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Tim Fawkes is Managing Director of
3T Logistics
com)
and has over 20 years’ experience
in the logistics industry.
Using a fourth party logistics provider
to manage transport processes is not a
new concept. However, there remains
a lack of clarity in defining a 4PL and
understanding how it differs from a
3PL. To further muddy the waters,
not everyone who claims to be a 4PL
is what I would term a ‘true 4PL’. So
what are the main differences?
3PL vs. 4PL – Five key differences
1.
3PLs typically own warehousing
and transport assets. They aim to
maximise use of these assets to
increase revenue, minimise empty
running and ensure maximum
profitability of their vehicles.
3PLs need to prioritise their own
efficiencies to make ends meet.
2.
Even if shippers nominate a
3PL to manage all their logistics
requirements, it’s likely that some
of the work will be subcontracted
to alternative 3PLs to reduce
empty running and manage
fluctuations in volume. They will
often make a margin on work that is
subcontracted out.
3.
A 4PL doesn’t own any physical
warehousing or transport assets; its
only assets are systems and people
so it is completely independent
and removed from the 3PL vehicle
asset dilemma. Therefore, a 4PL can
focus on implementing the optimum
solution for customers’ changing
needs, working towards process and
system improvement.
Transport management expert
Tim Fawkes
compares the
merits of 3PLs and 4PLs.
4.
A 4PL provides all the functions
of a 3PL such as procurement,
warehousing and delivery, but also
provides the systems to manage a
whole range of business processes,
from finance to customer service.
5.
Because many of the processes
are standardised and systemised,
a 4PL’s focus is on the customers’
future transportation requirements
and trends.
The best solution typically involves
the use of multiple 3PLs to minimise
empty running and to ensure that the
right transport service is obtained
(3PLs often specialise in a particular
area which requires a different physical
infrastructure as well as different
systems).
Many freight forwarder organisations
also refer to themselves as 4PLs, while
some carriers or 3PLs have a 4PL
division, but there is always a conflict
of interest around using their own
vehicles instead of the best solution for
the clients’ needs.
The 4PL - Five areas of expertise
A 4PL provides a level of unbiased
transport expertise that is not normally
available to a shipper.
1.
Carrier tendering
- regular
tendering large freight spends for
multiple shippers in multiple market
sectors. Enables the 4PL to generate
more efficiency than one shipper
could offer.
2.
Carrier performance management
-
creating service level agreements with
3PLs across multiple shippers. Supply
of systems and processes to record
and communicate performance data.
3.
Financial control and reporting
-
ensuring processes are adhered
to and costs are captured through
a controlled process, generating
accurate transport accruals. Offers a
true understanding of the cost to
serve each customer.
4.
Transport execution
– implementing
continuous development in systems
and processes to improve visibility
and communication to the shipper.
Best practice from multiple sectors
to achieve the right cost and service
balance.
5.
Continuous improvement
- tried and
tested initiative frameworks that help
improve cost and service on a tactical
anwd strategic level for the shipper.
Ultimately, companies benefit from
using both 3Pl and 4PL solutions,
ideally working together to reduce
costs. However, a 4PL offers more
sophisticated systems and processes
which ensure that the customer gets the
right combination of service and cost.
3PL vs. 4PL
14
Logistics Business Magazine | February 2016
TRANSPORT MANAGEMENT