepts of supply chain management as a result of lost control, dismissal of client relationships on the basis of efficiencies, resistance to embrace changes, which poses a threat to new approaches implementation, the hindering of integrated supply chains by the strict functional organization. Sometimes, 4PL fails to serve customers through their focus on strategies that relate top LSP that does not merge with customer needs. 4PLs corrode and compromise relationships when implementing their competencies. There are a few barriers when introducing 4PLs in the market. Entry into the market leads to saturation of the market transforming services to commodities (Saglietto, Towards a Classification of Fourth Party Logistics (4PL)).

e. 3PL and 4PL future

3PL

3PLs will cover services not covered by 4PLs due to lack of interest. 3PLs will explore logistics supply chain, and secure new contracts through it. Provision of services linked directly to fast food network will add value to the business. In the future, 3PLs will go through real cost and real-time competition, enhanced customer services, vision and diversification of resources. Companies operating along 3PL lines will face difficulties in undertaking all activities in the supply chain. Majority of 3PLs will provide capital expenditure, critical experience, resources essential to support retailers spearhead their strategic distribution and management of dynamic inventory and aid in the execution of in-house services such as same day delivery, free shipping etc. (Terry).

4PL

For a positive relationship between 4PLs providers and their clients, a number of success factors will be met. The most critical of these factors will be to secure a winning business model, which will offer value for logistics providers and shippers. The 4PL, therefore, will, represent additional layers between carriers and shippers. At the macro scale, shippers will have to decide logistics activities they will want to outsource. There will be an audit trail to measure the performance of 4PL on an annual basis pinpointing gaps and evaluating progressive improvements. Operational services will have to be outsourced to pave way for testing partnerships and business models before the outsource of strategic functions that will be problematic to re-insource.

Conclusion

3PLs and 4LPs industries have turned to be relatively stable in North America. However, in other regions of the world such as Asia, they are rapidly emerging and growing industries. Unlike pure players, shippers have been seeking 3PL and 4PL firms for several reasons. Some of the reasons include; TUPE possibilities, buying power, existing IT, attractive 4PL fee charges, numerous and skilled human resource, and internationally reduced cost countries footprints. 3PL providers offer integrating operations, warehousing, cross-docking, transportation services, packaging, inventory management, and freight forwarding. 3PLs’ services are customized and scaled to meet customer specific needs with respect to the market situations and different demands. 4PLs offer functional services such as storage, procurement, processes, and distribution. These companies encompass logistics section of an enterprise. 4PLs entails combined assets, knowledge and technology. Out of any 10 3PLs, three transition to 4PLs. 4PLs must build on their reputation more than 3PLs. Some factors characterize 3PL and 4PL positions as cooperators, where one complements the deficiency of the other that even involves generating some business relationships between them. However, most of these companies work side by side and manage to work out their differences through consensus and thus creating an even environment for both. Regarding to competition, a critical factor used to distinguish them is information technology, where 4PLs have more IT tools. However, competition can be managed between 3PLs and 4PLs through a contracted operation.