Why Service Parts Are Perfect for 4PL


What This Article is About

  • What is the relationship between 4Pls and service parts?
  • Why are they a natural fit for one another?
  • How common are 4PL’s for service parts in reality?

Why 4PL?

A fourth party logistics providers is a company that holds no physical logistics assets, but coordinates the supply chain though its access to monitoring data and IT. You can read more about this intermediary structure here.

4PLs apply for both finished goods and service parts, however, in this post we will focus on 4PLs for service parts.

4PL for Service Parts

This is a very natural combination for the following reasons:

  • Service parts are often held at locations that are owned by different firms that do not pool inventory
  • Large companies do a very poor job at implementing service parts systems. This is a bit of a conundrum in the industry and has to do, at least partially, with the fact that service organizations are very under-emphasized by corporations. This means they are lower on the priority list and get far less investment than the finished goods side of the business.
  • While big companies generally lack the motivation, the small companies in the service chain – the dealers, lack a web-centric focus, and are too small to develop integrated service based IT systems
  • Finished goods forecasting and inventory systems do not work very well for service parts because their forecasting is different, and because service parts systems must habitually reposition inventory to reduce obsolescence.

Because of these factors, service parts IT spending and capability greatly lags the investments made in the finished goods parts of corporations. Because so many companies are generally disinterested in investing in service parts, the net result is that service parts habitually suffers from poor supply chain management. However, what this means, is that the market offers a very good opportunity for 4PLs.

Industry Popularity

Given the opportunity, one would think 4PLs would have already set their sights on this market. Not so. Performing a search for fourth party logistics providers and service or spare parts brings few results. We found remarkably little published and remarkably little focus on the part of companies attempting to build this market. So whatever the opportunity, it is not anything close to an industry trend as of yet.


It seems pretty obvious that 4PLs and service parts go together, however, a search on Google for “service parts” and “fourth party logistics providers” brings up our blog on 4PLs for the first 4 results. Many of the other results below don’t really cover the issue and are false matches. Why aren’t more companies focused on this?

4PL or Parts Hub

In the article on auto service parts networks, we describe the problems that plague these networks, and discuss how these networks could be made more efficient. A software vendor saw our article and contacted us to talk about it. After we spoke with John Snow at Enigma (a software firm focused on service part content management and decision support), we learned that he also came up with a similar concept years ago. We have since adopted Enigma’s term which is the “Part Hub” to describe this network design where inventory from non-associated dealers is pooled and co-managed. We won’t go into the description and design in this post, because it is fully explained in the link below.

A part hub would be one way to approach the problem, and it is no doubt the right answer for some sectors. Other sectors may instead rely on a “fourth party” to organize and coordinate their part information, and provide a collaborative unified view. The right approach has less to do with technology, and more to do with how much centralized control there is in the network in question. There are a lot of layers to the present service part network onion, and a number of way to peel it. However, there is no doubt in our mind that this problem will be solved with the development of an IT platform that accepts feeds from multiple sources and has the ability to manage inventory at many different organizations as if it were one.
Possible Solutions

There is a continuum on which possible solutions for 4PLs focusing on service parts networks would rest.


For instance on one extreme would be a SAP SCM solution combining Service Parts Planning (SPP) + Event Management (EM) + a web front end. However, while a favorite of big companies, we think this solution would be a bit expensive, complex and overall too “heavy” for a small nimble 4PL. On the other side of the continuum would be the Amazon.com solution. The process flow looks like this:

  • Dealers would submit their inventory to Amazon by web, or flat file
  • Orders are placed on the Amazon.com site and electronically forwarded to dealers
  • The package is shipped by UPS or DHL or other and the vendor, taking advantage of Amazon.com’s interface to these carriers, and Amazon displays the transit progress through its website to end customers (as with any normal Amazon.com order).

However, this solution, which is available to use right now by any dealer network interested in doing so, simply by signing up to sell on Amazon.com, is missing some desired functionality. How to Add What is Missing What is missing from the scenario above is forecasting and order management – which accounts for things like supersession / interchangeability. For this, other systems would have to be incorporated that would provide this. However, a 4PL could use the Amazon.com front end and tracking capability – which is free – with a forecasting package and order management decision support system.


The Intermediate Design

The 4PL would simply need to get inventory on-hand balances and sales histories from its network, and put them into a forecasting engine. It would then send the recommended order amounts to the network as flat files, which the network dealers can decide to order or not to order. The actual on-hand balances are maintained by the dealers, through uploading to Amazon.com. The order management and supersession would most likely be another site, where customers would go. (Service parts have a lot of permutations and complexity, and therefore they require a specialized order engine.) This would be the site where customers would begin. However, instead of trying to process the order, each part would simply have a link to Amazon.com within the interface. In this way the supersession or order management engine is integrated with the order creation and tracking of Amazon. Once the correct part is chosen, the user is taken over to Amazon.com by selecting a buy button. This type of hyper-linking integration is no where near enough taken advantage of, as companies continually attempt to create their own functionality, rather than using the functionality of large platform providers.
Is this Really Integration?
It may not seem like integration, however, if the user does not need to make extra keystrokes or mouse movements, we propose that it is integration. In our view many of the ideas of integration are overly IT focused. That is an IT person might say that since the applications are not exchanging data (flat files or XML, etc.) the example above, with regard to the order management to Amazon.com is not integration. Our answer would be — who really cares? If the experience is seamless to the user, and allows them to use the best of different systems, that is integration. Too much effort is being spent trying to reinvent something that has already been accomplished and actually mastered. Why not take advantage of it and enhance one’s standing with your customer? No one will mind being forwarded to Amazon.com for order submission because Amazon has a top flight shopping front end, payment and checkout interface. A final advantage is Amazon has a better order history function, as well as a “wish list” (things not yet ordered but desired), making it even easier for end customers to keep track of and schedule their future orders. In order to fully communicate this concept, we thought we would develop a simple graphic which shows which entities are interacting, and what are the major data interactions or interface interactions between them. This diagram shows which parties or hosted software providers would exchange data with other parties.


On Demand and Web Centric Throughout

Amazon.com is already web centric. It is important, although not necessarily critical, that the forecasting and order management / supersession software be web centric as well. This means that the software providers should offer web based access to their products. This would allow the 4PL to simply use the software as a service. Integration would occur via the web with simply FTPing files between the servers of the various software companies, dealers and Amazon.com. Some of the file transfers would be automated, but some would be manual. This 4PL provider could be located anywhere and could service multiple dealer networks, in many different industries, all based upon electronic data transfer from different systems, and all using the same web-centric integrated solution. The pricing could be incremental, allowing both big and small dealer networks to participate. A network may start small, but then add dealers as the network’s capabilities become known and other dealers begin to get interested in joining.
Post Reference
Several months after writing this article we came upon an article written by Greg Baxter, President of Baxter Planning Systems. In it he describes the limitations of spreadsheets and how in his view, remote software can help reduce the planning in isolation that continues to plague most planning environments. See his article here:

Questions?

Did this article make sense? What are the advantages and disadvantages to the design presented above? If you have any insight on the topic, please comment below.

 

7PL is a Deliberatey False Concept

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2010/02/7pl-is-a-deliberatey-false-concept/

What is 7PL?

7PL is a concept that combines the 3PLs with 4PLs to make what they refer to as 7PLs. The advantages of this concept are the following:

One service provider can now provide a client with both 3PL and 4PL services with a complete 7PL solution to clients and can undertake turnkey projects for its clients where all services and activities are provided for under one roof. - http://www.chillibreeze.com/articles/logistics-management.asp

The Failure of 3PLs

There is a major problem with this concept, it simply co-opts the concept of 4PL, which was originally envisioned to intermediate between different 3PLs and different carriers, and places it back with the 3PL. This entirely negates the concept of an asset independent 4PL before the idea has even had a chance in the market.

And what can customers expect from this “new” concept. Clearly, nothing more than they were getting from their 3PL.

Its important to understand the history of the 3PL market. 3PLs promised shippers that they were going to receive all types of benefits through having 3PLs manage their freight and in many cases their warehouses. The 3PLs were going to invest in all types of information technology that would keep their shippers up to date. What did shippers actually get? They got a glorified carrier or low cost outsource shipping department. Many more 3PL arrangements were motivated by reducing the headcount at the shipper than any 3PL would like to admit. 3PLs dropped the ball on their information systems implementation, on their integration with carriers and on their ability to provide “a seamlessly integrated freight network.”

Currently, the only 3PL that even meets the original definition of a 3PL is UPS. For this reason it makes sense for the 3PL concept to go away and be replaced by something else. By doing this its important to properly interpret what undercut the 3PL concept. My view is that 3PLs were really just a marketing term that carriers and outsourced warehouses used to increase the cache of their services. They simply were not interested in building the information system platforms to ever be true 3PLs, and they were unable to interoperate with other carriers and warehousing firms because the industry is overly focused on getting freight to move through their proprietary network.

The Promise of 4PLs

4PLs have much more conceptual logic to them than 3PLs as non asset based firms, such as software firms do have the ability to build platforms and do have the ability work with various carriers and warehouses in order to stitch together integrated supply chains. However, I doubt it will be consulting companies that will ever be competent in this market, and this was an original idea why Accenture introduced the concept. Generally, Accenture can barely implement large systems at clients, much less build a platform and take the entrepreneurial leap to create this market. (Accenture does not do much of anything but grow fat off of large IT projects and rich off of low cost offshore labor.) 4PL is a good idea, but Accenture will never have anything to do with it.

What is the 7PL Concept

The 7PL concept is not a real concept at all, but simply propaganda disseminated by 3PLs that think they are best positioned to build virtual supply networks. The problem is that they are not, and they have had ample opportunity to prove themselves, and have failed to make a go of the 3PL concept. 3PLs have been hostile to the concept of 3PLs from the beginning. However, creating a false concept is not the way to address the idea of the 4PL.


Tendering and Freight Marketplaces

Browser

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/06/tendering-and-freight-marketplaces/

What Happened to the Technology Initiated Freight Revolution?

Lets take a walk down memory lane back to 1998-1999. i2 Technologies was the number one supply chain vendor and their management had seen fit to come out with a new concept based upon information sharing and the web called TradeMatrix. To explain all of what TradeMatrix was would take more than one article, however the basic concept was that i2 was going to create a number of marketplaces where supply chain information was to be exchanged, allowing a more integrated system of supply chain management to result. i2 introduced FreightMatrix, which was directed towards the transportation, warehousing and third party logistics areas of the supply chain. Of all the TradeMatrixes, FreightMatrix is one of the few to survive, and its website can be found at http://www.freightmatrix.com.



Brochureware

What you will notice about the site is although it talks a lot about advanced supply chain topics and software as a service, the site is nothing more than brochureware, and had no way to open an account or experience the service offering. Once you begin to look under the surface, it is simply a front end for i2’s legacy transportation management product called TM, along with probably a few other products that add minimal functionality. The problem with i2’s vision of TradeMatrix in general and FreightMatrix is they, as with all the major supply chain vendors, never really got the web. Their approach was to simply use the web to entice customers to sign on for the same old corporate software model. Anyone who doubts this, simply head over the Amazon.com and see how easy it is for anyone to open a fulfillment account and begin experiencing the Amazon servicing immediately. The entire implementation of these marketplaces was so ineptly done, with so many self styled ‘visionary” directors fighting with one another, that it seriously degraded i2’s position as a though leader — a position it had rightly earned for its previous work on factory and supply chain planning.

Tendering in SAP SCM

SAP’s TPVS – transportation planning and vehicle scheduling has functionality that supports freight tendering, however, it simply interacts individually with different carriers allowing them to respond, and is not a marketplace offering.

TPVS

To read more about TPVS see this post

http://www.scmfocus.com/sapplanning/2008/01/05/tpvs-transportation-planning-and-vehicle-scheduling/

The transportation tendering functionality is not broadly used, at least one reason being that setting up these one to one integrations is expensive and time-consuming. It is also discriminates against smaller transportation providers who may not be able to invest in the systems that the larger carriers can afford to due to their scale economies. This effectively reduces the choice of providers available to the transportation customer. This is part of a broader problem with enterprise software in that it does not allow for incremental pricing, so smaller users are priced out of the market. This is one of the reasons we beat the drum on this blog for vendors to release truly web enabled solutions that have incremental pricing.

The Need for Tendering Marketplaces

The need for marketplaces is real. However, instead of being implemented as a closed system as proposed by i2, the marketplaces need to be open and allow a variety of buyers and sellers to participate. FreightTender is one such company / site. Below the screenshot shows how easy it is to sign up. We created a dummy account ourselves.

It is easy to see the freight advertisements.



A Low Volume Solution

What became apparent immediately is how few listings there were. FreightTender’s website is easy to use and well done, so why the lack of volume? We also did a search for freight tending software, and did not find very many companies offering this software. So the question we have is “why not?” This is an obvious excellent use of information technology, yet the industry is not caught on to the idea.

Mecury Gate

For medium to higher volume shippers, MercuryGate is the leader in providing independent integrated TMS and freight tendering.

A Higher Volume Solution

A website that is not integrated into the tendering system may be effective for small freight volumes, but it not going to the efficient for large volumes. For this we contacted the leader in integrated freight management systems with freight tendering. This company is called MercuryGate. They sit at the crossroads of shippers, brokers and 3PLs, and their transportation management solution is already connected to their freight tendering system which has large number of transportation companies already integrated to the system. This allows a new customer to be brought up and integrated with the carrier systems in a just a few weeks from the initial request to add the shipper to the system. Moving to a system like this allows for far less manual intervention in the process of putting freight out to bid. This allows a tender to be sent to a very large number of carriers, and this is a move to process orders electronically. Furthermore, this adds transparency to the transportation system. Carriers have fought this because they think it will reduce their profits. However, transportation has been lacking transparency for decades, and still has very low margins, thus it can not be transparency that is causing the low margins. Furthermore, transparency, combined with metrics regarding transportation quality allows for shippers to compare carriers on a wide variety of characteristics, price is only one.

The Carrier Dedicated Solution

Another  way that carriers fit into this solution, a number of them offer integrated TMS and freight tendering systems that are branded and essentially sold as part of the transportation services relationship with a shipper. One example of these is Yellow Meridian IQ. However, Yellow is not a software company, so they essentially offer this service by taking  the software from a software company called Meridian IQ and branding it Yellow, and then only connecting it to the Yellow system.

The problems with this approach should be fairly obvious. If a shipper has multiple carriers, then they must login to multiple systems. Secondly, having a dedicated system to just one carrier, promotes using more of that carrier’s services simply as matter of convenience. This is moving against transparency and is obviously an attempt to locking a shipper to a particular carrier. Over the past several decades, the Sherman Anti Trust legislations, which the vast majority of Americans do not understand, have come  to no longer be enforced. Thus arrangements like this, as well as anti-competitive agreements in cellular service have also been allowed to flourish. Suffice to say, our view is that the TMS solution should be carrier independent, and we would not be particularly interested in having a dedicated carrier TMS-freight tendering system in our transportation department.

In addition to MeridianIQ, Yellow, as other carriers, have a nice rate searching, tracking, and many other shipment functions on their website. Below we have performed a search.

Yellow 2

One the next page we receive the rate response.

Yellow 3

However, while this is good for evaluating individual moves, clearly, an integrated TMS-freight tendering solution is desirable for serious transportation volumes.

Conclusion

10 years after FreightMatrix was introduced by i2, we still don’t have freight marketplaces, and we don’t even have large freight tendering websites. However, we do appear to have an integrated TMS to freight tendering system with MercuryGate that is proven and implemented at a number of companies. We also have anti-competitive carrier dedicated solutions that work against carrier transparency and attempt to lock shippers into sending more freight their way, without competing for this freight. We can’t help but feel progress should be increasing more rapidly in this field. It is especially disappointing when juxtaposed against mountain of marketing literature and executive predictions and promises that were promoted in that decade period.


SAP Design for 3PL and 4PL

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/06/sap-design-for-3pl-and-4pl/

SAP SCM

The SAP SCM suite has a number of modules that provide functionality for advanced planning and execution. This suite has many installations in finished goods manufacturers. SAP has made a number of enhancements in the past several years which address the transportation, warehousing and supply chain monitoring areas of the suite that have been marketed to the traditional SAP SCM base (finished goods manufacturers). However, different areas of the suite can be installed at different companies, and very few if any companies install the entire suite. The transportation, warehousing and supply chain monitoring areas of the suite, while previously lagging the manufacturing and demand planning areas of the suite are now up to the point that they can be considered by at least 3PLs. (There are extremely few 4PLs currently) A combination of the following modules would be appropriate for a 3PL.

TPVS – Transportation Planning and Vehicle Scheduling

EWM – Extended Warehouse Management

EM – Event Management

Trade-Offs

SAP is expensive to implement and complex. However, it has the advantage of being consistent with the the software that many finished goods manufacturers have or are currently implementing. A 3PL that had a operational implementation of TPVS-EWM-EM, would be very attractive to companies which were running either SAP ERP, but especially the other modules of SAP SCM such as DP, SNP and GATP. This is because it would allow for easier integration (both technical and terminology and operating philosophy) between the finished goods manufacturer and 3PL systems.

To find out more about TPVS, EWM and EM see our articles below.

TPVS

http://sapplanning.wordpress.com/2008/01/05/tpvs-transportation-planning-and-vehicle-scheduling/

EMW

http://sapplanning.wordpress.com/2008/05/30/extended-warehouse-management/

EM

http://sapplanning.wordpress.com/2009/05/22/event-management/

Forward Stocking Location Definition

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/06/forward-stocking-location-definition/

Finding the Actual Definition

We recently had a discussion which involved the topic of a forward stocking location. We decided to look up this term and did not find very much about it. None of the major sites such as Wikipedia have anything more than a vague one sentence definition of it. We found no mention of it in any book in Google Books, and only one article in Material Handling News. However, it is used commonly on 3PL websites. Clearly the broad definition is that it is a location that provides inventory to locations on an emergency or short lead time basis. One company which strongly associates itself with the term is Flash Global Logistics. Flash lists a number of value added services on its website.

Forward Stocking and Service Parts

Forwards stocking is often mentioned in the same articles as service parts logistics. This is natural, as service parts are often required on a short lead time basis. However, there are a number of value added services connected to forward stocking locations that don’t have anything to do with service parts. For instance kitting is connected to service parts operations (i.e. repair kits for automotive, industrial equipment or airplanes), however other value added services such as packaging and configuration apply to both finished goods and service parts.

To find out more about VASs, see this post.

http://www.scmfocus.com/sapplanning/2009/06/14/ewm-vas/

Broadly speaking forward stocking locations, for finished goods, is a subset of the concept of product postponement, which allows a company to defer he final stage of a product to provide maximum flexibility. You can read more about postponement here.

http://www.scmfocus.com/sapplanning/2009/06/19/product-postponement-in-scm/

Forward Stocking and 4PLs

Now the question we are interested in…what about forward stocking and 4PLs? 4PLs are obviously a very good fit with forward stocking, because a 4PL’s theoretical ability to provide visibility into the on-hand balances of many companies that are not necessarily part of the same ownership structure. Currently, there is very little written about this.We are not aware of any 4PL which is providing inventory visibility in this way. If anyone knows of one, please feel free to comment on this post.


Is UPS Actually A 4PL?

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/06/is-ups-actually-a-4pl/

Is It True?

We came upon the UPS website and found a several web pages where UPS presents its 4PL services. So we have to ask the question: Is UPS a 4PL? Well clearly, they have assets, which by definition would make them a 3PL. However, they may offer some pure information services for supply chain and in this sense they could be a 4PL. However, we think it unlikely. The internal incentives within UPS are to utilize its investment in its assets.


UPS’s website where they tout their 4PL capabilities.

4PL As a Buzzword

This is actually what we warned about in our previous post. That is, if the term 4PL is allowed to be hijacked by marketing and PR departments of the 3PLs, then the word will cease to have any meaning. 3PLs don’t like the term 4PL, because they see it as encroaching on their space. That is unfortunate, because the supply chain business is in desperate need of pure information management companies and platform builders. UPS for all of its technological prowess, will never be a technology company first. Furthermore, a true 4PL will have no assets and thus will not be “competing for business.” That is tying to move freight onto their assets.

No 3PL Can be A 4PL

UPS is not alone  in trying to brand itself as a 3PL. Many 3PLs have done this on their website. However, there is a problem because the definition of a 4PL is that you manage 3PLs. Thus, a 3PL can not manage other 3PLs becauase it has a built in bias….it wants to take the business from the other 3PLs. This is an elementary statement, and is close to impossible to contradict. This would be like two football teams “cooperating” with one another, while both team wants to win. There can be no cooperation because one side has to lose and one side has to win. So do what we do when we arrive at a 3PL web page that discusses 4PL services, or when you meet a representative from a 3PL who talks about 4PL. Ignore it or the person making these statements.

Note to 3PLs

There is nothing wrong with being a 3PL. UPS is one of the best, and they should try to get even better in their space, rather than trying to be something they are not.

Note to Those Evaluating 4PLs

The definition of 4PLs is very simple. If a company controls assets, then they are a 3PL. If they do not then they may be a 4PL. However, a 4PL has a different hurdle to clear. To be a 4PL, the company must show extreme IT competence. They must have the ability to either build platforms, or stitch together the platforms of other software companies. Anyone can hire some people and “manage freight.” A true 4PL needs to come to the party with enabling technologies.


3PL vs. 4PL

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/05/3pl-vs-4pl/

The Concern

3PL providers often complain that they dislike the term 4PL because they feel intermediaries are taking business from them and leaving them with very less business or lower down on the food chain.

The Reality

The fact is they are asset based and will always be asset based. Their internal incentives are focused on selling transportation and warehousing services. Major third party providers have been consistency guilty of getting business for the sake of getting business rather than turning down business that does not fit with their network. This means that the “new” parts of their companies are still captured by the “old” parts of the companies. This is one reason why it is so difficult for companies to change, no matter how many times they say they would like to.


The Problems With 3PL

But something has happened on the yellow-brick road. The reasons are varied, but the bottom line is many have failed at their own business transformation. Some 3PLs have not moved past their core commodity service to become true multi-service providers. Or international 3PLs have not understood how to provide domestic services; or domestic ones have not succeeded at venturing into international logistics services.

Others have failed to differentiate themselves against the competition. Certain 3PLs have not done a good job positioning and defining themselves in the marketplace. Or the parent company has not given them the resources, especially sales and sales leads, to penetrate even their existing customers. And, sundry have commoditized their 3PL service, as a result undoing the very purpose of their 3PL. These setbacks have slowed down the growth of some 3PLs in terms of both customer retention, especially, and new customers. -http://www.esupplychain.eu/en/info/viewart/544,OUTSOURCINGSUPPLYCHAINMANAGEMENT_3PLVERSUS_4PL


This is one of the advantages of non-asset based intermediaries, that are computer focused will always have the advantage because they can span the gap across multiple modal types and their core competency is information technology. Ryder Logistics, for instance, will always be viewed with suspicion by rail or air cargo companies because they are competitors, so they will not be seen as impartial coordinators of the overall supply chain. Another issue that is missed or overlooked by 3PLs, is that 3PLs are not now, now will they likely be leaders in information technology. Integrating supply chains with monitoring technology, and making it appealing and providing an exceptional user experience is not a generic capability. It is an exceptional capability, and only those companies most focused no IT, where IT is their business line are likely to be able to pull it off.

Secondly, asset based third party providers have had their chance, and logistics has not improved very much with them, and there are massive miss-coordination in supply chains. Thus we feel its time to give a new group a chance to help solve the problem.

What Is Required

However, the companies that can provide the 4PL concept are few and far between. They must demonstrate the highest level of proficiency with IT and with customer service. They must be top grade at data integration, and at front end development or front end modification. A truly progressive 4PL will provide websites, where customers login, that encapsulate and hide the complexity of the integration behind it, to allow customers to manage their own freight empowered by the 4PL’s infrastructure. This is one of the lessons of Google, as is chronicled in the book — What Would Google Do?

  • Serve as a platform

Current 3PL Model

The old model of customer interaction was for companies to contact a 3PL and for a long courting process to follow, with lots of promises made, and efforts to “understand the client’s business” and then for a contract to be signed and for the logistics management to move from the client to the 3PL. This was essentially simply moving the location of where the work in freight coordination was being done. The client’s logistics function then became simply managing the 3PL for those parts of the business that the 3PL had obtained. This is not all that helpful.

The Web Centric Model

The old model has significant costs and significant lock-in. Once the client chooses one 3PL, it has to rebid the business to switch, which is a tedious process. Companies like Amazon.com have demonstrated that you can test their offerings (Amazon offers fulfillment to sellers) simply by interfacing with their website. You can become educated as to their services through their website, and send data through their website, and you can do this is you are a large company or small company. You can test their service, and if you don’t like it, simply cancel the service–on their website also. For this reason, Amazon is a low cost provider, because they have automated so much of the process and they create platforms that allow users to interface with Amazon at low cost and low effort, and they enable their sellers through their website. Companies like UPS have a great reputation for outsourced logistics, but even they do not offer the tools or web centric approach and ease of interaction provided by Amazon.com.

Amazon.com has both full text explanation as to how to use their fulfillment services as well as video that walks vendors through the process. This level of transparency is unheard of in the field of traditional 3PLs. This is because:

  • They are not web oriented
  • Their model is based upon large company interaction, not through creating and managing relationships through labor saving websites

Amazon.com’s model means they can interact with almost any sized shipper. However, traditional 3PLs can only service shippers of a certain size. The desire of 3PL is to allocate volume over their assets — not to create a platform that enables clients to enhance their own logistics management.

The Ideal 4PL Model

Instead, 4PLs should not simply recreate the wheel, but should create platform that internal client logistics departments can use to gain visibility into their system. The 4PL then focuses on data integration and web development and allows multiple companies to log into the same system (with authorizations that keep client’s data protected from other clients of course). In this way the platform begins to improve and the 4PL keeps is costs down. Following this approach, when a 4PL adds a new client, its costs do not increase at the same rate, because many of the feeds are already built to the major warehousing and transportation and 3PL companies.


Fourth Party Logistics Providers



In the future, you may not need any assets to be deeply involved in supply chain management, however, you may need a number of these.

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/05/fourth-party-logistics-providers/

What Is It?

A fourth party logistics provider is primarily 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.

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:

  • Companies that are good at physical goods movement are not necessarily great at IT
  • New technologies are developing in terms of monitoring that will allow for information to be passed to a company, that does not actually own the assets
  • Web site maintenance for transactions have proven more nuanced than originally thought. That is, some companies — such as Amazon.com, have far superior shopping sites than other companies. 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.

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.

Service Level Planning

If many companies could outsource their supply chain functions and accept service level agreements with third party logistics providers.

See this post for more on service level planning.

http://spplan.wordpress.com/2008/04/05/service-level-planning/

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

Piggy Bank Shake


Operations require stability and investment, not executives attempting to pull short term gains from them by trying to apply the latest inventory management fad, or by flushing safety stock every quarter to look good for investors. There is a mini-industry which exists to tell executives they can have a free lunch.

The Technologies

Without their would be no real opportunity for party logistics providers, although it is debatable as to whether international freight forwarders were the first fourth party logistics providers — and they developed before computerization. (however, their role in supply chain has always been very niche and limited.)

The technologies that are leading the way towards providing information about supply chain activities and assets not controlled by the party monitoring them is SAP SCM Event Management. With this type of software, fourth party logistics providers become very likely. Furthermore, implementing extra enterprise software like this is very challenging, and companies need standard and easy to follow instructions for how partners can send them their data. It is more likely that a company that specializes in doing this will have far more success than a company that is attempting to get some of its suppliers into their collaboration system.

The Pretenders

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 which called Keuhne 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 really be placed in this classification. 4PL requires significant IT capabilities as well as standardized processes for on-boarding participants.

Doing It Right

A credible company should have ways of doing this online, without the involvement of a lengthy sales process and discussions with account managers that will discuss “meeting their needs.” 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 on-boarding procedures in extremely clear terms. The “brochure-ware” websites 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 website and view the detailed subcontractor on-boarding documentation.

http://www.amazonservices.com/content/fulfillment-by-amazon.htm

The Contender

In our view Amazon.com is excellently positioned to be a fourth party logistics provider because of their fantastic shopping engine and top ratings as a service company. Amazon performs their own fulfillment on some of the items sold on their site, but their partner subcontractors are responsible for a large 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, but when their customers perform the fulfillment they are more of a third party logistics provider.

Amazon.com


Amazon has a very easy way to begin using their fulfillment services.

We discuss the subcontracting in Amazon.com vs. SAP SNP and GATP in this post.

http://www.scmfocus.com/sapplanning/2009/05/15/subcontracting-in-snp-and-gatp-vs-amazon-com/

References

http://en.wikipedia.org/wiki/Amazon.com

http://findarticles.com/p/articles/mim0EIN/is2004Feb24/ai_113569792/