Author: Extensiv Sep 13, 2023 7 Min READ

The Role of 4PLs in Global Supply Chain Management

7 Min READ
The Role of 4PLs in Global Supply Chain Management

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The Importance of U.S.-based 4PLs and Their Roles in the International Supply Chain

Most modern businesses, especially those in ecommerce and retail, are looking for faster, more efficient, and cost-effective supply chain solutions. This may very well be critical for some operations, especially post-pandemic, where the international supply chain continues to evolve in complexities and can span multiple countries, countless suppliers, and cross paths multiple times with vendors, transportation and freight specialists, warehouse management companies, parts and inventory manufacturers, and more.

With end-to-end management of the entire supply chain lifecycle, U.S.-based fourth-party logistics (4PL) companies play an increasingly important role in supporting these businesses across the global supply chain. By managing all of a customer’s supply chain needs, 4PLs free up those companies to focus on what they do best—running their businesses. A growing number of businesses now rely on 4PLs for this reason, shifting some services away from the traditional third-party logistics (3PL) provider to reap the benefits of a 4PL’s expanded geographic reach and vast network connections.

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The Changing Supply Chain

In the last several years, the global supply chain has become increasingly challenging to manage. Geopolitical instability, for example, the conflict in Ukraine, has negatively impacted supply chain routes and also influenced price increases for much-needed commodities like gas and oil.

On top of that, some parts of the supply chain have still yet to recover from the pandemic, where many suppliers and supply chain vendors operated at significantly reduced capacities and, in some cases, had to halt operations for an extended period of time. These compounding issues contributed to a global shortage of goods and materials and further exacerbated existing issues like shipping delays.

While ecommerce businesses and retailers did their best to navigate through these issues, many were also trying to simultaneously balance increased customer demands—a need for more products at a time when they were hard to come by.

In many instances, these challenges were just too vast for these businesses to overcome. And, instead of getting bogged down in areas that literally felt foreign and un-understandable, these businesses sought out partnerships with companies who had the knowledge and resources to make the headway they couldn’t: 4PLs.

What is a 4PL?

Unlike a 3PL that focuses on logistics and fulfillment, a 4PL, also known as a lead logistics provider (LLP), outsources and manages the entire supply chain for B2B, B2C, and C2C operations—everything from geographically dispersed warehouses and inventory management, to shipping and freight, and other logistics needs. Many 4PLs use advanced software and other automation and smart technologies to optimize supply chain management needs.

The Role of 4PLs in the Supply Chain

While the core focus of 4PLs is to outsource and manage the supply chain for customers, 4PLs, especially those based in the U.S., have a much greater impact on the effectiveness and sustainability of the international supply chain as a whole.

One of the primary ways 4PLs impact the global supply chain is with their ability to offer customers the type of agility they’ve grown to expect post-pandemic.

Building on lessons learned from decreased product availability and expansive shipping delays, businesses like ecommerce operations and retailers want to work with supply chain managers that can quickly—and effectively—shift focus to adapt to changes in customer demands, expectations, and supply levels.

Geographically diversified 4PLs who use automated network management solutions, especially those with expanded warehousing networks, are uniquely poised to rapidly react to these changes. They can analyze real-time data for inventory, warehouse capacity, transportation and freight, shipping times and schedules, and other important supply chain metrics to pivot as needed. And, those who utilize forecasting and projection tools can even do so before a potential supply chain problem becomes a mass headache around the globe.

International Shipping and Import and Export Management

One of the key reasons businesses use 4PLs for logistics, fulfillment, and supply chain management is that these specialized businesses have the knowledge and resources to navigate all areas of the supply chain.

4PLs operate around the world. Many of the newer ones in the U.S. popped up to meet customer demands during the pandemic, but today they’re positioning themselves to become strategic partners that help ecommerce and retail businesses navigate the complexities of supply chains that cross multiple borders—whether that’s throughout North America or around the globe—by simplifying international shipping and managing import and export processes. This is another example of service offerings that can set a 4PL apart from a narrower logistics-focused 3PL.

In terms of cross-border shipping, 4PLs and the vendors they outsource services to have a deep understanding of customs compliance and procedures for all of the geographic areas of their customer’s supply chain. In many cases, this also includes knowledge and experience dealing with as well as international trade regulations to ensure seamless movement of products from one country or region to another.

This is an example of where a 4PL can benefit from the use of advanced technologies to manage and collect data about their global networks so they can streamline processes and ensure they’re selecting the right geographically distributed vendor to reduce shipping and transit costs and times. 4PLs can also use network management solutions to conduct vendor risk assessments to develop plans to mitigate potential supply chain risks. This insight can also help 4PLs develop strategies to replace vendors on the fly if the risk they introduce into the supply chain exceeds the 4PL’s (or its customers’) risk threshold or if an existing vendor can’t deliver agreed-upon services.

In addition to managing customs and shipping routes, 4PLs must also be well-versed in import and export requirements, including everything from understanding regulations and ensuring compliance to acquiring and managing relevant permits, managing documentation, and obtaining licenses and customs declarations as needed.

While an outsourced vendor may manage these tasks for a 4PL, ultimately the 4PL is responsible for ensuring all of these forms and requirements are accurate and current and they must have plans to quickly adapt if there are bumps or issues along the way.

Managing shipping, customs, and imports and exports increases supply chain risk, so 4PLs must have the right partners, processes, and technologies in place to navigate everything from taxes and tariffs, and duties to other financial and legal responsibilities. Failure to manage these areas effectively could introduce significant financial risk for the 4PL’s customers, and in some cases, the 4PL itself. This holds true even as trade regulations and other requirements evolve, further emphasizing how important it is for the 4PL to ensure it’s partnering with the right vendors who are subject matter experts in these key areas.

4PLs are also responsible for coordinating geographically distributed suppliers to ensure that if there are issues in one region or country their customers have alternatives with well-orchestrated and timely delivery of products and inventory to meet all production and distribution schedules, including mitigating a range of risks for disruptions such as strikes, shutdowns, natural disasters, or geopolitical tensions.

Why 4PLs Are the Preferred Solution for Supply Chain Management

Beyond 3PLs and 4PLs, companies from other sectors are seeing opportunities in supply chain management, and many are making the shift or expanding services into the market. Like 4PLs, many of these new companies are using outside service providers to manage their supply chain offerings. Even so, 4PLs, especially those that partner with other 3PLs, or 3PLs who have evolved into 4PLs, have a significant advantage over these new competitors. Why? Because 4PLs already know the global supply chain. They already have—and are using—their specialized skills and experience to handle the management of all of the shipping, import, and other challenges created by moving goods across a global supply chain. This goes beyond streamlining logistics for efficiency and expands deeply into a vast knowledge-base about global trade regulations, supply chain dynamics, and customs processes.

4PLs that use an end-to-end supply chain management solution can also edge out competitors by creating a seamless, fully integrated, and holistic approach to their customers’ supply chain needs. That seamless experience, according to a market research report from Polaris, is one of the biggest growth drivers for the global 4PL market, which is expected to reach nearly $90 billion by 2030, creeping close to almost double the estimated market size of $50 billion in 2021.

A significant share of market growth will likely be from retail and ecommerce companies that need end-to-end supply chain solutions to keep pace with growth and to scale and develop new products and services. Other companies projected to play a role in the expansion of the 4PL market are aerospace and defense companies, the automotive industry, and healthcare. During the forecast period, consumer electronics should experience the fastest growth rate as they increasingly need 4PL resources to deliver products to customers, often straight from a warehouse to a customer’s doorstep.

Another competitive advantage for 4PLs is that they already have the budgets, resources, skilled professionals, and deep networks needed to select and implement innovative supply chain technology solutions like robotics and artificial intelligence (AI), bringing benefits to their customers that might otherwise never have the chance to experience. In fact, according to Gartner, by 2024, half of all supply chain organizations plan to invest in applications that support AI and advanced analytics capabilities.

As the 4PL market continues to grow, more large enterprises are likely to seek out their services. According to the Logistics Bureau, a supply chain management and consulting company, larger companies with global supply chain needs are likely to partner with 4PLs to work through supply chain weaknesses and minimize costs related to finding the best overall supply chain solutions.

The Benefits of Outsourced Supply Chain Management

Outsourcing supply chain management to a 4PL is more than just paying another company to do the work you don’t have the time, resources, or want to do. There are many benefits a 4PL can offer companies by taking full control of their supply chain operations:

  • Risk identification and mitigation across the entire supply chain, including second- and third-tier vendors, enhanced by a supplier network that can make alternative suppliers readily available.
  • Increased efficiencies by automating manual processes, for example, optimizing inventory management and reorders to prevent overstocks and stockouts; negotiating better rates with vendors; coordinating suppliers, consolidating shipments; and selecting the most effective routes for product delivery with reduced transit times.
  • Reduction in costs and time-savings by streamlining and automating processes across the entire supply chain.
  • Better customer service experiences by using real-time data and analytics to ensure product availability, and to track order fulfillment and shipping, along with effective and swift management of returns and exchanges.
  • Data analytics to analyze historical data and market trends to help customers make better-informed business decisions, including forecasting and other supply chain and distribution strategies.

The Future of 4PLs and Supply Chain Management

While no one can 100% predict what the supply chain’s future looks like, drawing on current trends, there’s likely to be a growing need for 4PLs now and in the years to come. That’s primarily because 4PLs can simplify supply chain intricacies and serve as a single point of contact for customers, no matter how complex their supply chain needs are or how other issues around the world impact far-reaching parts of the supply chain.

4PLs have a unique niche they can fill, especially for ecommerce businesses and retailers. By focusing on their specialized skills, 4PLs can integrate supply chain management with compliance, risk mitigation, technological advancements, and network optimization to streamline operations, increase efficiencies, and rebuild confidence in the global supply chain.

Beyond logistics, 4PLs can offer their customers the tangible value, precision, stability, and agility they’ve come to expect from modern supply chain managers.

In a rapidly changing supply chain landscape, where a single delay can be a costly misstep—and in an environment where compliance errors can have far-reaching repercussions—the expertise 4PLs bring to the table can form a foundation of support that enables ecommerce businesses and retailers to scale into the international trade and logistics with confidence.

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