Logistics Provider: Traditional and Virtual
Logistics Providers: Traditional and Virtual
The functions of 3PL’s and 4PL’s are different in many ways. 3PL are companies that are being contracted to provide various logistics services. The types of service they provide are typically are logistical in nature, but often includes value added services such as e-commerce, packing, managing inventory and transportation. Some 3PL’s also offers managing the entire channels including billing and online sales. However, the type of service they deliver depends on their abilities, client budget and needs. 4PL’s on the other hand offers a more diversified choice of service that includes managing two or more companies on their client’s behalf. 4PL’s basically handles all the entire supply chain cycle from the 2PL down to the transportation company. In a nutshell, 3PL’s are only limited to the logistics needs of the business, but the 4PL’s deliver the numerous managing facets of the business. This is because companies do not only rely on logistics and transportation alone; they have to go adhere to the supply chain process in order to deliver their goods and services to the end user and 4PL’s are the ones that can make it happen (Craig, 2003).
If the company has assets such as warehouse, dispatch facilities, logistics department and delivery trucks, they would tend to maximize return on their assets for the sake of their stockholders. Such company would not need services offered by 3PL’s because they obviously have the means to perform the functions of 3PL’s. However, if the company lack other resources such as technology and manpower, they are likely to contract services from 4PL’s. This is because the main advantages of 4PL’s are technology and manpower. The context of using 3PL’s is to maximize the company’s assets, while 4PL’s are business process outsource providers contracted to provide all areas of the supply chain process. The responsibilities of 4PL’s are to create more value for the business and strengthen its competitive advantage.
There are several factors that make companies rely on 4PL’s for its services. One of them is operational cost. For a business having facilities, warehouse and own trucking service means additional cost to their bottom line. 4PL is a more feasible management strategy that will allow companies to optimize their operations without sacrificing the end-to-end control and visibility. Companies are willing to just pay the price of the service rather than paying the price for the cost and maintenance of their own facilities. The internal cost pressures of maintaining a logistics operation within the business drives companies to consider a 4PL arrangement (O'Reilly, 2011). Another factor is meeting the market demands. The increase in capacity restrictions and fuel cost triggers the need for a 4PL provider because outsourcing is capable of absorbing and flexing with the market volatility. Having a 4PL provider on the company’s side allows them to react to trade swings faster and making them able to devise strategies that can be easily integrated into the supply chain process.
There are companies that has well-organized distribution process, but has limited capacity to control the supply chain. For example, if the company is buying their supplies based on a landed cost, they would not be able to separate the cost of supplies and logistics. However, having the 4PL to manage the flow of supplies would allow them the company to identify the exact cost incurred for the supplies and the cost of logistics. Another example is with IBM; in 2008 they contracted both 3PL and 4PL providers to handle asset recovery, flow management of software and hardware and logistical needs of product service parts. This approach allowed IBM to focus on its primary business because employing the service of the 4PL enabled them to separate the core and non-core logistics and transportation functions of the company. It goes to show that the main factors convincing the companies to use 4PL services is because of cost consideration and market demands.
The increasing dependency to 4PL’s because of its capability to deliver an entire supply chain process in a single package is imminent in most large companies. However, not all 4PL providers are efficient enough to avoid failures and because of that, metrics were established to determine the level of value that 4PL has on supply chain. It is not enough that both the company and 4PL have entered into a service level agreement; there is still a need for adequate performance measurement in place to ensure that expectations were fulfilled and the lines of accountability and responsibility was clearly stipulated. Establishing the metrics is important because it defines what is being outsourced, why and how. Setting the primary standards integrated into service level agreements establishes guideline for both parties in creating the path for the supply chain strategy and corporate relationship of both parties. If the 4PL provider was not able to meet the metric criteria, it means that the 4PL provider has failed (Dutton, 2009).
Looking at Unyson Logistics solution for Big Lots, it seems that the solution is not consistent to the role of a 4PL provider. First, Unyson was contracted as third party logistics provider focusing on consolidating Big Lots logistical processes. It was mentioned earlier that a 4PL provider generally handles the entire supply chain process of the company from start to end point of supply chain. Meaning, if Unyson is acting on behalf of Big Lots, they should also be adding value to the supply chain from the store straight to the customer. However, Unyson’s proposed logistical solution is more focused on the transportation link between the supplier and Big Lots. Although the solution would also benefit Big Lots cost of delivering the products to various stores, the service level agreement between Big Lots and Unyson stipulates that their vision is to reduce the inbound transportation cost alone. Even if Unyson offered the TMS application to allow full visibility, it does not justify the value that the logistics solution has to the entire supply chain process.
References
Craig, T. (2003, January). 4PL Versus 3PL-A Business Process Outsourcing Option for International Supply Chain Management. World Wide Shipping. Retrieved November 5, 2012, from http://www.ltdsupplychain.com/mag/4pl.htm
Dutton, G. (2009). Selling the supply chain upwards. World Trade, Troy, 22(9), 34.
O'Reilly, J. (2011, January). 4PLs Take Control - Inbound Logistics. Inbound Logistics. Retrieved November 5, 2012, from http://www.inboundlogistics.com/cms/article/4pls-take-control/
