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Supply Chain Management: Fourth Party Logistics Providers (4PL)

logistics companies (3PL) and forth party logistics providers (4PL).

Supply chain management has seen a large shift in recent years from the use of in house logistics operations to the use of third party logistics providers. However, as global supply chains have developed and supply chains have become every more complex, a further option for companies has been the ability to make use of fourth party logistics providers (4PL). Freight API

What is a Fourth Party Logistics Provider?

Where the third party logistics provider (3PL) specialises in the operational element of supply chain management, the fourth party logistics provider acts effectively as a supply chain consulting company. In order to act as a truly effective fourth party logistics provider, the consultant must not have any operational capacity as this would lead to the possibility of a bias towards the provision of services. As such, this means that many companies which claim to provide 4PL services are in effect 3PL providers offering consultancy services, rather than true fourth party logistics providers.

Whilst the specific services of a fourth party logistics provider will vary between providers. In general, fourth party logistics providers have two main functions. In the first instance, 4PL services focus on a consultative approach of analysing the supply chain and then making recommendations for improvements. The second function relates to management within the supply chain itself, the fourth party logistics company often acting as a manager of numerous smaller third party logistics companies.

Using a Fourth Party Logistics Provider

The use of a fourth party logistics provider can be a useful tool in supply chain management, especially where supply chains are complex or span international boundaries. By using a fourth party logistics provider, this allows the effective management of a number of third party logistics companies, thus reducing risk within the supply chain.

A further advantage of the fourth party logistics provider is that such supply chain consultants are able to bring a great deal of specialist knowledge to a company, as well an objective opinion. Such considerations should lead to a greater level of efficiency within the supply chain, as well as lower costs.

The major disadvantage of using a fourth party logistics provider may be seen as one of cost. Whilst, fourth party logistics providers may improve efficiencies, they also add another layer of costs to the distribution channel. As such, a company must weight up carefully the total value that a fourth party logistics provider can add to a company against the additional costs incurred.

In summary, fourth party logistics providers may be an effective way of reducing risk and improving the efficiencies of supply chains, especially where supply chains are complex and spread over a large geographic area. However, as with all additional costs there may be the consideration that in some circumstances the costs far outweigh the benefits