Since I wrote my definitions article on 3PL / 4PL / 5PL / 6PL, 4PL has become almost as well known as 3PL; but the terms 5PL and 6PL have not exactly become household words. Now we have: 3PL + 4PL = 7PL. Let's quickly review these definitions:
Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging/repackaging, and freight forwarding. Examples of value-added services also provided by 3PL providers might include: (1) pick and pack; (2) marking, tagging, and labeling; (3) product returns and reverse distribution; (4) salvage and scrap disposal; (5) telemarketing.
While a 4PL is sometimes described as non-asset-owning service provider, their role is to provide broader scope managing of the entire supply chain. Now, along comes the 5PL who sometimes define themselves as broadening the scope further to e-business. A 6PL adds in import/export customs. Don't forget, the 1PL is the shipper or the consignee, and the 2PL are actual carriers, warehouses, etc.
Outsourcing is a viable business strategy because turning non-core functions over to external suppliers enables companies to leverage their resources, spread risks and concentrate on issues critical to survival and future growth. One way of extending the logistics organization beyond the boundaries of the company is through the use of a third party supplier, or contract logistics services.
A 3PL providing a full outsource solution comprising different services from one service provider is difficult to achieve. That is why opportunities have been created for 4PL service providers to assist companies in coordinating activities from several 3PLs, who are providing different services.
4PL Service Providers manage the activities now being done by internal company departments who are supervising several 3PLs. The 4PL is an integrator that builds and runs supply chains. The primary role of the 4PL is the management of complexity and time. A 4PL is a non-asset based logistics operator who is an outsourcing specialist – assessing the entire supply chain and contracting those best able to provide the required services, all in order to reduce the customer’s investment in inventory. 4PL operators handle the client’s entire logistics function for optimum results. It is not just about reducing costs of warehousing and transport, but rather about managing the logistics functions and achieving optimization. 4PL consultants are being used to analyze certain areas and recommend solutions where processes can be optimized.
The 4PL service provider manages and coordinates the relationship between all the different activities of its customer's supply chain. The development of 4PL solutions leverages the capabilities of 3PL providers, technology service providers and business process managers to deliver a comprehensive supply chain solution through a centralized point of contact. The 4PL will integrate the client’s supply chain activities and supporting technologies across the most qualified service providers with the capabilities of its own organization.
The phrase 7PL was coined by the Value Logistics Group and is a concept describing the developing trend of a combined 3PL and 4PL. Through this service, the client has one service provider that oversees the entire logistics chain.
7PL is the combination of 3PL and 4PL into one (3PL + 4PL = 7PL). 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. 7PL is a turnkey solution where instead of dealing with several people for various services like inbound, outbound and warehousing, clients now are required to deal with one person under the ‘one contract, one bill’ concept.
For logistics outsourcing arrangements to be successful they must include a strong emphasis on customer relationship management (CRM). This is different from what we typically think of as customer service. Customer service actions are ‘passive’ and are initiated after customers present their requirements, whereas CRM is ‘active’. It not only solves problems but also maintains close contacts. CRM relies on the integration of marketing and logistics customer service, and regards customer service as another marketing mode. The only criterion that counts in evaluating a service quality is defined by the customers. Only customers can judge quality. All other judgments are essentially irrelevant.
Before we settle in on the 7PL, there are dissenting opinions too. SCM Focus feels it is unnecessary and the problem is that 3PLs have not done what they said they were going to do. 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.
It's 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.”
Blogger Pavan KL offers a good opinion too: “Though 7PL offer so much of excitement, for me it looks like a same old formula of 3PL. When 3PLs came into the market they looked like same with a promise of providing free up from resources, all types of benefits in terms of technology, visibility, control when it come to managing logistics. But somewhere down the line the gaps created by 3PLs with in this led to the concept of an asset independent 4PL. The concept of the 4PL makes more logical being a consulting firm generally BPOs and software consulting firms have the ability to build their own platforms that suits client business, co-ordinate with various carriers and do all the back office and operations that exactly caters to the customer needs. But I really doubt whether 7PLs can ever do this?? It is a kind of hoopla created by 3PLs that they are well placed to build virtual supply chain networks and offer complete package for the clients. They had all the opportunities to do this in the past but they didn’t. I still have doubts; can 3PLs address the idea of a 4PL? ”
If we go with the opinion that a 7PL is just “excess baggage”, then one player who is positioned in the market as an “electronic 4PL” is SPS Commerce. Their Retail Universe℠ online community and Referral Partner programs allow 3PL's to acquire new customers, drive business growth and differentiate their companies. As a matter of fact, SPS Commerce has reached the “5PL” level as they also manage Clouds!