Fourth-Party Logistics Turning A Cost Into A Value Proposition

Fourth-Party Logistics: Turning A Cost Into A Value Proposition.

Adopting a holistic approach fourth-party logistics (4PL) has evolved as a breakthrough supply chain solution comprehensively integrating the competencies of third party logistics (3PL) providers, leading edge consulting firms and technology providers. Such strategic alliances leverage the skill sets, strategies, technology and global reach, which would have otherwise taken years to duplicate. Globalization is expected to strengthen demand for 4PL due to the substantial lifting of market barriers and import tariffs. Suppliers require a vast network of genuine pan-European and global logistic providers that can successfully integrate processes and information across geographical boundaries. A more connected world results in universal access to sophisticated technology that allow 4PLs to efficiently manage complex supply chains and even modify supply chain networks and processes.

For instance, technology advances in wireless networking and Radio Frequency Identification significantly increases productivity, customer satisfaction and ultimately profitability. Buoyed by these trends, the 4PL market as a whole is expected to witness considerable revenue growth from approximately EUR 4.7 billion in 2002 to about EUR 13 billion by 2010. The 4PL market in western Europe is set to make its presence strongly felt in the chemicals, electronics/high-tech and automotive sectors. With conventional service enhancement approaches such as expedited transportation, managed warehousing and distribution yielding only limited results, 4PL has thrown open new avenues in logistics that are being actively explored. Explains Frost & Sullivan Research Analyst Cecilia Cabodi: "Due to 4PL, supply chain outsourcing has undergone a paradigm shift from a cost center to a revenue generating opportunity.

It has leveraged logistics to improve service level to customers, accelerate the speed of launching new products and stimulate market penetration." However, 4PL providers need to emphasize their unique value proposition to differentiate themselves from traditional 3PL providers. For instance, 4PLs have made a quantum leap from providing basic third party logistic services to being a centralized point of contact for the customer with the unique responsibility of monitoring supply chain performance. Simultaneously, they have provided solid cost reductions coupled with measurable and sustainable shareholder value. The high investments required for 4PL remains a significant financial barrier to the entry of risk averse and low margin third party providers. A wider client base does signify greater economies of scale, however, 3PLs are unwilling to invest in risk-reward schemes with the customers.