3PLs, 4PLs, and Beyond
EDI started out simply. The manufacturer sent an EDI Purchase Order to the supplier. Gee boss, we are on EDI!!! Now we wanted to "automate" the link to the trucker or rail carrier that brought the part into the factory. Yup! Can do; but they have their own EDI format. OK, done! But were we really linked with all parties?
The manufacturer changed his concept. He started getting sophisticated. He started issuing blanket Purchase Orders and ordering his product through a Material Release. The Advance Ship Notice followed shortly. But the suppliers and the shipping companies started getting sophisticated too. But they were not all in synch....and forget about parts imported into the country.
Time to go back to school on that whole transportation thing.
The Council of Supply Chain Management Professionals' glossary, defines 3PL as follows:
"A firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.
Third-party logistics providers are:
* freight forwarders
* courier companies
* other companies integrating & offering subcontracted logistics and transportation services
In the "PL" terminology, it is important to differentiate the 3PL from the:
* 1PL, which are the shipper or the consignee,
* 2PL, which are actual carriers,
* 4PL (Fourth-party logistics provider, abbreviated 4PL, lead logistics provider, or 4th Party Logistics provider), which were originally just consulting firms specializing in logistics, transportation and supply chain management such as Penske, Deloitte, BMT Limited, or Accenture. Now a new crop of companies have emerged who are actual transportation companies too. 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. They are very limited in market penetration and tout advantages such as “rate negotiation”. There is actually one company in the UK calling themselves 5-PL.
You might question anything more elaborate than a 3rd party providing logistics consultation or management, no matter how advanced or far-reaching their service might be. So are they still 3PLs who just invented a fancy title to set them apart from the competition, or is there a real differentiation?
A 4PL is neutral and will manage the logistics process, regardless of what carriers, forwarders, or warehouses are used. The 4PL can and will even manage 3PLs that the customer is already currently using. Many 4PLs have addressed the huge requirements of electronic interface between numerous companies. Some of the companies I have looked at include Steadfast Transport. Maxiom Group (now Collaborative Consulting) provides specific capabilities in electronic data interchange (EDI), electronic funds transfer (EFT).
Outsourcing is often taking a set of work, tasks, responsibilities or functions and transferring them to an outside service provider. Business Processing Outsourcing (BPO) involves that and more. A BPO service provider brings a different perspective, knowledge, experience and technology to the existing function and can and will work with the firm to re engineer it into an improved or new process. It is an outcome-based result, not just a pure cost reduction issue.
One of the more troublesome, complex logistics issues is the inbound supply chain from Asia. How do you manage the critical supply chain and suppliers who are thousands of miles away, in different countries and in different time zones?
Managing this vital part of the supply chain can be frustrating and time consuming. Vendors shipping dates, expediting and changing orders, giving direction to consolidators or 3PLs as to delivery requirement are just some of the challenges dealt with. It is hardly a seamless process. An excellent opportunity for "super logistics providers" (4PLs) to meet..
A 4PL, with real world experience dealing in Asia, should be able to present a way for customers to take control of their inbound supply chains. This BPO firm will provide each customer with the technology, the people and the process to manage purchase orders, suppliers and shipments in Asia. They can structure the relationship and the process in a way that best meets the requirements of the customer, rather than the customer having to accept what the outsourcing provider has to offer.
Conclusion: These diverse relationships absolutely require electronic interface (read: EDI) in order to bring everything together. Just imagine trying to do it with phone and FAX!
Traditionally, most EDI is between shippers (1PL), carriers (2PL), and 3PL (most volume is ANSI documents 846, 940, 943, 944, 945 & 947). Since some of the 4PL companies are sometimes very innovative, they are fully EDI capable in their role of a “super 3PL”.
Since the 4PL has expanded it's role, is it fair to say that anything beyond that is just “marketing strategy”? I kind of liked the 7PL (3PL + 4PL).