The need for businesses to be able to not only outsource the management of their supply chain, but also the development of their entire supply chain strategy continues to grow. Martin Warington, business development director from TVS Supply Chain Solutions, describes what is required to be viewed as a true fourth-party logistics (4PL) provider.
The argument about the differences between third-party logistics (3PL) and a 4PL has gone on for some time. This could be due to the fact that people come to the conclusion that a company that takes on a business’s warehouse and transport functions, two different elements operating under the same umbrella, must be a 4PL. Whereas, in fact, an extended 3PL would be a far more accurate description.
In effect, a 3PL is essentially a fixed transactional-based service. These firms will facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers. Some of the tactical services which they typically provide are transportation, warehousing, cross-docking and packaging.
All of these operations will be undertaken under the instructions received from the parent company. The 3PL will have no input in to how the goods are delivered to the client, where the goods are sourced from and how process can be improved. The operations are completed in very rigid transactions and the 3PL will wait for the parent company to tell them exactly what to deliver based on the client’s requirements.
A 4PL, on the other hand, adopts a specialised and strategic management role in the client’s supply chain, one which concentrates on the improvement of overall supply chain and logistics processes and methodologies rather than the physical implementation of one or more logistics function. This is why the working relationship is often referred to as a ‘partnership’ arrangement with the client company, since the 4PL service provider becomes an integral part of the client’s business.
SUPPLY CHAIN MANAGEMENT
The biggest difference between a 3PL and a 4PL is the provision of end-to-end supply chain management. A true 4PL provider won’t just deal with the goods brought into the warehouse, but they will look beyond that process. This will involve engaging with the current suppliers advertently, how they are managed and whether there are any other suppliers who can provide the same quality goods at more competitive prices to make a more affordable proposition to the client.
In addition, a 4PL’s role may well extend to a re-organisation of the client’s business and personnel if this is required by the supply chain reform process. Obviously, the 4PL company needs to have the skills and resources to manage this kind of change effectively and benefit their client’s business.
It’s through this process that a 4PL can have a real impact on the front end supply chain elements. At TVS, we utilise an innovative Demand Forecast Planning (DFP) tool which helps to manage the overall movement of the goods, what parts and materials are going in and out of the warehouse, and to ensure the right products are in stock at the correct levels, helping to drive down inventory costs. The system communicates with all the suppliers and makes sure they’re bringing the supplies in on time which helps us provide the client with options on quality and technical processes to increase the supply chain as well as increasing the list of potential suppliers.
Contracting a 3PL service provider may realise some considerable benefits for individual supply chain functions. After all, these tactical supply chain activities are rarely core to the client’s business, and are generally managed by sub-contracted or outsourced resources to provide as much value as they can to the organisation in terms of lowest cost. But managing individual tactical supply chain activities in order to reduce their costs might result in increased costs, or decreased service levels, elsewhere in the supply chain network.
The management of all the different activities involved within potentially different supply chain networks is therefore key to the value that 4PL companies can provide to their clients. Seeing a holistic picture of the consequences that supply chain decisions in one area of the business will have on another is the strategic role that 4PLs can fill. The value a 4PL can add is not just quick cost benefits on one supply chain area, but can impact on the entire organisation.
ELECTRICITY NORTH WEST AWARDED A NEW MULTI-MILLION SUPPLY CHAIN MANAGEMENT CONTRACT
Electricity North West needed to upgrade its Materials Management System and enhance the transformer and switchgear supply chain operation, whereby parts and equipment are received into, and then distributed from a central store. TVS will be responsible for the provision of spares to all 12 Electricity North West depots in support of its transformer and switchgear maintenance, repair and service business.
As part of the new contract, TVS will provide a supplier management service from the integration of SAP to removing the need to manually key in parts requests. Additional services will include, Demand Forecast Planning (DFP) and the reduction of obsolescence.
TVS will operate the supply chain contract from its purpose built 268,000 sq ft National Distribution Centre in Chorley which will provide Electricity North West with a central location between its 12 regional depots helping to reduce travel costs and journey times. The shared user warehouse will provide economies of scale, shared usage and flexible storage solutions.