SAP SCM has very few 3PLs as customers. Why is this? SAP SCM offers a modules which address:

• Transportation Planning and Vehicle Scheduling (TP/VS)
• Event Management (EM)
• Extended Warehouse Management (EWM)

One reason 3PLs do not select SCM no doubt has to do with its cost (both implementation and maintenance as well as software). However, another is that TP/VS lacks the ability to meet many 3PL requirements and was designed with shippers in mind. However, how difficult would it be for SAP to add functionality that would enable TP/VS for 3PL? As for EM and EWM, they can be used now for 3PLs.

Why Can’t SAP SCM Can Provide an Innovative and Applicable Solution for the 3PL and 4PL industry?

This solution could provide EM as a monitoring service for clients, and interact with a company’s SAP ERP solution. There are still many companies that have not implemented SAP SCM, and will not. A third party logistics company that implemented this solution design (when it is ready) would have a very significant advantage both in terms of the internal improvements offered through the modules. Additionally the ability to easily integrate with many of its shippers that use SAP to manage their supply chain could be a significant differentiator in the market.

Book on 4PL

We have recently been reading Fourth Party Logistics: The Future of Fourth Party Logistics: The Future of Supply Chain Outsourcing? by Serafettin Kutlu.

Serafettin sets up the scenario with the following:

1994 Andersen Consulting survey of 250 organizations in the UR round that two-thirds of respondents actually felt that their initial expectations of 3PLs were not being met. While many 3PL providers could deliver warehousing, transportation and fleet management services, few were able to cover the full range of supply chain requirements that included services such as logistics IT development and order processing. This shortfall in service means organization needs to assemble a combination of outsourced and in-house service components to manage its supply chain effectively.

Moreover, a 4PL vendor is free to find the best breed for each category. Large companies frequently hire consultants to review proposals from 3PLs, handle bids, select vendors, and align business processes with supply chain plans to put the best breed together, then the question becomes: Who needs to be in control of the supply chain, and who can manage it better.

4PL or RFP Development?

We think Serafettin is combining two different issues into one. One is that consulting companies help shippers develop RFPs for logistics services. The second issue is what a 4PL actually is. The definition that we adhere to is that a 4PL is an information integrator of both 3PLs and transportation and or warehouse companies. That they develop platforms to support this integration. Now creating RFPs might be a part of what 4PLs do, although we are not sure that is necessary, but it certainly should not be the majority of what they do. Serafettin’s approach is comingingly the two types of work, and in our mind papering over the limiting capabilities of consulting companies. Consulting companies make their money charging other companies to perform services. In systems this breaks into system implementation and outsourced management (things like data centers). There is a clear division between software companies and consulting companies, and for good reason. Consulting companies know how to place people on accounts and bill. That is the model all of the partners are used to. The partners are not used to, and not particularly interested in building anything. Good evidence of this is taken from the mediocre infrastructure of the major consulting companies. Even finding documents on their intranets is a challenge, and most of the software instances they do maintain (such as SAP training boxes) are typically held together on a shoestring. (again, investment is seen as cutting into partner comp).

Thus Serafettin’s statements regarding the inability of 3PLs to really integrate the supply chain rings true to us. At the end of the day, a 3PL is a glorified transportation and warehousing company. However, we disagree that consulting companies can fill this void.

On the final point, if you are a shipper, and you need to bring in help to put together RFPs, you need to hire more people. There are agency issues involved with having outside parties perform selection for you. I worked for a major consulting company and was approached by a company that wanted my firm to put together an RFP for an SAP SCM consulting project. The request was explicit, only help in developing the RFP. As soon as I communicated this back to my firm, I was called by 3 different partners at the firm, all of whom proposed that we get the client’s trust, pretend to put together the RFP, but then get them to drop the RFP and simply use our firm for the implementation. Another strategy the partners wanted to employ was to rig the criteria so we would win if the RFP was put out to bid. I seriously felt like taking a shower after several of these encounters. Thus, RFP capabitity must reside within the company that buying the service. Bringing in a person will be far less expensive than bringing in a consulting firm and will bring far fewer agency issues.

Looking for a Platform

Rather than looking to outsource the management of the outsourced logistics, why not search the internet looking for a firm that can provide you with a platform so that your company can empower itself . We will perform some searching ourselves and report back on what we find.

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://sapplanning.wordpress.com/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.

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.

One the next page we receive the rate response.

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 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/

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://sapplanning.wordpress.com/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://sapplanning.wordpress.com/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 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.

Thinking originally is very difficult for people who work in supply chain. This may have something to do with the doctrinal orientation of the education system combined with the severe hierarchy found in so many companies. Therefore, supply chain has a lot of technology, but few original ideas, or original thinkers. There is also a “mill” of trends that hit the industry, which are primarily content free. As a consequence, supply chain management does not improve very much (on average) from year to year.

Lack of Original Thinking

It’s an important fact to face that one’s chosen profession is not filled with people who tend to think “outside the box.” This applies to supply chain management generally, but to 3PLs in particular. It has been several decades since the 3PL concept became popular, and what do we have? Do we have a number of platforms created by logistics companies to enhance the capabilities of their customers? No, we do not.

What Does 3PL Really Mean

What 3PL seems to mean is just moving some of the people from the supply chain execution and monitoring function within shippers, to the same job at an asset based transportation or contract warehouse provider. We call this “simple outsourcing” and it ads very little value, and in fact may subtract value. This is in essence accounting trickery. Short term costs go down (so the executives are happy and can cash in stock options) but long term costs and capabilities are about the same or rise slightly. There has been so much written on the 3PL trend, and what is behind it is so modest that it’s amazing that as many articles have been written about it as have been.

Getting it Right With 4PL

3PLs did not add much value to the process, and did not make supply chains much better. Much like a shell game, a lot of things were simply moved around, so it looked like progress was being made.

There is too much insubstantial innovation going on in both finance and supply chain. Changing things or moving things around is not genuine innovation. In order to use the word “creative” the item should create something new, or at least combine two old things in an innovative way. This faux innovation cuts across industries. Pharmaceutical companies have so changed patent law with lobbying and legal actions that they are getting patents from nothing. They get patents from essentially repainting a law mower a different color. The pharmaceutical industry does clinical trials for chemical compounds actually created at universities using NIH grants. A monkey could manage the clinical trials, and that is all they really do, but Pfizer and Merck like to pose as innovators. It is preposterous.

No to Buzzwords

4PLs offer an opportunity to get it right. However, to do so, companies must not simply use the concept or buzzword to cover up the same old tired offerings, as was done repeatedly with the 3PL craze. 4PLs must actually create platforms and capabilities that did not exist before in order for the term to have any lasting value. No matter what we say, salespeople will use the term 4PL when the business they represent is not one. However, the beautiful thing about web enabled systems, is they can be tested immediately. No one has to hypothesize or guess what working with Amazon.com’s fulfillment system is like. You can sign up and login in 1/2 hour from now. Savvy shippers will say…

“Leave the sales rep at home, let us test the system with our own people at our own pace, and will get back to you.”

Getting Creative

The first order of business is to begin asking how new uses of technologies can be rolled out to improve the transparency of the supply chain. One of the biggest ones is how a universal monitoring system can be built to stitch together different supply chain partners. SAP has a product called Event Management that attempts to do this and has the concept right, but SAP is tough to put in and is cost prohibitive (not the software, the implementation which is a bear) for many companies. They also are lacking the web centric concept. You can read more about this web centric topic here.

http://supplychaininnovation.wordpress.com/2009/05/29/web-enable-supply-chain/

Web enablement is one area that needs to be worked on, but there are many others.

We have our own favorite technology question that should be answered….

Why Isn’t GPS Used More for Pallet Tracking?

GPS can be used for far more than vehicle tracking, and there are many units that are cost effective, very small, and can transmit the location of any item at the frequency of the configurator’s choosing. So the question is — why aren’t these used more to support event management.

To read more about the GPS technologies for supply chain, see this post.

http://gpsforsupplychain.wordpress.com/2009/05/26/gps-for-supply-chain/

To read more about event management and the problem it is attempting to solve, see this post.

http://fourthpartylogistics.wordpress.com/2009/05/23/the-problem-scm-event-management-is-attempting-to-solve/

Addendum

In the banking industry, outsourcing has been used to simply reduce standards and avoid responsibility. Industries that cannot force tax-payers to pay for their mistakes, should think twice before engaging in non-innovative outsourcing.

Non-innovative outsourcing has not only been a problem for 3PLs, but for a number of industries. Banks essentially got tired of managing mortgages, and outsourced mortgage servicing to specialized companies. The calamity of outsourcing the holding of mortgages (selling mortgages to Wall Street) has been well documented. However, less well understood is how outsourcing mortgage servicing has greatly degraded standards in the industry.

“Automation and outsourcing followed this consolidation, allowing the mega-servicers to process huge numbers of loans without increasing costs. Like the brokers originating the loans, they shoved as many mortgages as possible through their software programs. They outsourced everything from tax processing to call centers. They hired low-skilled workers to do what amounted to data entry, then overburdened them and skimped on training. And it all worked brilliantly. “In good times, the servicing business has been profitable,” a Federal Reserve Board working paper on the industry bluntly concluded last year.” – http://www.thenation.com/doc/20090518/wright/2

Reference

http://counterecon.com/2009/01/12/why-didnt-anyone-want-to-hold-mortgages/

How to Build Fourth Party Capability

In order for fourth party logistics providers to rise, they must be careful to deploy web enabled supply chain software. Too much of the software available in the market is not properly web enabled. This includes SAP, i2 and Oracle as well as probably many others that we do not have direct experience with. The sales arms of these companies would strenuously disagree with this statement pointing toward their portals products as evidence that they are web enabled. However, this rings false for two reasons:

• This is only part of their products. Most of their product still uses non-HTML interfaces, which are clunky proprietary and hard to use.
• The major vendors seem to have a problem developing easy to use HTML interfaces. Companies like Arena and MCA show the way in developing good web interfaces, but they are the exception rather than the rule (this is another reason both are leaders in offering hosted solutions). SAP Portals is essentially a demo of how not to develop an interface.

What Web?

Furthermore, the major supply chain vendors don’t seem to even grasp what the web can do for their software. There is a lot of talk about SOA and thinking web-centrically, but this mostly left in the room as soon as the executives leave the conference. They then go back to their old software with its old software design. There is too much self congratulation and patting of oneself on the back, and not enough actual progress being made.

Investing in supply chain software and relationships that are web-centric is critical to setting up the preconditions for growth. In this market, openness trumps deep logistics complexity.

The Future of IT

Fourth party logistics providers, and those that seek to become them, need to be careful that their supply chain software purchases don’t eventually become paint them into a corner. In the future, deep functionality is going to take backseat to interoperability and information sharing. After all the talk of advanced mathematics in supply chain, very few companies actually run optimizers and most use simply semi-automated heuristics. Simple mechanisms like automatic safety stock setting is routinely violated. The promise of the benefits of complexity have not materialized. For one, companies by and large cannot figure them out, secondly, parochial interests work against system-wide optimization, and complex systems are prone to breakage and are difficult to maintain. Hosted applications that integrate well with other hosted applications have a profound advantage in the future marketplace. Companies that create essential platforms can gain customers through the web, as Amazon.com does with their fulfillment services, without the need for aggressive Oracle style sales forces with their expense accounts and inherent corruption.

Changing of the Guard

We have worked for years on large systems implementations projects for supply chain, and we would like nothing more than for them to go away, and be replaced by hosted solutions. Companies will be more willing to experiment with solutions they can begin using immediately and recursively building upon, rather than the gianormous ERP implementation model that thrive on complexity and bilateral monopolistic lock-in. Instead companies can sign up for month-to-month service contracts, and be charged on the basis of volume. All the work involved in maintenance of the instance is managed centrally by the people most able to do so. In the future, people will look back at how we currently implement software and consider it quaint. Those concerned about data security need to work the angle from the legal side, companies that leak data or engage in industrial espionage can be sued in court, and if the damages are sufficient, put out of business. This should not be used as an excuse to block this concept, but rather should be worked into contracts. Every new concept presents risks, however working around those risks defines whether a company is actually dedicated to innovation.

Web Enablement

It goes without saying that all these applications should be web enabled, and we have written about why in this post.

http://supplychaininnovation.wordpress.com/2009/05/29/web-enable-supply-chain/

Retailers have the right orientation to be 4PLs. This is because they are used to being customers of logistics services. However, only a select few retailers could ever become 4PLs.

3PL Not To Be 4PL

In our previous post, we described how traditional 3PLs are not well positioned to perform in the 4PL concept because they lack the technology orientation, and furthermore, they are they do not build platforms as much as they simply manage logistics volume through their network.

http://fourthpartylogistics.wordpress.com/2009/05/24/3pl-vs-4pl/

Who To Be The 4PLs?

We noted how Amazon.com has the right capabilities to become a 4PL, and that they already offer fulfillment services to those that sell on their website (thus they are already a 3PL). However, Amazon’s ability to deal with vendors at low cost and provide them with a platform, indicated to us that they could also become a 4PL. That is customers could use their platform without necessarily using their fulfillment operations. We say this is possible, but we have no way of knowing of Amazon.com is actually interested in growing in this direction.

Wal Mart as a 4PL

Wal Mart could be a 4PL for the following reasons:

• Excellent technology orientation
• A proven ability to manage and coordinate transportation companies
• An industrial engineering approach and precision culture
• A retail orientation, rather than a transportation company orientation

People talk about Wal Mart’s dominance, however, it’s not their stores that actually differentiate Wal Mart in the marketplace. One could argue that Target provides a more pleasant shopping experience (nicer stores, better checkout, certainly less crowds), however, what differentiates Wal Mart is its logistics and information systems, which seems to be able to stock the right things in the right quantities.

Wal Mart had satellites at their stores to uplink data long before any other retail. This is just one example of their dedication to their IT centered approach.

Wal Mart could take this same infrastructure and become a 3PL without question. However, they also could likely become a 4PL as well.

Web Centric?

The one area where they are not adequate is that Wal Mart is not web-centric. Their online presence is weak, and it is doubtful they could become as easy to work with as Amazon.com. In fact very few could, however, the Amazon.com’s website is out there for everyone to read. There are no copyrights on making it possible for shippers to sign up with you and to create a platform for them to use.

We believe that Amazon.com’s capabilities in creating relationships with suppliers through extensive online documentation and web based tools, comes from its background in online selling and customer service.

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.