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Harnessing the power of 4th Party Logistics providers

January 14, 2019
Harnessing the power of 4th Party Logistics providers

The explosion of e-commerce is presenting retailers with big opportunities, and a need to innovate within their supply chains

BY RANDY SCOTLAND

FUELED by a demand for ever-faster supply chain efficiencies, retailers looking to hone their competitive edge are turning more and more to their logistics providers for solutions.

This in turn is driving heavy investments in technology to enhance delivery times and minimize order delays and disruptions, especially for e-commerce transactions.

It is also opening up new avenues of collaboration between retailers and their logistics providers, also known as fourth-party logistics (4PL) providers.

According to Penske Logistics, a global player in this space, 4PL providers take on many of the same roles as third-party logistics (3PL) providers. However, they have much broader responsibility and accountability in helping the customer reach its strategic goals.

“The 4PL is the big umbrella,” explains Andy Moses, Senior Vice President of Global Products at Penske Logistics. “Under the umbrella you have all of the supply chains—transportation, warehouses and anything that is moving. The 4PL manages the big umbrella. That brings more sense of control and ownership.”

The scope of the challenge for retailers is outlined in the 23rd annual 2019 Third-Party Logistics Study, sponsored by Penske Logistics along with E-COMMERCE LOGISTICS Infosys Consulting, Korn Ferry and Penn State University. The report’s findings were presented at an international conference this fall in Nashville of the Council of Supply Chain Management Professionals (CSCMP).

“Retailers continue to emphasize an always-on, always-open shopping experience that provides seamless interaction across all retail sales channels, which is forcing shippers and their logistics partners to be fluid and move quickly,” the report states, adding:

“To keep up with the increasing level of complexity within the supply chain, companies must be agile to meet rapidly evolving conditions. This is particularly relevant as retailers and manufacturing locations work to keep inventories low, respond to faster shipping demands and react to changes in demand patterns within the global economy.”

Benefits of 4PL

The complexity of the challenge for many shippers is of such magnitude that adopting a 4PL model can be good business practice, says Rick Blasgen, President and CEO of the CSCMP, a professional organization offering training and certification programs internationally.

He puts it this way: “If you landed here from Mars and you had no idea on how to assemble a network, you would go to somebody who has not only all that knowledge but capabilities to acquire the right people for your business.”

“A fourth-party provider is typically viewed as a supply chain integrator,” he adds. “It is someone, or a company, that may assemble and manage all of the resources and capabilities and technology of somebody’s supply chain, and its providers.”

Blasgen believes demand for this type of service is only going to increase.

“This is going to become an important service, particularly if you are a company interested in a global supply chain, or you have operations in different parts of the world. To try and keep tabs on what’s going on not only with regulations and such, but just the technologies that are available on different continents, is an overwhelming task in many cases.”

He pinpoints two areas that are of special concern for the supply chain industry: e-commerce and transportation.

“Right now, e-commerce is expensive as a percentage of sales from a supply chain standpoint. So, I think as that scale grows, we’ll get better at that, and figure out new and innovative ways to serve the population that wants that type of service.

“I also think there will be a lot more collaboration, particularly in transportation. When you look at the situation, at least here in the U.S.—where you’ve got a lot of truck drivers retiring [and] you’ve got a healthy economy—75-80 per cent of our products move on a truck. And not a lot of people are going into that industry. That’s going to drive prices, and more willingness for carriers to do innovative things to retain and attract drivers.

“But it also means that companies have to consolidate and move freight together more frequently, as opposed to just having one truck go a lot of empty miles and that kind of thing. I think there’s initiatives that we’ll figure out to consolidate and take advantage of the capacity that exists and be more productive with it.”

“WE JUST LOOK AT E-COMMERCE AND HOW EVERYBODY IS FOCUSED ON HAVING THAT ONLINE EXPERIENCE VERSUS THE BRICK-AND-MORTAR, AND THE SPEED TO GET THE PRODUCT TO THE CUSTOMER.”

JOE CARLIER
PENSKE LOGISTICS

Strategic partnerships

Here’s where having a 4PL provider can be a logical choice, says Joe Carlier, Senior Vice President of Global Sales at Penske Logistics.

“The way we look at it, a 4PL is one level above a third-party provider. A 3PL is almost always a singular relationship, meaning I am providing a singular role, either trucking or warehousing or freight management.

“Acting as a 4PL, you’re really more of a strategic partner aligned with the shipper, part of the upstream planning decision-making processes for everything within the supply chain. Underneath that you would have all of those functions, but they could be other providers that report up to that 4PL.

“As a 4PL, I am embedded in the shipper’s business, working with them on planning, supply chain efficiencies, part of the sourcing to the different functional areas, and may even provide my own technology to have a singular integration point.”

With data security and confidentiality being paramount concerns, Carlier is asked if there should be any hesitations about sharing sensitive information.

“From our perspective, no there shouldn’t,” he insists. “Because that’s what we have attorneys for—to ensure those firewalls are in place.”

There are many reasons why retailers and other shippers would want to embrace the 4PL model, he says.

“When you think about how so many of these large companies have grown, so much of that growth has come through acquisition. You’re dealing with different ERPS [enterprise resource planning systems] and other [management] systems, and there’s so much buzz around data analytics and big data.

“This definitely addresses that consistency throughout the supply chain, and ultimately provides that end-to-end visibility. It’s really difficult to provide that with multiple providers [and] multiple integration points. And it becomes even more complicated when you’re dealing with growth through acquisition, and you’re dealing with [legacy] ERP systems, etc.”

Changing consumer demands

The continued growth in e-commerce—and attendant shipping challenges—are also catalysts for many retailers.

“Consumer demands have changed so much,” notes Carlier. “We just look at e-commerce and how everybody is focused on having that online experience versus the brick-and-mortar, and the speed to get the product to the customer. All of that has a direct impact on real-estate and warehousing availability and resources. There’s been so much conversation around truck drivers and the shortages and the capacity constraints.

“If I’m a retailer, why on earth would I want to worry about all of that?”

There is, of course, a cost attached to this expertise. The standard compensation package for 4PL providers is a management fee plus performance bonuses.

Says Carlier: “Typically, at the beginning of the relationship and then at the end of each year, there’s a baselining exercise that occurs, and we’re incentivized to continue to drive costs down without impacting service. There’s gainshare components that are typically attached.”

In their pursuit of supply chain mastery, retailers (and other shippers) and their logistics partners are continuing to invest heavily in leadingedge technology, according to the new study.

For shippers, the top technology investments that are being made are being made in ERP software, warehouse management systems (WMS), transportation management systems (TMS), supply chain visibility, and WMS add-ons (for labour management and related tools).

For logistics providers, the study found the corresponding order of investments are being made in WMS, TMS, supply chain visibility, ERP, mobile applications and WMS add-ons.

“Logistics is being transformed through the power of data-driven insights, and current technology is enabling unprecedented amounts of data to be captured from various sources along the supply chain,” the study states.

“The use of technology is exploding within every area of the supply chain, which is driving increased agility.”

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