The 4PL concept hit the logistics market like a bombshell back in 1997, but the market has been changing, says Malory Davies.
It’s more than 15 years since Andersen Consulting came up with the term “Fourth Party Logistics” and over that time the concept has been rethought and reworked.
Core to the 4PL concept is the notion of an assetless logistics provider assembling a range of services from other organisations and then managing them to meet the logistics needs of the customer.
Andersen (now Accenture) saw this as something to be provided by a firm of consultants, but the fact is that the idea has been taken up enthusiastically by third party logistics providers and in some cases the customers themselves.
Hayden Organ, director of integrated logistics at Kuehne + Nagel, says: “While 4th Party Logistics largely remains the domain of the consulting fraternity we have seen the emergence of the LLP or Lead Logistics Provider from the 4PL concept.
“Essentially taking the same approach as the 4PL, the LLP has evolved from a small number of global logistics providers whose networks of offices, systems and physical infrastructure are built and operated on common operating platforms of systems and processes. The LLP has, in effect, replaced the 4PL concept but with the capability of a 4PL. Importantly the LLP – having evolved from the execution network of its global logistics provider parent – has ready access to the network of offices to deliver the management capabilities of people and systems required. These capabilities form the basis of the structure needed to deliver solutions,” he says.
“The focus of the LLP remains the delivery to the customer of a cost effective command and control solution, which in effect is a business process outsourcing offer ultimately driving total logistics and logistics related costs down while at the same time, and most importantly, improving service for the customer and the customer’s customer. Such LLP solutions are now, in the main, being consolidated as service groupings into a definable product such as a control tower. The control tower being the basis from which such services as relationship management, continuous improvement, customer analytics, customer metrics, invoice audit (vendor as well as logistics service provider) and settlement, claims handling, exception management, visibility and logistics service provider performance management are typically found.
Organ argues that essential elements of the 4PL concept have been adapted into the “Integrated Logistics” concept, “where LLP and its sister business units combine together to deliver largely what the 4PL was designed to do – albeit without the essential network infrastructure and execution capability required.”
Paul Brooks, sales director at Unipart Logistics, says: “What differentiates a 4PL is the ability to provide strategic oversight, coupled with technological capabilities for sensing supply chain performance and co-ordinating assets that deliver value to the customer. Our global control centre – as used for managing Jaguar’s aftermarket support across the globe – is a system that senses in next-to-real-time the performance of a supply chain. We then analyse that performance and negotiate with each individual element of the chain, whether it be a service provider, customer outlet or supplier, on ways to improve performance – and that may mean process change or even long-term strategic change. That’s a 4PL.”
“A logistics services company might own the assets, but actually the essence of a 4PL is in providing the governance structure, offering an added value insight and providing the expertise to strategically improve the future performance of a client’s supply chain.”
“So in order for a logistics service provider to compete in the market place for managing global supply chains it must have the sophisticated capabilities of a 4PL.”
Norbert Dentressangle is one of the most high profile players in the market with its KeyPL operation. This handles 4PL contracts for Tata Steel and Aggregate Industries among others.
Director Paul Hayes was manager of transport and shipping at Corus (now Tata) from 1997 to 2006 in charge of the Engineering Steels Business Unit. He moved over to TDG (Now Dentressangle) when it won the contract.
He points out that there was a lot of detailed work required to set up the 4PL operation. “It was totally the right concept. The IT was there, but there was still a lot of work to do.
“It took us eight months from contract signing to going live,” he says, pointing out that there was big job to do in terms of getting the Tata people on board and winning hearts and minds.
Norbert took on Tata’s incumbent hauliers plus others. “It took 12 – 18 months to complete implementation.”
Norbert then went on to win a similar contract from Aggregate Industries. “For that contract, we went from signature to live in three months,” says Hayes. The process has now become so slick that it can bring on a new customer in as little as a month.
In the early days there was quite a bit of resistance to change. “Hauliers wanted to retain a direct relationship with the customer. We overcame that and brought most of them with us on a ‘suck it and see’ basis.”
A few didn’t want to do it but even so, at Tata all the hauliers signed up – even the most resistant. At AI some did not join the scheme. “That was their decision, not ours,” says Hayes. “In seven or eight years I have not had one haulier leave me because it didn’t work,” he says. Three or four companies have left for other reasons.
“We made them more efficient,” he says. “So they might have seen the revenue fall, but the bottom line has been OK.”
The hauliers have also had the opportunity to take on more work through Dentressangle. The 4PL operation now has three large customers plus another 20 smaller ones.
Clearly, companies will want to see savings from a move to 4PL operation. Typical savings vary says Hayes. With the Tata contract, savings have been double what was originally promised, and at AI savings were also more than originally promised. Even where savings are smaller, there are benefits from going down the 4PL route in terms of sustainability, he says.
There is more interest in the concept today, he says. Initially, people didn’t understand the difference between 4PL and 3PL. And having built the operation in the UK, Dentressangle is now looking to expand operations on a pan-European basis. And not just for road transport – it is thinking multi-modally.
It is not just third party logistics providers that have developed 4PL services. Consumer products giant Unilever has developed an internal 4PL, UltraLogistik, to manage its European transport network.
The new model demonstrates a radical change in thinking. By setting up a European control tower in Katowice, Poland, to co-ordinate activity across the continent, Unilever has been able to offer higher customer service at lower cost and with lower carbon emissions.
The transformation was so successful that Unilever won the 2010 European Supply Chain Excellence Award for Logistics & Distribution. The judges noted that over 30,000 orders a month were being managed through UltraLogistik and the cost per order had been reduced by 75 per cent, and suggested that this initiative had the potential to change logistics in the FMCG sector.
Paul Brooks says: “A 4PL needs three key elements: deep experience, scale and the ability to implement. If it was just a software system that you needed then you could take the data feeds and implement it. But the 4PL needs to be able to interpret what they see and act using their experience. Then you also need the people who look at the processes and integrate and improve at a process level. That’s a nuance that you wouldn’t get if you were just a consultancy or software company – you need experienced supply chain practitioners to keep the solution driving forward.
“Within the last couple of years we have spent a lot of time developing our control tower for real-time capability, with automated business analytics. The benefits have been considerable. Now you know all the information is up to the moment and there isn’t all the off-line work of getting to the detail, we can drill down from the top of the business right down to the part number level.
“And that data, as well as being available in the global control centre, is also available on the desktops of everybody who manages the global supply chain – so everyone sees the same information and works to the same KPIs,” he says.
Of course there are some types of logistics operation that are more suitable to 4PL than others. Hayden Organ says: “Emerging in the market are organisations whose global supply chains have often become fragmented through acquisition of other companies combined with the geographical complexities of operating in multiple markets and the vagaries of the macro and micro economic climates.”
And the growth of e-commerce is opening up new opportunities. “For the LLP, the evolution in sophistication and power of computing are the very reason why such solutions were possible in the first place, says Organ. “Now with the cloud and the increasing dominance of e-commerce this evolutionary process will only accelerate.”
