Different types of logistics

What is 4PL? Understanding the Next Level of Logistics Outsourcing

Categories: Freight Forwarder.

3PLs are well established as vital partners in the modern supply chain landscape. They fill essential logistical roles in warehousing, drayage, intermodal transport, and much more, allowing companies to scale operations at a sustainable pace without taking on massive amounts of infrastructure and investment. 

In recent years, companies are increasingly on the lookout for a single vendor partner that can handle the comprehensive management of all supply chain operations under one umbrella, from physical transport to big data processing and planning. That’s where the innovative new world of fourth-party logistics (4PL) comes into play.

4PL service providers manage the whole supply chain from start to finish for a client company. Amazingly, they usually own no physical infrastructure or assets, no means of transport or warehouses. Most don’t have a single warehouse or truck of their own. 4PL companies make their impact by managing a network of 3PL partnerships to get cargo where it needs to go.

What is 4PL and how do they fit into the bigger transport and fulfillment picture?

Basic outline of how 4PL works

4PL companies are relationship managers that work with trusted 3PL organizations to move cargo, increase transparency and visibility, and manage fulfillment channels for client’s. 4PL companies are independent, singularly accountable organizations that assemble and manage all resources, relationships, technology, and capabilities for their client company,¬†creating a seamless comprehensive fulfillment experience. They integrate numerous disparate aspects of the supply chain into one unified, highly efficient system.

For example, an ecommerce furniture retail client that partners with a 4PL can expect that product will be collected at the manufacturer and transported through customs and drayage. From there, a 3PL partner at the port will use access to intermodal channels to transport the container to a DC or a regional warehouser (or warehouse the cargo portside for later fulfillment).

When a buyer orders a sofa or mattress through the client organization, the 4PL will coordinate with the warehouse partner to complete the fulfillment cycle through another last-mile partner. Throughout this journey, the 4PL will handle the technology used to schedule transportation and track individual cargo in transit.

Technological enablement

From a strictly dollars-and-cents perspective, 4PL services often don’t add up. A well organized BCO with a robust and efficient supply chain could very well manage their in-house team with 3PL partnerships to expedite processes like drayage for the same amount of money (or less). But when the client organization comes to a 4PL from the perspective of increasing knowledge and rebuilding processes, the partnership starts to come to life.

4PL companies are valuable for high-level planning, providing data-based insight into network analysis and design, inventory management and forecasting, reverse logistics management, and more.

They have access to data from a number of partner organizations along the supply chain — warehouse management software data, fleet management data, and so on. With that comprehensive access, they can make big assessments on how to improve inventory balance, anticipate market changes, and manage a supplier base across modes and geographies.

Better transparency

With their top down view, 4PL companies can build a control tower for your company’s network of operations. That means better visibility into both efficiency and cost control, not to mention sustainability and ethical controls. As more companies feel market and regulatory pressure to curb their supply chain’s environmental impact, 4PL providers can provide valuable insight into where processes can be improved.

By centralizing vendor relationships through a single third party entity, you can potentially centralize and streamline visibility into you supply chain cybersecurity as well.

Risks and rewards

4PL partnerships come with a certain degree of risk. After all, you’re handing a vital part of your operations over to a partner organization. Effective 4PL requires considerable involvement from the service supplier in your day-to-day operations. In order for a 4PL partnership to be productive, your company needs to have a robust supply chain already in place.

How do you mitigate 4PL risk and find a partnership that will create value? Start by looking under the hood. 4PL companies run on the processes of their 3PL partners. Examine the 3PL partnerships that your prospective 4PL chooses to get an idea of what they are all about.

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