- There is a fascinating history around the term 4PL for supply chain services, and there are several different types of 4PLs. 4PLs have been co-opted by companies that have no 4PL capabilities, such as IBM and Accenture.
- In this article, we cover how these companies bombed in the 4PL services market.
In comments on this blog, I have been asked to provide an example of 4PL services. I usually say I can’t come up with a company that meets the definition of a 4PL because every company which adopts the phrase 4PL has assets. This has forced me to bring up companies like Amazon. However, true 4PL does not have any assets, and Amazon runs warehouses.
A true 4PL must be non-asset based. Some transportation entities such as freight brokers don’t have any assets, but they don’t do anything except a very narrow function, so they do not qualify.
- A 4PL is supposed to act as a shipper’s outsourced supply chain department, but they would work for multiple shippers, gaining some economies of scale in this activity.
- 4PL brings up the topic of outsourcing related not only to shipping but other types of coordination and analysis such as supply chain planning. If a 4PL were more extensively manage are some budding examples of companies that take all of the shipping coordination responsibilities.
Extra Shipping 4PLs
While that is where 3PLs concentrate, there is no reason to limit the discussions of 4PL supply chain services only to shipping. Other areas of supply chain management can also be managed, and if the entity does not have assets, then they would be considered a 4PL. If we analyze the term 4PL, it will be merely a concept developed in a paper by Accenture. The 4PL concept was developed as part of a concerted marketing effort on the part of Accenture to raise awareness of a new market they wanted to enter. That was outsourced supply chain planning. This was all the way back in 2005, and several companies had the same idea. This included IBM. eWeek, no doubt which receives a lot of money from IBM
If we analyze the term 4PL, it was simply a concept developed in a paper by Accenture. The 4PL concept was developed as part of a concerted marketing effort on the part of Accenture to raise awareness of a new market they wanted to enter. That was outsourced supply chain planning. This was all the way back in 2005, and several companies had the same idea. This included IBM. eWeek, no doubt which receives a lot of money from IBM advertising wrote a highly biased article on IBM and their supply chain services outsourcing plans.
Some of IBM’s quotes from an article in eWeek are listed below.
“Competing against consulting giant Accenture as well as some smaller players, IBMs new SCM (supply-chain management) outsourcing business unit will be part of its Business Process Transformation arm, said Bill Ciemny, who will lead the SCM unit.”
I am not sure what Bill Ciemny is doing now, but it’s not leading supply chain planning outsourcing. No one was competing against Accenture or smaller players, because none of the consulting companies ever did this, at least up to this point, which is seven years later.
“Targeting a “supply-chain transformation services” market estimated by IBM at $23.5 billion, the new unit will bring together IBMs existing 8,500 supply-chain consultants with another 15,000 IBM employees who have worked on building IBMs own internal supply chain.”
IBM had already sold its PC division to Lenovo in 2004 because they were losing money in it, so it’s not clear if this service was an attempt to reposition these employees to manage other company’s supply chains.
“We traditionally go in and talk to customers about what [supply chain] strategies are available to them. Now, well [also] be able to actually take over [supply chain] business processes and optimize and run them for customers,”
It’s hard to see how anyone would have then, or now want IBM to manage their supply chain.
“Some customers might want to start out with just consulting,” Ciemny said. In terms of verticals, IBM is initially eyeing electronics and high-tech; government; and the consumer products and retail distribution sectors. “But over time, well broaden out from there.”
It looks like companies just wanted to start and stop at IBM’s consulting services. Bill Ciemny seems to have been wrong on that one.
“Aside from Accenture, she said, IBM faces rivalry from companies such as Prescient Systems, Chainalytics and i2, which recently started its own services program.”
No, they didn’t.
Again none of these companies successfully created outsourced supply chain planning businesses.
The Reality of How These Companies Bombed in 4PL Supply Chain Services
I worked at i2 myself, and I can say, I would never have wanted i2 to manage my supply chain planning. i2, like many software companies, is all about selling software. They would have a major conflict of interest in managing outsourced planning because the product management would want to push more and more products into use, to list them as a reference account on future traditional software sales.
“But [another] clear differentiator for us is the ability to leverage the 15,000 people in our [internal] integrated supply chain. Weve hardened these assets, and we’ve eaten our own cooking,” Ciemny said.
IBM’s was not known as having a particularly good supply chain. They had a large number of people in supply chain before selling Lenovo. IBM is quite fixated on quoting numbers and confusing that number with being good. I don’t know what “hardening assets,” means, so I looked it up, and it is related to increasing the security of hardware or software. So according to Bill Ciemny, who is talking about the 15,000 people, these people have been hardened? So there has been increased security applied to the people what work in IBM supply chain? Why? It is quite possible there is some marketing hyperbole at work here. Maybe the eWeek journalist should have asked Bill what he was talking about.
It’s important to note that none of these quotes became a reality.
In the eWeek article, they allowed themselves to be used as basically a press release machine for IBM. eWeek uncritically allowed Bill Ciemny to essentially tell/sell a story about how IBM was going to do this or that, which never happened. eWeek could have analyzed the institutional structure of IBM to evaluate if they were a good candidate to offer 4PL supply chain services. But eWeek would not have an interest in questioning the plans of such a large advertizer.
IBM would have had the same problem as i2, in that there would have been an enormous conflict between the product division and the outsourcing division on which one of IBM’s applications to use. IBM would relentlessly push its applications into the 4PL supply chain service division, whether they were a good fit or not. The solution would have had to have used 100% IBM products, greatly limiting the solution that IBM could have provided as they lack many pieces of a complete planning suite and all of
The solution would have had to have used 100% IBM products, greatly limiting the solution that IBM could have provided as they lack many pieces of a complete planning suite. All of IBMs products fall into disrepair after their initial acquisition, so there is also the question of the value-add of IBM’s technology.
The point is that neither software vendors nor consulting companies are good candidates to provide outsourced supply chain planning services. Years after these companies announced their intentions in the 4PL supply chain services space, none of them accomplished anything.
Search Our Other 3PL/4PL Content
I cover the technology required to excel in 4PL supply chain services in the following book.
Supply Planning Book
Showing the Pathway for Improvement
Supply planning software, and by extension supply planning itself, could be used much more efficiently than it currently is. Why aren’t things better?
Providing an Overall Understanding of Supply Planning in Software
Unlike most books about software, this book showcases more than one vendor. Focusing an entire book on a single software application is beneficial for those that want to use the application in question solely. However, this book is designed for people that want to understand supply planning in systems.
- What methods fall into APS?
- How do the different methods work and how do they differ in how they generate output?
- What is the sequence of supply planning runs?
These types of questions are answered for readers in this book.
This book explains the primary methods that are used for supply planning, the supply planning parameters that control the planning output as well as how they relate to one another.
Who is This Book For?
- Chapter 1: Introduction
- Chapter 2: Where Supply Planning Fits Within the Supply Chain Planning Footprint
- Chapter 3: MRP Explained
- Chapter 4: DRP Explained
- Chapter 5: APS Supply Planning Methods
- Chapter 6: APS for Deployment
- Chapter 7: Constraint-based Planning
- Chapter 8: Reorder Point Planning
- Chapter 9: Planning Parameters
- Chapter 10: How MRP, DRP, and APS Relate to One Another
- Chapter 11: Supply Planning Visibility and Master Data Management
- Chapter 12: Understanding the Difference Between Production Versus Simulation