4PL in E-commerce

Build a Better Supply Chain Infrastructure With 4PL

The supply chain process is lengthy in the modern commercial world. With gradual adaptations to technology and integrations at various steps, companies need to divide the work among different working bodies to focus on a better manufacturing process and improve the products. The jobs are mostly handled by different entities and divided to increase work efficiency.

For example, the storage, sorting, picking, and packing part of the process is handled by a company warehouse and its management system. A shipping company looks after a product after it is packed, and ships it nearer to the customer at a warehouse near the address given. 

After this, a delivery agent is given the responsibility to get the product delivered to the customer, thus completing the order fulfillment process. In other logistics like 1 PL, 2PL, and 3PL, the progressions mentioned above are handled by different companies but in 4PL, one company acting as the 4th Party Logistics oversees all the above operations.

What is a 4PL?

4PL stands for ‘4th Party Logistics’. As a stepped-up version of 3PL, 4PL not only oversees the logistics and movement division of the products but also the storage, curating resources, and technologies required in the process. 

A 4th Party Logistics company is responsible for managing external 3PLs and helping them build infrastructure to provide better supply chain solutions. 4PL acts more like a universal agent that encompasses services offered by other logistic classifications, too, and justifiably so. 

As a widespread system, a 4PL works diversely to cover different sectors of the system like logistics and their strategies, analytics of transportation expenses, utilization of capacity, and carrier performance, inventory planning and management, network analysis and structure design, freight sourcing, business planning, project and development management, inbound, outbound and reverse logistics management, control tower sourcing and management of logistics in a wide range of geographies and also acting as a consultancy firm for businesses. 

4PL- The Pros and Cons 

A 4PL is fundamentally a logistics company that the manufacturing company outsources. It provides all the facilities of a 3PL and more, performing all the actions, higher and lower in a supply chain. But like everything, 4PL, is balanced on a scale of pros and cons. 

As many companies presently feel, 4PL is an all-in-one solution to most predicaments faced while transiting a product. They delegate all of the duties that come along with the process to the 4PL company while focusing on improving product quality and production management. 

The 4PL operator then does what they know best: managing and optimizing the supply chain and efficiently completing the order fulfillment process. This gives the companies space and opportunity to grow and monitor their progress from a third person’s perspective with the feedback provided by the 4PL company. 

As an added advantage 4PL is significant in reducing various expenses that companies must put up with. They determine the needs of logistics and storage facilities, vehicular and transportation costs, and many others. Instead, these requirements are fulfilled by the 4PL operator itself, and the price is included in the amount they charge from the companies that use their services, which is far less for each company than if they had to establish these facilities themselves. 

But it is not that 4PL does not come with a few setbacks. Along the lines of all their facilities, 4PL generates a very high dependency rate for a company in its long term of service due to which 4PL is only seen as a strategic solution or a logistics partner, rather than a regular service provider. 

As 4PL oversees the entire operation alone, companies generally do not have control over their transiting products and frankly require extreme transparency on both ends, which is sometimes neglected. 

Also, 4PL is expensive. It is not a viable option for small and medium-sized businesses that don’t have enough capital to invest in these facilities compared to larger companies. 

4PL and Where it All Began

The idea behind 4PL was first defined and implemented by Anderson Consulting, now Accenture. The company planned the process to enter a new market of outsourced supply chain planning back in 2005. Following their example, several other companies, like IBM, decided to do the same. 

As a concept developed to promote awareness about outsourced supply planning, it was pretty new to the market but caused quite an uprising. eWeek, a popular tech magazine in those days, published an allegedly biased article about their outsourced chain supply plans on IBM. They quoted IBM on several instances and stated, “Competing against consulting giant Accenture as well as some smaller players, IBM’s new Supply Chain Management Outsourcing Business will be a part of its new business transformation arm, said Bill Ciemny, who will lead the SCM unit.”

The Concept of 4PL

Outsourcing supply chain management business to external clients without any assets of their own 4PL companies are gigantic entities that take responsibility for completing the order fulfillment process with oversight of warehouse and shipping processes, freight, and agents. 

With complete control over the transition of the product, they are a cost-efficient option for their clients to deliver products to their destinations efficiently. They focus on strategic and managerial touchpoints while clearing the field and streamlining supply chain activities for companies to focus on product development and improvement. 

They facilitate more focused inventory management, distribution, supply and demand planning, and all inbound and outbound logistic activities. They claim credibility and accountability for supply chain progressions and their performance. They synchronize the advances of various partners through the most updated IT systems and an array of providers. 

How 4PL Works

As a singular entity that provides almost all logistic services, 4PL includes basic supply chain processes, primary 3PL management, business planning, consultation, change and development management, and many more. A 4PL is a 3PL company that takes up responsibilities other than essential product storage and shipping. 

With complete flexibility and control over every moving part of the customer’s supply chain process, 4PL companies serve as a single touchpoint for all parties involved in the system. A 4PL supply chain is a focused, yet diverse pathway companies take to save costs by setting up individual warehouses and logistics systems. 

Instead, they assign the whole process to a 4PL company that takes up the responsibility while companies can focus on developing their core products efficiently. A 4PL typically manages the entire supply chain system and order fulfillment process after a company gives them total control over the process. 

They also analyze a considerable amount of data while overseeing transportation, warehouses, and any moving parts of the process. They optimize transportation processes after taking responsibility for completing the order fulfillment process of a company, coordinating the suppliers integrated into the process, synchronizing the inbound and outbound logistic flows, and modeling and managing distribution networks and structures. 

Components of 4PL

Typically 4PL companies do not focus on a single activity. They cover the entire supply chain process encompassing other services along with them. They generally consist of a variety of components. The primary 3PL duties include storage, sorting, picking, packing, shipment, and delivery of a product. 

They specialize in warehouse and inventory management with a focus on logistics and the development of supply chain management systems. Besides the basic facilities, they are architectured to serve as a consulting and business planning firm and project and development management body. 

The Key Differences between 3PL and 4PL

As stated already, 4PL is an upgraded version of 3PL services along with other strengths, looking after the entirety of the supply chain process. Here’s a systematic comparison of 3PL and 4PL:

3PL vs. 4PL

3PL	4PL
Focuses on mainly delivering a product and completing the supply chain process.	Has a diverse range of functions, including 3PL logistics and other movements in the supply chain.
Provides only with receiving, storage, packing, and shipping of products.	Facilitates warehouse storage and implements efficient warehouse management systems, and also oversees the entire supply chain process.
3PL services are typically transactional and do not provide companies significant benefits other than logistics.	4PL services not only focus on the whole supply chain process but also act as business consultation and planning resources and provide many other functionalities.
3PL services need to be monitored by the manufacturing company at all times.	4PL services are highly independent; Companies rely on them to complete the order fulfillment process while the companies focus on product improvement and development.

Although there is more than one difference between 3PL and 4PL, most 3PL transition after some time and develop into 4PL companies providing all of the facilities mentioned above. Including strategic planning and structure building, 4PL delivers complete transparency and functions as a 3PL. Building on trust, 3PL companies transition smoothly into 4PL. 

5PL Through 1PL

Although 3PL and 4PL are the most popular classifications of logistic companies, they are not the only ones. Company logistics are classified into five types: 1PL, 2PL, 3Pl, 4PL, and 5PL. 

1PL or First Party Logistics are firms that need to have manufactured goods transported from one place to another involving just two parties, the manufacturer or the distributor and the retailer or the customer on the other end of the chain with no middle party involved.

2PL or Second Party Logistics is mainly the segment of asset-based carriers that mainly deal in transportation, including shipping lines for ships and airlines that generally operate the planes transporting the products and the hauling companies that manage the vehicles delivering the goods to the customers. Often referred to as a ‘forwarder’, a 2PL business mainly comprises transportation.

3PL or Third Party Logistics looks after the needs of completing the supply chain process by outsourcing supply chain operations to deliver the products manufactured by a company to the customers. They mainly provide logistical solutions by facilitating receiving, storage, packing, and shipping services. 

Some companies sometimes offer additional services or value-added services like inventory management, kitting and assembly, and postponement packing. With the drastic growth in e-commerce in the last few years, the demand has grown for 3PL services.

As stated before, 4PL or Fourth Party Logistics is a diverse all-in-one version of a 3PL structure that provides logistical support and outsources business planning and consultation along with network structuring and monitoring. It includes basic amenities such as inventory management and other integral processes divided among entities in the supply chain process.

5PL or Fifth Party Logistics is still a new concept in the market of outsourcing business facilities. Still under development, it potentially integrates total logistical support and surety in a singular system through the conglomeration of multiple outsource service providers and encompasses the entire supply chain. 

4PL in Supply Chain Management

Unlike other logistic divisions, 4PL companies are not restricted to basic 3PL logistic movements. Instead, they work on a diverse supply chain management system mechanism with close monitoring of activities in every segment of the supply chain. They act as a primary 3PL company by providing essential logistic services from receiving goods to delivering them to the retailer or the customer. 

As an essential communication medium between the seller and the buyer, 4PL companies are typically responsible for giving crucial feedback to the selling company and helping them improve the manufacturing of products. They act as a medium for customers who review different products, and as a business consulting firm, they advise the manufacturing companies to work on the feedback and improve accordingly. 

With exceptional amounts of flexibility, 4PL companies streamline and promote new products developed by companies. They play a crucial role in improving the success rate of a product and allow firms to focus on their core competencies without having to worry about logistics. 

From a macroscopic viewpoint, in the world of e-commerce, the agility of the supply chain and responsiveness of the company go hand-in-hand with the integration of supply chain awareness and the integration of information technology with the system. Thus, providing a system that checks the needs of the companies using their facilities and helps them understand the market structure from a different perspective. This gives them another point of view and lets them develop the products accordingly.

4PL in Real-Time- A Study   

To better understand the structure and make of a 4PL integrated supply chain system, a study highlighted how the 4PL system fared in kitting integrated companies with their services and created a prominent outline of their profile.

In e-commerce literature, studies have been conducted and the system has been researched to understand the working mechanism of 4PL systems and how it varies from 3PL mechanisms and fill the gap between the supply chain research and its agility, firm performance and relationship, and other working mechanisms controlling the flow of the supply chain market. 

The method of study used in the research is the ‘Snowball Sampling Method’ where non-random sampling of variables is performed that encourages the other samples to participate in the study. 

The research was conducted by using four main variable groups. 

• To begin the survey respondents were asked for feedback and general demographic information on the firms.
• The data was collected through in-depth interviews that were analyzed and transcribed from recordings to maintain a data record. 
• The records led the researchers to focus on the executives of 4PL organizations and 4PL logistic academic professionals. 
• The approach toward the concept allowed extensive analysis of the potential of a 4PL service provider. 
• By the records, the interviewed people were five executives from 4PL firms and an academic professional with extensive knowledge of 4PL working mechanisms. These in-depth interviews generated the instruments required to measure or estimate 4PL capabilities in the second part of the survey. The third and last part of the survey focuses mainly on the firm’s supply chain agility and performance.

The results of the survey were fragmented into different parts. Going by the size, 28% of the respondents have reported almost 2000 employees, and 18% have 4000+ employees, indicating that most companies are large-scale. 

Conclusion: After extensive study and a series of tests, it was concluded that 24 variables were subjected to factor analysis and the data obtained was more understandable and interpretable. As a result of the final factor analysis, the researchers obtained four factors explaining 70.175% of the total variance. These four factors were:

1. Integrator: The eight variables under this factor make up the integrator capability of 4PL service providers and the expressions under this factor are responsible for the supply chain agility with an explained variance percentage of 22.927%.
   
2. Supply chain agility: The seven variables and the expressions that are in practical control of the supply chain agility in a 4PL system with a variance percentage of 19.448%.
   
3. Business performance: The expressions under the five variables under this factor, are responsible for the business performance of the  4PL companies with a variance percentage of 17.600%.
   
4. Supply Chain infomediary: The four variables under this factor mainly focus on 4PL information provision capabilities with a variance percentage of 10.002%. 

4PL Providers and their Role in the Market

A 4PL provider represents the upper level of supply management facilities in the logistics outsourcing market with a broader perspective of the market flow and a network structure integrating all aspects of the supply chain in a singular body with total control over logistics and other facilities provided to companies. 

4PL providers are firms that act as control towers with extensive teams looking after every methodology that client companies use to conduct the logistics of their products. They provide widespread support and feedback to clients with various facilities such as business planning and consultation, network outsourcing, freight, and many others. 

They play a crucial role in the market and help companies develop their products while assigning the duty of logistics to 4PL companies exclusively.

4PL Contract

A 4PL contract is signed between 4PL providing companies and clients that need products delivered. Now a 3PL is a cheaper source for budding companies, but 4PL companies offer complete flexibility and transparency. 

They also take complete responsibility for the products and provide accountability, while the businesses focus on the betterment of products. Per the contract, 4PL providers get full access and control over the products in transit while the 4PL companies take credit for their transition and agree to be held accountable in case of damage. They also agree to provide customer feedback to the company and act as a medium of communication between the customer and the company.

4PL Warehousing

4PL warehousing focuses on diverse oversight of logistics and informatics. 4PL warehouses store the products till they are packed and sent for shipping. The products are shelved and stored in warehouses where they are sorted and packed according to requirements. 4PL warehouses facilitate extensive picking and packing and shipping facilities without involving any third party. As an all-in-one service provider, 4PL companies also provide updated warehouse management facilities and better inventory management systems, mostly in real-time.

Examples of 4PL Companies

Most companies that run the global market are subject to orders and conduct a lot of their business via the supply chain process and customer order fulfillment system. On a worldwide scale, 4PL companies provide for many well-to-do companies and are major success factors. Some of the most popular among them are

Amazon: 

• The e-commerce tycoon, Amazon, is the perfect example of a 4PL service provider. Amazon allows companies to list their products on their online shopping website www. amazon. in, and promotes companies and their products globally.
  
• Anyone who uses the internet to shop for products uses Amazon for the same purpose. Amazon provides the best 4PL logistic support to companies with facilities such as storage in global Amazon-owned warehouses, picks, packs, and shipping products to the appropriate customers, and provides software support for transactions.
  
• But along with the basic 3PL facilities, Amazon is also known to provide fulfillment centers to sellers for easy storage. The user-friendly website allows the members a comfortable interface to list their products. Amazon is also famous as a 4PL medium because the site allows the customers to rate the products and provides them with a platform to list their complaints for the sellers to see so that they can recognize the customers’ pains and act on them accordingly.
  
• With business planning, consultation, and outsourcing network-building mechanisms, Amazon is one of the best 4PL companies in the world. As a bonus, listing products on the site is surprisingly easy and costs low, allowing even budding businesses to list their products and sell them online.

Primary Connect: 

• A part of the Woolworths group, Primary Connect is a well-known Australian 4PL  logistics firm. 
• With basic 3PL facilities like storage, pick and pack, and shipping of products, Primary Connect boasts of being a 4PL firm that partners with transport carriers and moves more than 6.5 million pallets per year from almost 4000 pick-up points and moves approximately 110,000 loads annually from 1000 clients on an average. 
• Along with these facilities, Primary Connect, as a 4PL firm, also facilitates international pick-ups and delivers them to Australian ports or warehouses, freight operations, both international and national, distribution of products to Woolworth supermarkets, and working with suppliers to optimize the supply chain smartly and reduce expenses and costs.
  

Coles Collect: 

• Another major Australian retail chain, Coles Collect, provides an extensive online website like Amazon and Primary Connect, that gives the customers a choice to order online and get the desired product delivered to their homes instead of visiting the retail stores in person. 
• They even facilitate same-day and overnight drops of the products. With major 3PL provisions, the company plays a significant role in developing companies that sell their products through their retail stores and online website. 
• They provide business consultation and strategic network planning for the companies to grow. This makes them a valid 4PL firm.

Accenture:

• As the company that generated the idea of 4PL business strategies and logistic outsourcing of supply chain management, Accenture, in collaboration with Syngenta Global Logistics, structured a globally operating 4PL model. A network of control towers responsible for coordinating local and global transport and logistics that external 4PL providers orchestrate. 
• Although the system sways from the typical 4PL functioning guidelines, Accenture acts as a firm that provides 4PL facilities by monitoring and overseeing other 4PL providers through software and technological connectivity.
• The new model set up by Accenture Consulting and Syngenta enables greater visibility through online dashboards and informational bulletins, connected through a hybrid cloud developed by the renowned IT segment of Accenture Solutions. This helps improve business insights, transport planning, and delivery performance for the customers. 

FAQs