First, what is a 4PL and why does it matter?
Fourth-Party Logistics or 4PL, is a concept that many analysts and technology vendors are promoting where logistics providers can offer higher value service that goes beyond physically moving the product to providing comprehensive supply chain solutions.
Why is the 4PL concept getting so much attention?
Namely, because of supply chain complexity.
Manufacturers are creating more diverse sets of product options, packaging designs, and logistics arrangements, and as a result there is a staggering amount of complexity in the form of fragmented channels, expanding product variations, and increasing customer demand for customized solutions.
This is seen, and rightly so, as creating some tremendous opportunities for logistics providers.
What kind of opportunities?
Opportunity 1 – Inbound Raw Material Supply
The first is in inbound raw material supply. Many logistics customers are searching for providers who can manage their inbound procurement and supplier collaboration. Properly supported and designed, a 4PL solution would include the entire procure-to-pay process managed as part of a multi-party, multi-echelon network. It also includes, but is not limited to, supply operations planning; where the forward forecast is taken to create production schedules and raw material plans for each factory, including the third party co-packers and contract manufacturers. Such a solution should be multi-tier and compute all required raw material and packaging needs, whether it is provided to the internal manufacturing sites or the outsourced sites.
Opportunity 2 –Global Available-to-Promise/Dynamic Logistics
The second opportunity is in global available to promise, or what we are calling dynamic logistics. Especially in markets such as high tech and medical equipment, build-to-order and postponement strategies are often times deployed, and many channels such as web sites, resellers, retailers, etc., are often used to sell the products. This typically means that logistic customers are seeking sophisticated demand-driven strategies such as real-time order promising, inventory commits and dynamic logistics optimization.
When a customer comes to a web site and orders five products that are sourced from five different locations, products still need to be assembled and shipped on one shipment to the consumer, all in less than five days. With the proper underlying technology, logistics providers can manage the coordination between OEM sites, contract manufacturers’ sites, suppliers, and logistics providers to help achieve this. And in the process they can enable their customers to optimize services levels and inventories, and manage to least landed cost.
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Author: Shirell James, VP International Delivery & Consulting at One Network Enterprises.