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March 4, 2020
The global fourth-party logistics (4PL) market was valued at $54.06 billion in 2018, and it is growing.
By 2027, it is projected to increase to $84.17 billion.
Much of this growth comes from the explosion of ecommerce, but the trend holds true for manufacturing as well. Especially for industries with intricate and complex international supply chains, such as aerospace and automotive.
This increasing demand for 4PL services has everything to do with the future of manufacturing.
In a nutshell, the increasing complexity of supply chains is making the 4PL value proposition more attractive to businesses.
Globalization, industry consolidation, part proliferation, and the ever-more-complicated international trade environment are all contributing factors.
Added to this is the growing importance of technology.
Industry 4.0 is upon us: the union of the internet, robotics, machine learning, and data. While the implementation of these technologies is not yet standard, technological advancement in manufacturing is driving demand for 4PL.
Extended supply chains have often been plagued by fragmentation and a lack of visibility. Data and new technology offer the opportunity to create visibility and transparency.
Here is the problem:
Resources like time and labor end up being directed away from core activities. This is detrimental to a company’s competitive advantage.
On top of this, the lack of visibility throughout the extended supply chain heightens the potential for disruptions to occur.
The solution to complexity? Centralized visibility in the supply chain, letting businesses systematically reduce operational costs and focus on core activities.
And where centralized visibility is the goal, fourth-party logistics are the means.
To explain how this works, we should first answer an obvious question.
The original definition of a 4PL, trademarked in 1996, is as follows:
“An integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build, and run comprehensive supply chain solutions.”
Like many dictionary style definitions, it leaves much to the imagination.
For a clearer understanding, third-party logistics (3PL) serve as a good comparison.
The 3PL model involves outsourcing logistics operations to a 3rd party, often related to the management of:
Both levels of service provide outsourced logistics operations. Only 4PL providers manage all aspects of the customer’s supply chain, including management of external 3PL providers.
A business’ supply chain is like an airport: each plane represents a segment of their logistics operations.
When a pilot is hired to fly one of their planes, it is as though the business is hiring a 3PL provider. The provider has control over that segment of the supply chain, but nothing else.
A 4PL provider is like the air traffic controller in the control tower, says Joseph O’Reilly of Inbound Logistics. They oversee the entire operation, making sure all planes are where they need to be. Operations continue, disaster is averted.
A qualified 4PL provider brings management expertise to a business’ supply chain, implementing systems for improvement based on observations of the operation as a cohesive whole.
This expert eye and improved visibility allow for a better understanding of operations. Targeted improvements can then be made that lead to fewer disruptions.
The 4PL approach to the supply chain effectively reveals process inefficiencies.
4PL providers assess, design, build, and monitor supply chain solutions.
More specifically, they approach supply chains with the following steps:
In this way, the 4PL model provides a scientific approach to supply chain management. Research, test, analyze, repeat.
Businesses are inundated with data. But without an efficient way to turn it into useful information that can guide operational changes, data is useless.
4PL providers bring expert knowledge to what data and key performance indicators (KPIs) matter, and how this information should guide company decisions.
This approach lends itself to an array of targeted supply chain services and solutions.
As stated before, 4PLs provide many of the same logistics services as 3PLs (warehousing, inventory, etc.).
What sets 4PLs apart are their integrated information systems. When a business wants to gain greater control of its supply chain, the single version of the truth that 4PLs provide is critical.
A range of services stem from this central offering, from consultancy to hands-on supply chain transformation. All with the goal of streamlining operations.
The implementation and execution of these strategies are guided by the data-driven approach inherent to the 4PL model. The result? Targeted solutions based on the customer’s dynamic supply chain needs.
And with targeted solutions, businesses stand to benefit.
Learn about these benefits in Part II of this series: 4PL Benefits for Manufacturers (and Tips for Implementation) COMING SOON