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Five Development Models of Third-party logistics
2022-11-12   177

According to the definition of Council of Logistics Management in the USA, “logistics is the broad activity of efficiently moving consumer goods from the end of the production line to the relevant consumers, including the effective movement of raw materials from the source of supply to the beginning of the production line”.

Third-party logistics providers provide all or part of the supply chain logistics services to their customers for a certain profit. Third-party logistics companies offer a wide range of services: it can be as simple as helping customers arrange the transport of a shipment, or as complex as designing, implementing and operating a company’s entire distribution and logistics system. Third-party logistics is sometimes referred to as “contract logistics”, “third-party supply chain management” and other titles. The key difference between third-party logistics companies and typical transportation or other supply chain service companies is that the greatest added value of third-party logistics is based on information and knowledge, rather than by providing general and undifferentiated services at the lowest price. For example, we don’t call a purely motor transport company a third-party logistics company.

However, in actual operation, third-party logistics companies lack the strategic expertise to operate the entire supply chain and the relevant technologies to truly integrate supply chain processes. The fourth-party logistics is increasingly becoming a real asset transfer that helps enterprises achieve continuous operation cost reduction and is different from traditional outsourcing business. It relies on the industry’s best third-party logistics providers, technology providers, management consultants and other value-added service providers to provide customers with unique and extensive supply chain solutions. This is something no one company alone can provide.

By definition, “the fourth-party logistics provider is a supply chain integrator that integrates and manages different resources, capabilities and technologies owned by the company’s internal and complementary service providers, and provides a complete set of supply chain solutions.”

Characteristics of fourth-party logistics

First of all, the fourth-party logistics provides a complete set of supply chain solution. The fourth-party logistics integrates the capabilities of management consulting and third-party logistics service providers. More importantly, the design, implementation and operation of an unprecedented unified technical solution that maximizes customer value can only be achieved through the concerted efforts of consulting companies, technology companies and logistics companies.

Reengineering: supply chain process collaboration and supply chain process redesign. The highest level solution of the fourth party logistics is reengineering. The real significant improvement in the supply chain process is either achieved through the coordination of the planning and operation of each link, or through the cooperation of all participants. The reengineering process is based on the traditional supply chain management consulting skills, making the company’s business strategy and supply chain strategy consistent; At the same time, technology plays a catalytic role in this process, integrating and optimizing the operation of the supply chain within and across the supply chain.

Change: strengthen the functions of each supply chain through new technologies. Efforts to change focus on improving a specific supply chain function, including sales and operation planning, distribution management, procurement strategy and customer support. At this level, supply chain management technology becomes critical to the success of the scheme. Leading and smart technologies, together with strategic thinking, process reengineering and excellent organizational change management, form the best solution to integrate and improve supply chain activities and processes.
Implementation: process integration, system integration and operation handover. A fourth party logistics service provider helps customers implement new business solutions, including business process optimization, system integration between customer companies and service providers, and transferring business operations to the project operation team of 4PL. In the process of project implementation, we should be more careful about organizational change, because the “human” factor is often the key to the success of transferring business to 4PL management. The biggest goal is to avoid ineffective implementation of a well-designed strategy and process, which limits the effectiveness of the scheme and affects the expected results of the project.
Execution: Undertake the operation of multiple supply chain functions and processes. 4PL began to undertake the operational responsibilities of multiple supply chain functions and processes. Its scope of work is far beyond the traditional third-party logistics transportation management and warehouse management operations, including: manufacturing, procurement, inventory management, supply chain information technology, demand forecasting, network management, customer service management, and administrative management. Although a company can outsource all the supply chain activities to 4PL, usually 4PL is only engaged in some key parts of the supply chain functions and processes.
Second, the fourth-party logistics adds value through its ability to influence the whole supply chain. 4PL makes full use of the capabilities of a number of service providers, including 3PL information technology providers, contract logistics providers, call centers, telecom multipliers, etc., plus the capabilities of its customers and 4PL itself. In conclusion, 4PL meets the broad and complex needs faced by today’s companies by providing a full range of supply chain solution. This solution focuses on all aspects of supply chain management, providing continuously updated and optimized technical solutions while meeting the unique needs of customers.

The important role of information technology

With the increasing importance of information management, companies need to develop an appropriate information technology strategy. A truly effective information technology strategy must cover the following levels: enterprise resource planning systems, decision support, including both transaction support and management functions. Breakthroughs in supply chain management technology in recent years have enabled supply chain participants to truly have a comprehensive and real-time “panoramic” scan of the entire supply chain. Technical capabilities have been able to cover all aspects that can affect the competitiveness of enterprises, including the visibility of product flow, event management and performance management.

The real-time information that technology can provide helps companies to recalibrate product flows when necessary and predict inbound and outbound flow. It also enables users to quantify and track performance data at all levels of the supply chain; and to look for opportunities for continuous improvement.

Operation mode of the fourth-party logistics company

Combination of superpowers (1+1>2)

4PL and 3PL jointly develop the market, and the fourth party provides a series of services to the third party, including: technology, supply chain strategy skills, market entry capabilities and project management expertise. A 4PL often works within a 3PL company and both parties either have signed a commercial contract or have formed a strategic alliance.

Solution integrator

4PL provides customers with solutions to operate and manage the entire supply chain. 4PL integrates its own and 3PL’s resources, capabilities and know-how to provide a comprehensive and integrated supply chain solution for its customers. 4PL can integrate the capabilities of multiple service provider and the capabilities of a customer.

Industry innovators

4PL develops and delivers supply chain solution for multiple industries with a focus on supply chain integration and synchronization.

Industry solutions will bring the greatest benefits to the entire industry. Fourth-party logistics will improve the efficiency of the entire industry through the implementation of excellent operational strategies, technologies and supply chain operations.

Limitations of China’s developmental fourth-party logistics

Although third-party logistics (especially freight forwarding) has been around for decades, the industry has only recently grown significantly due to changes in corporate attitudes towards supply chain management. However, despite the lack of accurate statistics in this regard, the share of third-party logistics in the entire logistics market is still very low. Even in the United States, the third-party logistics industry only accounts for 7% of the entire logistics market.

In China, we are still in the initial stage of developing third-party logistics. International third-party logistics companies have not yet been allowed to operate real third-party logistics in China. State-owned companies with logistics as the main body have not yet completed the transformation of the business mechanism. Although private third-party logistics companies are rising, they have not become full-fledged. At the same time, manufacturing enterprises have outsource logistics to third parties have not yet formed a climate. In China, although the government and the media have been promoting the development of this industry, and traditional transportation and warehousing enterprises have also been restructured, the share of third-party logistics in the entire supply chain market is still very low (significantly less than 7%).

In China, the development of fourth-party logistics requires the exploration and pilot action of some early leaders, It can only be achieved by the credibility of the market and the high transparency of the information system. However, due to some unique opportunities in the process of China’s economic development, it is very likely that some large fourth-party logistics companies will appear in China. For example, in China, third-party logistics companies are still in their infancy, third-party logistics companies and storage and transportation companies are small and scattered. The complex logistics facilities across the country, the different traffic conditions and the highly differentiated regional logistics standards and legislation provide conditions for the emergence of several large fourth-party logistics to effectively integrate social logistics resources.

However, China’s current supply chain management technology is not mature yet, the expertise of supply chain/logistics management is scarce, the ability of enterprise organization change management is poor, and the infrastructure of the whole logistics is backward. Usually, the customer size is small, and they can’t afford the services of the fourth-party logistics. Therefore, the development of fourth-party logistics must be developed on the basis of the highly developed third-party logistics industry and the extremely popular outsourcing of enterprise supply chain business.

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