As businesses continue to expand and globalize, the need for effective logistics management across multiple distribution centers becomes increasingly important. One solution that has gained popularity in recent years is the use of 4PLs, or fourth-party logistics providers, which provide a low-risk option for expanding one’s distribution footprint.
Based on the original trademark, the term “4PL” is defined in the Universal Journal of Industrial and Business Management as "an integrator that assembles its own resources, capabilities and technology and those of other service providers to design and manage complex supply chains." The term "4PL" was trademarked in 1996 by Accenture, but since the trademark has lifted, any company can describe itself and operate as a 4PL. In short, a 4PL is a network of logistics companies creating business partnerships to best service their customers.
In more recent years, we have seen a significant need for the 4PL model due to the rapid expansion of ecommerce. With the 4PL model, a logistics company manages the supply chain execution by outsourcing part or all fulfillment and delivery operations, often allowing them to operate outside of the limitations of their current infrastructure. This ranges anywhere from partnering with a neighboring third-party logistics (3PL) provider to support local overflow capacity to managing your customers’ supply chain through a network of partner 3PL’s and facilities around the country and the world.
What are the benefits of creating or participating in a 4PL Network?
Whether your current customers are outgrowing your four walls or you are at a point where you can’t take on new customers, 3PLs often need to consider expanding into new territory. With facility and transportation costs continuously rising in high population areas and the difficulty associated with the setup and staffing of a new facility, it is challenging for 3PLs to expand their footprint and capabilities while trying to compete with larger providers that have more working capital and experience with expansion.
Utilizing or creating a 4PL network allows logistics companies to use existing infrastructure and processes to better cater to their clients while also expanding their target customer base. Often, the main driver behind the need to expand geographically is to get within the major carriers’ "2-day ground" range, so D2C orders can be delivered to consumers two days after the order is placed.
This is beneficial for both the 3PL and its customers for two main reasons. Reducing the distance a package travels from warehouse to consumer can significantly reduce the cost to ship each package. For example, where you may pay $10 to ship a package from the west to the east coast, you would likely pay $7 for each package shipped along the east coast. These savings can allow your customers to offer more competitive pricing. Given consumers can shop the price of goods through multiple online storefronts in minutes, this can give the 3PL’s customers a competitive advantage in the online market.
Also, due to the expectations set by companies like Amazon, more online shoppers expect their order to be delivered within 2-3 days. Offering this capability is an added benefit to drive more online sales and reduce cart abandonment.
Is a 4PL right for me?
We understand this is a significant question you may have, and there are multiple sources online you can view to see the pros and cons of the 4PL model. From our experience in providing the tools needed to build and manage your own 4PL Network, there are a few specific use cases we have encountered at Extensiv when working with our customers and partners:
- Single facility 3PLs looking to expand their geographic footprint and capabilities.
- 3PLs looking to develop a more efficient and cost-effective operations structure/program.
- 3PLs looking to expand their customer base by providing services they do not offer from their current infrastructure.
- Logistics companies that need to provide end to end visibility and order management for multi facility operations.
To address these use cases, Extensiv has built Extensiv Network Manager to support order routing and management and creating 4PL networks. Historically, many resisted the idea of building their own network because of the barrier to entry, but with flexible and scalable technology and well-defined best practices built into Network Manager, more companies are saying yes to 4PLs.
To learn more about how to build your own 4PL network, sign up for a demo of Extensiv Network Manager.