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Outsourcing Logistics: Redefining 4PLs in the Global Marketplace

by Mark Morrison

Five years ago, the term “4PL” was introduced into the supply chain to convey that deep informational technology skills and deeper analytical skills were required to achieve supply chain leadership.

In retrospect, the term 4PL has proven a harbinger as to how much the logistics industry has kept pace with the evolution of the Internet. Since that time, Internet-based services and applications such as ASPs, eCIs, SCEM,and ISMs have been spawned all of which seek to exploit supply chain cost efficiencies through real-time Web-based connections.

But the true evolution of the 4PL term is better defined in context of the global marketplace where outsourced logistics creates more of a partnership critical to success than a supplier/customer relationship. Companies in the global marketplace are finding that supply chain engineered logistics is not a commodity but vital to boosting their cost savings, enhancing their cash flow and improving servicing levels for getting their products to market.

Indeed, the need for global supply chain management has grown rapidly over the past few years. Already one-third of the world’s traffic flow is global and best guess estimates of total logistics costs run in excess of $2 trillion. Of that a mere 3.5 per cent is outsourced.

But those companies charged with providing outsourced logistics will not only have to possess a global footprint. They will also need to provide the right mix of internet-based supply chain applications that can fully integrate all intercontinental trading partners. By definition, a 4PL or lead logistics provider in a super large global contract will be responsible for multiple facilities in many countries and in some cases overseeing other 3PL providers. This will require the depth versatility to integrate multiple disparate platforms. It will also require having a presence in those countries as well as understanding of that country’s business protocol.

Fortunately, Internet-based supply chain applications now provide a panacea of services, the precursors of which were once the domain of a few ERPs and early exchanges. According to a Jupiter research report, much of the applications introduced by the early exchanges have been surpassed by off-the-shelf applications. Companies like i2, Vastera, G-Log Descartes, Manhattan Associates, and EXE technologies now provide second generation supply chain applications whose offerings include warehouse management systems, international trade logistics and connectivity/transportation management systems, all of which increase visibility into the supply chain, thus enhancing collaboration. But the technology is not limited to these suite of software providers. Some 3PLs are getting into the game bringing to bear their own expertise and vertical industry know-how on applications development. The result is the power to offer deeper analytics that yield comprehensive solutions.

The combination of technology and know-how (the logistics’ industry’s version of high-tech/high touch) has given birth to supply chain event management that goes beyond simple warehousing and distribution. These supply chain event management tools (important to the delivery of global logistics) enhance the value of warehouse and transportation systems by providing inventory and order status visibility at all levels including proof of delivery, as well as providing the capacity to respond to exceptions and unplanned events. All of which contribute to reduce cost and lower inventory levels.

Inclusive in these services are critical functions that allow for integration with procurement, production, distribution and marketing, sales and finance. Along with providing international trade services, freight forwarding and customs services, this new platform of will be the standard for delivery of global supply chain services.

And as logistics services continue consolidating to provide global scale as evidenced by the Ocean Group/Exel, TNT Post Group/CTI Logistix and APL/GATX mergers, the pressure to emerge as a true 4PL will increase. Only those companies with an authentic a global footprint and the technology to bind a growing number of disparate trading partners together will emerge with that nomenclature.