4PL Biz Module

1. 4PL BIZ MODULE
By
Zubin Poonawalla
A Fourth Party Logistics (4PL) provider is a supply chain integrator
that assembles & manages the resources, capabilities, & technology
of its own organization with those complementary service providers to
deliver a comprehensive supply chain solution.
Central to the 4PL’s success is a “best of breed” approach to
providing services & technology to a client. The development of 4PL
solutions leverages the capabilities of the third party logistics
providers, technology service providers, & business process
managers to deliver a comprehensive supply chain solution through a
centralized point of contact. The 4PL will integrate the client’s supply
chain activities & supporting technologies across these “best of
breed” service providers, with the capabilities of its own organization.
The investment required in technology will be minimized in a 4PL
relationship. As the 4PL implements & runs supply chain solutions for
multiple clients, the investment in technology is spread across the
clients.
A 4PL solution leverages the combined capabilities of both
management consulting & third party logistics providers. More
importantly, the design, implementation & execution of a leading
edge, client optimized, uniform technology plan that will meet the
needs of the 4PL client is ensured by leveraging the technology
capabilities of consultancies, technology –providers & third party
logistics providers.
At the highest level of the 4PL solution is Reinvention. The most
likely source of true quantum enhancement in supply chain
performance comes through either synchronization of supply chain
planning & execution activities across supply chain participants.
Reinvention leverages traditional supply chain management
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2. consulting skills, aligns business strategy with supply chain strategy &
is facilitated by technology that integrates & optimizes operations
both within & across participating supply- chains.
The next level of the 4PL solution is Transformation. Transformation
efforts focus on improving specific supply chain functions. These
include sales & operations planning, distribution management,
procurement strategy & customer support. At this level supply chain
technology becomes critical to the success of the solution.
Technological leadership & excellence is leveraged with strategic
thought, process redesign & organizational change management to
improve & integrate these supply chain activities & processes by
bringing the best of breed solutions.
The third level is Implementation. A4PL implements
recommendations including business process realignment, systems
integration of technology across the client organization & service
providers, & transition of operations to the 4PL delivery team. Careful
attention is paid to organizational change, recognizing that the
“people” factor is a critical driver of success in the transition to the
4PL arrangement. The goal is to avoid the all too common, ineffective
Implementation of well-designed strategies & business processes
that have limited the effectiveness of solutions & the delivery of
projected results.
The fourth & final level is Execution. A 4PL provider takes on
operational responsibility for multiple supply chain functions &
processes. The scope goes well beyond traditional third party
transportation management & warehouse operations to include:
manufacturing, procurement, supply chain IT, demand forecasting,
network management, customer service management, inventory
management, & administration. While an organization can outsource
the entire range of its supply chain activities to a 4PL provider; a 4PL
solution will more likely be a subset of critical path supply chain
functions or processes.
In summary, a 4PL responds effectively to the broad, complicated
need of today’s organizations by delivering a comprehensive supply
chain solution. This solution is focused on all elements of supply
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3. chain management, provides continuously updated & optimized
technologies, & is tailored to specific client needs.
4PL – The Value Proposition
A key distinction between 4PL & current approaches to supply chain
outsourcing is a unique ability to improve shareholder value in
multiple ways. The 4PL provider maintains primary accountability &
quality within the arrangement. As the centralized point of contact
with the client, the 4PL has overreaching responsibility for supply
chain performance. Traditional outsourcing arrangements have been
plagued by an inability to deliver benefits beyond one-time operating
cost reductions & asset transfers. With the ability to impact the entire
supply chain, 4PL approaches the concept of supply chain integration
through improvements across all four key drivers of shareholder
value to include: increased revenue, operating cost reductions,
working capital reductions, & fixed capital reductions.
Operating cost reductions of 15% can be achieved through
operational efficiencies, process enhancements & procurement
savings. Savings will be achieved through the complete outsourcing
of the supply chain function – not just select components – &
economies of scale. Synchronization of supply chain information
flows, technologies & activities across supply chain participants will
lead to operating cost reductions & lower costs of goods sold due to
integration of processes, improved planning & execution of supply
chain activities. Additionally, the substantial operating costs of
enabling supply chain technologies can be spread across multiple
4PL clients.
Working capital reductions of 30% are possible through inventory
reductions & reduced “order to cash” cycle times. The use of
technology to manage order & SKU movement throughout the
pipeline will minimize the amount of inventory required, as well as
increase item availability to reduce the cycle times.
Fixed capital reductions will result from capital asset transfer &
enhanced asset utilization. The 4PL’s logistics service providers will
own physical assets, thus freeing up the client organization to invest
in its core competencies, i.e., research & design, product
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4. development, sales, marketing – not in bricks and mortar – impacting
the balance sheet & initiating broad level change. The investment
required to support the technologies will also be reduced, as the
investment will be allocated to multiple clients.
Conclusion
The emergence of Fourth Party Logistics is a new concept in supply
chain outsourcing. The delivery of broad based leading edge supply
chain technologies will be key to 4PL success. As with all new
concepts, 4PL will continue to develop over time. Prominent sources
believe that 4PL is the future of supply chain outsourcing based on a
vision that it will provide competitive advantage to the supply chain
participants who engage in a 4PL relationship to deliver a
comprehensive supply chain solution.
BUSINESS MODEL
Business idea
The 4PL business model corresponds with the official recognized distinction between carriers,
freight forwarders, contract logistic providers & 4PL service providers.
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5. Beyond classical 3PL services & regardless own resources 4PL offers "best in class" solutions to
meet customers individual requirements. Therefore the customer abdicates compromise
solutions or restrictions due to rigid service structures. System-related resources will inevitably
lead to self-interest with respect to their utilization. Shippers, freight forwarders & contract
logistic providers are deemed to have their own assets (truck fleets, warehouses, etc.) & their
utilization is their logical target. 4PL service providers are free from such constraints & design a
tailor-made solution for the customer’s requirements. The work as a service provider for many
customers also enables a broader overview of the markets & a very good position on purchasing
of logistics services.
Business Segments
The service of 4PL service provider is based on three fundamental pillars:
Consulting, Coaching & Operating.
Beyond the traditional management consultancy (Consulting), 4PL organizes & accompanies
actively the agreed restructuring processes with the customer (Coaching) & takes over the
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6. appropriate subdivision regularly autonomously with staff & inventory responsibility (Operating).
The essential distinction to traditional consulting is the integration of the operational activities
with responsibility for staff & material. The sense of this system is the continuous logistics
adjustment & optimization towards operational requirements. Instead of a snapshot the division
will be continuously supported & performed through the expertise of 4PL. The business units on-
site undertake the operational activities & are the interface between the customer & the 4PL’s
expertise. The Service & Competence Centers work for the customer & support them with their
expertise & organizational skills.
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7. appropriate subdivision regularly autonomously with staff & inventory responsibility (Operating).
The essential distinction to traditional consulting is the integration of the operational activities
with responsibility for staff & material. The sense of this system is the continuous logistics
adjustment & optimization towards operational requirements. Instead of a snapshot the division
will be continuously supported & performed through the expertise of 4PL. The business units on-
site undertake the operational activities & are the interface between the customer & the 4PL’s
expertise. The Service & Competence Centers work for the customer & support them with their
expertise & organizational skills.
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