The Best and Worst Fourth Party Logistics Providers

Table of Contents: Select a Link to be Taken to That Section

Executive Summary

Fourth party logistics providers were predicted as the wave of the future.
Fourth party logistics providers are a non-asset-based approach that is based upon using the most up to date technologies.

Is Fourth Party Logistics Providers an idea whose time has come?

Introduction: The 4PL as a Coordinator

A fourth party logistics provider is a primary coordinator of other supply chain partners through the ownership and maintenance of information systems. This is differentiated from third-party logistics providers that provide physical handling and or transportation of goods. You will learn how technologies rather than assets differentiate the concept of a third party.

See our references for this article and related articles at this link.

Are 4PL Companies the Wave of the Future?

There are not many examples of fourth party logistics providers. However, the concept is very powerful and is based upon the following truisms:

4PL Companies that are good at physical goods movement are not necessarily great at IT.
New technologies are developing regarding monitoring that will allow for information to be passed to a company; that does not own the assets.
Website maintenance for transactions has proven more nuanced than originally thought. That is, some companies — such as Amazon.com, have far superior shopping sites than other businesses. The original idea was that every company could develop an effective leading edge shopping site. This is proving not to the case.
Supply chain management is not improving anywhere near as much as the information technology that they have at their disposal, indicating a misuse or misapplication of information technology dollars.

4PL Companies and Service Parts Maintenance and Management

Every limitation listed above is even more true for service parts management. Few companies even use service parts planning software, which is essential to effectively managing service parts, without it becoming an extremely manually intensive and tedious process.

Fourth Pary Logistics Providers and Service Level Planning

If many companies could outsource their supply chain functions and accept service level agreements with third party logistics providers. See this article for more on service level planning.

This might encourage companies to stop interfering with operations.

Presently, executive interference in supply chain management and production. This results in even the most elementary of production and inventory control formulas to be violated on a regular basis. This is done to meet competing internal political and financial objectives that have nothing to do with improving operations and everything to do with short-term financial goals.

The Technologies of 4PL Companies

Without the lack of follow-through on the part of 3PLs would be no real opportunity for fourth party logistics providers. 4PL companies should realize this. 3PLs have consistently fallen down on leading on IT implementation of advanced technologies. Without excellence in technology implementation, 4PLs cannot add value. Therefore those that lead 4PL organizations must understand technology quite well. Those are the companies than to look for who will excel and become true 4PLs.

It is somewhat debatable as to whether international freight forwarders were the first, fourth party logistics providers — and they developed before computerization. However, their role in the supply chain has always been very niche and limited. Either way, the relatively low value add of freight forwarders, is not at all what 4PL is about.

Looking Outside of the Logistics Industry for 4PL Companies

If we look outside the traditional supply chain companies, some companies take things like fulfillment off of a company’s hands. Publishers very rarely print their books, so in fact, even the largest publishers outsource everything after the electronic manuscript, and the cover is complete. Just a few printers print books for the entire publishing industry.

Lightning Source, which we will discuss, is simply a specialized arm of Ingram Books, the largest book distributor in the world.

Amazon and 4PL

Some small publishers sell through Amazon has fulfillment performed by Amazon. In some cases, Amazon has the publisher keep copies at an Amazon warehouse which can be stocked by a printer like Lightning Source. In other cases, Amazon keeps no stock on hand, but their shipping and ordering system is integrated with a Lightning Source which can print one book at a time, so-called Print on Demand (POD). Lightning Source then publishes the book only when an order is received from Amazon. I quote from Lightning Source’s website below.

Using the distribution strength of our parent company, Ingram Book Company, your book always appears in stock and available to all Ingram customers. With over 30,000 wholesalers, retailers and booksellers in over 100 countries your titles will gain the maximum exposure in the market today. With print to order, your book is printed and ready for shipment in 12 hours or less.

This is, of course, build to order, but the build to order lead-time is so short that it is close to emulating build to stock, the ultimate goal of any manufacturing company. With build to order, a tremendous amount of waste is reduced. In essence, Lightning Source is practicing “Lean” principles. However, they did it the right way by adjusting their manufacturing process to support zero finished goods inventory (they, of course, have raw material inventory, but that raw material can make thousands of different books). This is opposed to how Lean is often rolled out, where all the constraints stay the same, but inventory is only reduced.

Why Did This Approach Develop for Books and Media First?

These types of services are pretty recent developments and not coincidentally they tend to be more common in easy to manufacture and ship items, such as books, DVDs, etc. These are things that can be converted to extremely short and highly automated production runs. This would not be possible without technological developments in printing production and the ability to use websites for interaction rather than a person to person interaction.

Web sites allow companies like Amazon and Lightning Source to service small accounts with very little use of labor, as the setup work is performed by the customer. Books and DVDs have the added benefit of having a wide variety; Lightning Source can serve as a single point of manufacturing and sourcing. This allows them to service a large number of customers from a very limited manufacturing process.

The Pretender 4PL Companies

Fourth-party logistics is either already or about to become a buzzword, which means that companies will be looking to associate themselves with the term to pick up business. We recently read an article called Kuehne and Nagel – the longtime international freight forwarder is a fourth party logistics provider. Maybe they are, but freight forwarders tend to lack the sophistication to be placed in this classification. 4PL requires significant IT capabilities as well as standardized processes for onboarding participants.

When Fourth Party Logistics Providers Do It Right

A credible company should have ways of doing this online, without the involvement of a lengthy sales process. Many will say they have sophisticated fourth-party logistics capability, but to be convincing the company in question should first have an excellent website, and second, should publish and explain their onboarding procedures in extremely clear terms. The “brochure-ware” sites that have a lot of marketing literature are not very convincing. Those looking to learn how to do it right can visit Amazon.com’s and view the particular subcontractor onboarding documentation.

The Fourth Party Logistics Provider Contender

Amazon.com is excellently positioned to be a fourth party logistics provider because of its shopping engine and top ratings as a supply chain service company. Amazon performs its fulfillment on some of the items sold on their site, but their partner subcontractors are responsible for a significant percentage of Amazon.com sales. In some cases, they do fulfillment for their subcontractors, so Amazon is still very much a third party logistics providers. However, through subcontracting, they could also easily add a fourth-party logistics provider portion to their fulfillment business. Amazon is a prime contender to be one of the first 4PLs if they are not already. Amazon is also one of the few “new” innovative companies to focus on the more old school logistics area. They bring a fresh set of ideas and the ability to implement technology that many of the old school 3PLs do not possess.