03 August, 2021

What Is 4PL and Does Your Business Need It?

Amazon in the US was carrying 480 million products in its catalog as of the end of 2015.

This ocean of inventory is what has turned the eCommerce giant into a logistics enterprise, enshrined by Amazon’s Operation Dragon Boat, a strategy for building an international shipping and logistics company within company walls.

The strategy includes buying up 3PLs and fleets of trucks, directly operating cargo planes, and generally taking ownership of the entire supply chain without third-party support to reduce shipping expenses, the bulk of its cost for order fulfillment. Aside from owning the supply chain outright, Amazon is doing for itself what Fourth-Party Logistics (4PL) providers do for others: take control of an entire supply chain.

The 4PL concept originated in 1996 when the management firm Accenture consolidated a multinational company’s freight forwarder base. 4PL became a somewhat self-serving acronym for any contractor who manages all the pieces of a supply chain and to give clients the “control tower” view of complex supply chains with a huge mix of warehouses, shipping companies, freight forwarders and agents to oversee.

Amazon’s strategy owning and managing its supply chain itself is simply out of the question for companies that aren’t rooted in eCommerce, moving very high volumes of product, and, well, that aren’t Amazon. So what does the rest of the world do?

Proceed from Your Business Model

Most businesses don’t have anywhere near the complex supply chain that Amazon has, but a business of any size must start out with a supply chain strategy suited to its business model.

Still, light manufacturers, suppliers and wholesalers will have to contract at least one 3PL to store and/or move inventory. A 3PL historically specializes in one particular aspect of a supply chain: warehousing, packaging, freight forwarding, cross-loading, logistics analytics, even IT services.

The boundaries have become fluid over the years. Bigger 3PLs will manage their own fleets of trucks and warehouses, and most 3PLs will also offer 4PL services themselves or team-up with a 4PL to provide it as an add-on service.

Early-stage businesses won’t need 4PL services, frankly. If your supply chain management strategy matches your business model, and you’re meeting your fulfillment rate targets, and it’s small enough to easily monitor and control everything that’s happening in your supply chain from your office, you won’t need 4PL services.

Rethink Strategy with 4PL

A 4PL is defined as an integrator that assembles and manages all the resources, capabilities and technology of a supply chain across multiple providers and internal company managers.

The 4PL function undertakes overall responsibility for logistics performance and the ability to impact the entire supply chain and not just single elements and aims to manage people, process and technology. Businesses tend to look to 4PL to improve efficiencies and increase the bottom line through back-end system integrations, standardization, and automation of order placement, and reduced procurement costs and order cycle times.

However, the time to consider a 4PL provider is after you’ve established a supply chain management strategy after you have internal processes in place and experienced staff that can evolve with new systems. In other words, 4PL is more geared to the older or larger enterprise that has to manage a multi-tiered and highly complex supply chain.

See for yourself how Cin7 can give you the control you need to manage your supply chain.

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