Fourth-party logistics can build a credible supply chain

In the fast-changing global trade and commerce scene, there is continuous evolution in different types of service-providing businesses aiming to adapt to new trends, maximize profit, shorten transaction periods, and have real-time effectiveness in customer services. 

Logistics and supply chain management services are the most crucial part of business in the world, as it adapts to changes. It is also being updated every day by adopting the latest technologies. 

Major logistics players across the planet, with time-oriented and required automated services across the globe, are providing services in a manner that industrialists, business people, and manufacturers are getting the services they want. 

Due to automation systems in all the supply chain avenues and real-time-based effective services, the experts have derived different terms and levels for modern-day logistics.

Fourth-Party Logistics, popularly termed 4PL, is one such derivative based on an operational model that outsources all the internal and external supply chains of a business. Under this concept, a 4PL service provider takes the entire business responsibility to direct every moving part within the customer's supply chain; where manufacturers or business people hand over all the organizational supply chain and logistics tasks to an external party, that is, to a fourth party.

Term derivatives in the 'Party Logistics' line

In differentiating various levels in the Party Logistics line, sector insiders have so far termed five levels: 1PL, 2PL, 3PL, 4PL, and 5PL, though differentiating among the levels is often confusing.  

Initially, the concept was limited to 1PL, which is first-party logistics. Later it evolved with demand-based services, and it is now up to 5PL. 

An enterprise that sends goods or products from one location to another is a 1PL. An enterprise that owns assets, such as vehicles or planes, to transport products from one point to another is a 2PL. In a 3PL model, an enterprise maintains management oversight but outsources transportation and logistics operations to a provider who may subcontract out some or all of the execution. 

In a 4PL model, an enterprise outsources the management of logistics activities and the execution across the supply chain. The 4PL provider typically offers more strategic insight and management activities over the enterprises' supply chain. A 5PL provider supplies innovative logistics solutions and develops an optimum supply chain network. 5PL providers seek to gain efficiencies and increased value from the beginning of the supply chain to the end, through technology.

The third-party logistics (3PL) provider concept has a few limitations. But the 4PL works with a wide range of logistics and supply chain providers and even devises its employers' business policies, plans, chain management, logistics assessment, designing, building, running, and measuring solutions for the client. It also oversees the combination of warehouses, shipping companies, freight, and agents. 

A broader upgradation of 3PL

Before discussing 4PL in detail, here is a brief introduction to 3PL: The term "third-party logistics provider," or 3PL, has been around since the 1970s. It simply means that a third party is involved in a company's logistics operations, in addition to the shipper, receiver, and carrier. A 3PL does not take ownership (or title to) of the products of a shipment. This third party comes into play as an intermediary or manager between the other two parties. 

Today, any company that offers some form of logistics services for hire is known as a 3PL. It includes facilitating the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. A 3PL may or may not have its assets, such as trucks and warehouses. In some cases, the role of 3PL and broker overlap, but typically, a broker is used to engage trucking capacity for a specific shipment. A 3PL may act as a broker or use brokers to move clients' freight.

A 3PL provider focuses on the day-to-day operations of a business firm's supply chain logistics, while a 4PL focuses on optimising the entire supply chain. Consequently, 4PL takes over the entire logistics operation and allows a business to grow. It is the single point of contact for supply chain management with a broader scope of responsibilities and deals with the business technology, infrastructure, and support in strategic insights.

A 4PL, with its expanded network, connections, and experience in supply chain solutions, offers efficiencies in supply chain management. In accelerating business expansion, global competition is a reality. Every entrepreneur wants to be updated and upgraded. There is a trend of exploring the highest productivity of resources by entrepreneurs. 

For example, a composite textile company may plan to limit its employees and personnel in textile-related jobs for more productivity and innovations. It has experts in its core divisions but may have inadequate logistics and supply chain knowledge. It wants to build a database with hundreds of warehouse partners across the country. 

It needs a combined network with knowledge of operations and market conditions that will allow its business to be competitive in rates and find space quickly. Since its core focus is manufacturing, it intends to hire a third party for this logistics service. 

In today’s ever-changing logistics climate, Bangladesh needs an effective supply chain to adapt to its growing economy. Photo: Minhaj Uddin

In this field, a 4PL provider comes with all the skills and can provide the desired service to the entrepreneur with real-time effectiveness. 4PL offers the strategic vision to create a new supply chain network that efficiently manages the flow of products across all platforms. A single view of inventory gives the retailer the power to allocate inventory and meet customer demand, regardless of the status or location of the inventory.

Which one fits a company? 

If a company is dealing with an increasingly complex supply chain and struggling to meet customer expectations for faster response, then an innovative 3PL or 4PL may be the best solution.

As the outsourced logistics industry continues to innovate, merchants have options available to achieve the speed and flexibility to keep operational pace with consumer expectations. With so many options available, it is important to vet potential partners to find the perfect fit, beginning with understanding the difference in service offerings and capabilities between 3PL and 4PL.

3PL services are a portion of what a 4PL provides. Most 4PLs have a variety of warehouses, often including multiple 3PLs in their network to provide more comprehensive shipping capabilities, storage capabilities, and geographical coverage to merchants. For instance, a 4PL network may contain warehouses specialising in big and bulky storage and temperature-controlled ambient storage within a single network.

Because of financial and operational scalability with 'on-demand' 4PLs, merchants pay for only the resources they need. Contracts and service agreements are flexible, making them a highly scalable solution. With 3PLs, merchants must usually adhere to long-term contracts with stricter parameters on the allotted storage space and volume of orders to fulfill.

4PLs typically operate through a cloud-based warehouse management solution, giving merchants visibility into order receiving, fulfillment, and delivery statuses across all its facilities. This fulfillment software integrates with e-commerce platforms like Shopify or WooCommerce and ERPs like Oracle or SAP for automated reporting. On the other hand, 3PLs rarely provide this type of technology component.

Today's leading 4PLs offer a customer service structure that goes beyond traditional support and provides strategic advice to merchants for optimizing their inventory and distribution management. Alternatively, the support available via traditional 3PLs is usually limited to answering basic inquiries and addressing day-to-day operational issues.

Benefits of 4PL providers

One outsourcing 4PL provider can get experts in warehouse operations with industry-leading capabilities, including a state-of-the-art warehouse management system, exceptional operational processes, and engineering resources that drive efficiency and reduce expenses. 

It helps in geographic reach as a 4PL network reduces the time it takes to check storage availability and offers a trusted solution to extend an efficient organisation's reach. It assists in one point of contact by taking over a business's entire logistics segment by eliminating the need to juggle multiple invoices. 

4PL for Bangladesh

In today's ever-changing logistics climate, Bangladesh needs an effective supply chain to adapt to its growing economy. When it comes to logistics, many businesses find outsourcing is the most successful approach. Contracting a 4PL provider offers multiple benefits. It is imperative to focus heavily on modern derivatives to avoid trade disasters. 

The author  is a logistician  and CEO of a leading  global logistics company in Bangladesh