FEATURE LOGISTICS 3PL V 4PL: WHAT IS THE DIFFERENCE?
The difference between 3PL and 4PL has long been disputed. Martin Warington of TVS Supply Chain Solutions describes what is required to be viewed as a true 4PL provider
T
he need for businesses to be able both to outsource the management of
their supply chain and develop their entire supply chain strategy continues to grow. The argument about the differences between third party logistics (3PL) and a 4PL has gone on for some time. This could be because people conclude that a company that takes on a business’s warehouse and transport functions (two different elements operating under the same umbrella) must be a 4PL whereas an extended 3PL would be a far more accurate description. A 3PL is essentially a fixed transactional-based service facilitating the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. Some of the tactical services they typically provide are transportation, warehousing, cross- docking and packaging. All of these operations will be undertaken under instructions received from the parent company. The 3PL will have no input in to how the goods are delivered to the client, where the goods are sourced from and how process can be improved. The operations are completed in very rigid transactions and the 3PL will wait for the parent company to tell them what to deliver based on the client’s requirements. A 4PL adopts a specialised and strategic
management role in the client’s supply chain which concentrates on the improvement of overall supply chain and
S12 MAY/JUNE 2015 | MATERIALS HANDLING & LOGISTICS
logistics processes and methodologies rather than the physical implementation of one or more logistics function. This is why the working relationship is often referred to as a ‘partnership’ since the 4PL service provider becomes an integral part of the client’s business.
END TO END SUPPLY CHAIN MANAGEMENT The biggest difference between a 3PL and a 4PL is the provision of end to end supply chain management. A true 4PL provider won’t just deal with the goods brought into the warehouse but look beyond that process. This will involve engaging directly with the current suppliers, how they are managed and whether there are others who can provide the same quality goods at more competitive prices to make a more affordable proposition to the client. In addition, a 4PL’s role may extend to a
re-organisation of the client’s business and personnel if this is required by the supply chain reform process. Obviously, the 4PL company needs to have the skills and resources to manage this kind of change effectively and to the benefit of their client’s business. It’s through this process that a 4PL can make a real impact on the front end supply chain elements. At TVS we utilise an innovative Demand
Forecast Planning (DFP) tool which helps to manage the overall movement of the goods, what parts and materials are going in and out of the warehouse and to ensure the right products are in stock at the
TVS utilises an innovative Demand Forecast Planning (DFP) tool which helps to manage the overall movement of goods, what parts and materials are going in and out of the warehouse and to ensure the right products are in stock at the correct levels
correct levels, helping to drive down inventory costs. The system communicates with all the suppliers and ensures they’re bringing supplies in on time which helps us provide the client with options on quality and technical processes to increase the supply chain and increase the list of potential suppliers. Contracting a 3PL service provider may
realise considerable benefits for individual supply chain functions. These tactical supply chain activities are rarely core to the client’s business and generally managed by sub-contracted or outsourced resources to provide as much value as they can to the organisation in terms of lowest cost. However, managing individual tactical supply chain activities in order to reduce their costs might result in increased costs or decreased service levels elsewhere in the supply chain network. Management of all the activities involved within potentially different supply chain networks is therefore key to the value that 4PL companies can provide to their clients. Seeing a holistic picture of the consequences that supply chain decisions in one area of the business will have on another is the strategic role that 4PLs can fill with far-reaching benefits impacting the entire organisation.
TVS Supply Chain Solutions T: 01257 265531
www.tvsscs.com Enter 309
/ MATERIALSHANDLINGLOGISTICS
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