4PL: Off the Drawing Board, On the JobJoe E. Couto

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Joe E. Couto, chief executive officer and president of Delfour Corporation, has been involved with the development, deployment, marketing, and sales ofadvanced information systems for the 3PL industry since 1979. Since Delfour’s founding in 1988, he has been responsible for overall management andstrategic direction as well as for marketing and sales leadership. He also participates in product strategy definition, calling on knowledge and experienceacquired in high-level marketing and IT positions with a 3PL operator and a 3PL software developer. Mr. Couto graduated from Humber College in Toronto.

Fourth-party logistics is beyond the talking stages and now presents abundant opportunities for manufacturers and distributors.

Fourth-party logistics (4PL) has finally moved from concept toreality. Despite dramatic improvements in service offerings

and systems, supply chain costs have continued to rise and manu-facturers and distributors are constantly in search of new means to minimize these costs. With its ability to consolidate the man-agement and control all aspects of a corporation’s supply chainexecution processes with a single resource, versus assembling and managing an array of warehouse operators, transportationproviders, and related service providers, 4PL operations holdtremendous promise for cost-sensitive manufacturers and distribu-tors of products. Moreover, shifting the entire logistics responsibilityto an outside resource allows the manufacturer or distributor tofocus fully on its core business.

The 4PL movement also offers potential players – third-party logis-tics (3PL) providers, consulting organizations, and entrepreneurs – anopportunity to extend their business offerings and/or to create newbusiness-to-business (B2B) ventures. And just as the emergence ofthe 3PL industry called for a new generation of software, 4PL oper-ations also require an advanced engine suited to their specificrequirements. It has often been said that a 3PL provider’s softwareplatform is the engine of its enterprise, and that is no less true in the4PL environment.

New Requirements, New Solutions4PL is the natural and expected next generation of logisticsmanagement, with operations that extend well beyond 3PL and commence with supply chain system analysis, design, andplanning. With a plan in place, the 4PL provider arranges for themeans to execute it using either its own or contract warehouse andtransportation resources. Managing the 4PL process requires acentralized software platform that provides positive control overall potential activities related to the physical acquisition, inventory,and transfer of goods.

While some 4PL operations may involve only a single customer,the 3PL model suggests that many will serve multiple customers

concurrently. Multiple 3PL contractors and transportation contractorsfurther adds to the complexity and reinforces the need for softwarethat is highly automated, powerful in its functionality and flexibleenough to accommodate the detailed requirements of each customerand each contractor.

Implementation Challenges of the Next GenerationA 4PL provider can be asset-based or non-asset-based. The asset-based 4PL provider might be a transportation company or a 3PLprovider that has chosen to extend its capabilities to provide a fully end-to-end solution. The non-asset-based provider might bea new venture or perhaps a consultant. The non-asset-based 4PLprovider essentially is a contractor-integrator with strategicplanning capability that develops a total logistics strategy for its customer, going into the open market to obtain the variouselements that are required to execute the plan.

In either case the requirements are identical: transportationresources to acquire and deliver the manufacturer’s goods; warehousefacilities in which to store them and to fulfill orders; and a softwareplatform that is capable of linking to the supply chain or ERPsoftware of the manufacturer’s facilities, the multiple in-bound and out-bound transportation providers, often multiple 3PL logis-tics providers, and ultimately to the final shipment destinations.

In evaluating 4PL operations, companies and their potentialproviders should consider carefully several major factors, amongthem:• Is there an existing design scheme that can be adapted or will the

4PL solution be designed and developed from scratch?• Does the manufacturer have existing contract relationships with

3PL operators and transportation companies that it wishes topreserve or is the 4PL provider free to renegotiate these or toscout the field for best price-performance scenarios?

• What kind of ERP and logistics management platforms are in useand is the manufacturer willing to explore new solutions?

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• How advanced is the manufacturer’s B2B e-commerce capability?• How far is the manufacturer willing to go with the 4PL solution,

basic logistics only, or perhaps through the actual wholesalingand distribution of product?

There are certainly many other considerations, but these few shoulddemonstrate how 4PL initiatives can remain at the fundamental leveland that they can also extend deep into the corporate structure.

Leading the Way: 3PL SolutionsAs the next generation of logistics management, 4PL requires its own generation of software, as did 3PL. Third-party logistics soft-ware platforms were created to supplement enterprise resourceplanning (ERP) systems, which are designed primarily as horizontaldata management solutions that can be applied across a broad spec-trum of business sectors. ERP systems capably handle a host of datamanagement and accounting requirements. However, when theyare called upon to support specialized business activities, such aslogistics, they do so only marginally well and even then at the costof considerable custom programming.

To illustrate the range of activities encompassed by state-of-the-art 3PL solutions, let us look at Delfour’s SmartEnterprise2 3PL solu-tion as an example.

SmartEnterprise2 is built on Delfour’s Enterprise Foundation, apowerful integration layer that links a suite of technology tools that

allow users and their customers to experience seamless warehousemanagement flow and profitability by sharing and collaboratingthroughout the receiving, inventory, fulfillment, and shipping cycles.

A companion transportation management system (TMS),SmartFreight2, provides the fundamental transportation require-ments, such as load planning and routing as well as advancedcapabilities including online driver time and activity management,track and trace, margin analysis, integration with satellite and RF communications, document imaging, fleet maintenance,accounting, and rating.

Differentiating 4PL Supply Chain ProcessManagement SystemsHigh-end 3PL and TMS operating control capabilities must beintrinsic to 4PL enterprise management software. Third-party logis-tics and TMS software, however, are essentially inward-looking.4PL software must look both inward and outward to capture datafrom customers and collaborators and promulgate it throughoutthe system.

In one example, assume that an alert has been reported by anexecution provider regarding a certain shipment. This alert isreported within the 4PL system so that subsequent activities per-taining to that shipment are performed on a basis of the most cur-rent data. In a second example, where 3PL providers have onlystatistics about their own facilities, 4PL software must enable the

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Del4PL Del4PL

Sales Orders

Production Shipment Confirmation Received at Each Warehouse

Carrier Load Tender

Carrier Confirmation of P.O.D.

Figure 1 Fourth-party logistics operators need software that accommodates the requirements of multiple customers and multiple execution partners concurrently.

4PL: Off the Drawing Board, On the Job

provider to deliver performance metrics such as delivery status andtime-to-load shipments globally, across the entire supply chain exe-cution system.

4PL management tools such as those listed below interact with systems at the 3PL warehouse and carrier level to access and disseminate data:

Alert Management – 4PL management and businesspartners need notification of key data factors in order to optimizeoperations as a result of dynamically occurring changes. Examplesinclude problems and exceptions; confirmation of supply chain;analytic events such as production slowdowns or dropping perfectorder percentage; and proactive notification of technical problemsor issues. Alerts should be user-defined and communicated via pri-oritized delivery mechanisms.

Inventory Entity Management – IEM enables collaborationwith ERP inventory systems and warehouse management systems

at a level of detail suitable for each. The IEM system provides abridge between the two at a global enterprise network level. IEMcan also monitor inventory levels by client and trading partner, andit can enable recall management as long as the individual palletshipment number is available in the 4PLdata warehouse.

Workflow Management – This capability supports manage-ment of the flow of goods within the entire supply chain lifecycle. Itcan be managed by shipper, customer, and consignee and cancontain all of the business rules for B2B communications with part-ners as well as specific business and operational rules by shipper,customer, and consignee.

Billing and Auditing – Billing and auditing of carriers andlogistics service providers is a fundamental element of the productsuite. Manufacturers can audit all invoices from executionproviders within the suite, and 4PL providers can audit their 3PLresources as well as generate invoices within this module. Sincecarriers normally perform such audits, this capability represents anadditional service on the part of the 4PL provider.

Tracking and Visibility – All customers and carriers have full 24/7 access to key data across the entire supply chain.Viewable electronic copies of documents include signed bills of lading, inbound paper work, and track and trace informationon key events.

Freight Planning and Execution – Key components includeload building and planning, rating, quoting, trip planning, dispatch,carrier audit, shipment tracing, billing, and settlements. Logisticsplanners can build loads for each specific execution facility, withaccess to all inbound and outbound shipments, and can optimizeloads at best cost within service levels as well as monitor profitabili-ty by load, lane, and customer.

Reverse Service Logistics – Special processes for managingreturned goods include validation of returns against returned mate-rial authorization numbers and managing inspection and dispositionof returns.

Inventory Allocation Engine – The complex task of allocatingorders (order parsing) under multiple 3PL/4PL scenarios is simplifiedwith automation of the process by category, such as vendor man-agement inventory processes (third party fulfillment) and consignee-based allocation rules (e.g., picking orders by shelf life data).Standard allocation procedures can be applied within single or mul-tiple facilities under user-defined rules.

Business-to-Business Engine – Electronic data communica-tions are critical, and three basic data formats currently are in use: traditional electronic data interchange (EDI) using ANSI X.12document sets; XML, which is a flexible Internet-oriented plainlanguage format that is both human and machine readable; and flat files, which are typically generated and exchanged directly by ERP systems.

Customer Relationship Management – CRM employs busi-ness processes that are defined within the system. It provides cus-tomer service with the means to track issues such as claimsmanagement, special requests, and service issues, and it also canprovide visibility of events outside normal business processes.

Order Entry Management – OEM deals with issues beyondthe normal scope of an ERP order management system, allowinglogistics operators to create manual orders as well as to edit ERP- orInternet-based orders.

Receipt Management – This feature provides users with theability to create receiving information when B2B purchaseorder/receiving information is missing. It can also edit ERP orInternet-based purchase orders.

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Unquestionably, 4PL now presents abundant opportunities

for manufacturers and distributors in various sectors to streamline

logistics by outsourcing not only the physical and operational aspects, as

they have done with 3PL and TMS operations, but also the full range of

associated responsibilities.

For more information on 4PL read “Technology in the Next Generation of Supply ChainOutsourcing – Leveraging Capabilities of Fourth-Party Logistics,” by Douglas Bade, James Mueller,and Bryan Youd, online at www.ascet.com.

W E B l i n k

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Costing – This feature allows reporting for costs of handling and transportation to whatever level is specified within the execu-tion system.

Data Warehouse (Data Mart) – This serves as a repository for the data required to fully service the various ERP systems and to manage the execution sites that comprise the operating ele-ments of the 4PL solution. The Data Warehouse is also an integral partof the historical reporting and business intelligence components.

4PL: On the JobToday companies are exchanging transaction documents computerto computer in a hands-free, 24/7, electronic environment. Amongthe documents currently implemented or planned for EDI-enabledtrading partners are purchase orders, advance ship notices, invoic-es, inventory inquiry/advice; and in warehouses: shipping orders,stock transfer shipment advice, shipping advice, and inventoryadjustment advice.

In Brampton, Ontario, Hopewell Logistics is providing ambientwarehouse space at its own multibuilding complex, as well as bothambient and temperature-controlled space through independent3PL warehouse operators under contracts previously put in place byits customer.

Using Delfour’s WarehouseLogic warehouse managementsystem in a networked environment as the facilitating software plat-form, Hopewell collects data for storage, retrieval, and distributioncontrol from the production facilities and distribution centers on thesystem as well as from the customer’s national distribution center.

For movement of goods between the various production and dis-tribution centers, Hopewell utilizes multiple carriers, coordinatingshipping, tracking, and delivery through Delfour’s SmartFreight2application. While removed from the day to day execution of thelogistics processes, Hopewell’s customer maintains access and man-agement ability through the e-Vista Web-based supply chain onlineorder management and visibility application.

Tibbett & Britten Group Americas (TBG) is using a similarimplementation in a different way – serving as a true wholesaler for the expanding Canadian operations of a large U.S. retailer.Tibbett & Britten is one of the world’s largest 3PL providers, with 40 percent of its business done by the Americas group. AWarehouseLogic user for five years, TBG is acting in a true wholesalercapacity for the first time with this implementation, taking actualownership of inventory from frozen and refrigerated food vendors,

subcontracting inventory storage and management to a 3PL logis-tics provider partner, receiving and fulfilling orders, and billing theindividual retail outlets for product shipped.

An Idea in Its TimeBoth of the examples cited are in the food industry and we are aware of 4PL activities under way in other sectors, notably inautomotive manufacturing and electronics manufacturing.Unquestionably, 4PL now presents abundant opportunities formanufacturers and distributors in various sectors to streamlinelogistics by outsourcing not only the physical and operationalaspects, as they have done with 3PL and TMS operations, but alsothe full range of associated responsibilities.

The now-proven viability of 4PL solutions also signals newopportunities throughout the logistics world, which is newly opento innovation. Arguably, it can create a more stable environmentfor 3PL facilities operators and transportation companies that cur-rently may be struggling with profitability. The 4PL operator’s clien-tele benefit in a variety of ways, among them cost savingsassociated with in-house logistics management operations, sav-ings resulting from more tightly negotiated contracts, and theadded value of the specialized knowledge and expertise the 4PLoperator brings to bear.

Fourth-party logistics is a rapidly evolving idea whose time isnow, with realistic benefits accruing all around. ■

The now-proven viability of 4PL solutions also signals

new opportunities throughout the logistics world, which is newly open

to innovation.

R E P R I N T SYou can order customized REPRINTS of any of the white papers, interviews, case studies, or company profiles in ASCET. For more information, contact John Malick at MONTGOMERY RESEARCH, INC., at 415.397.2400.