Will Digitalization Pave the Way for 4PL?

The new balance of power in logistics– and what it means for the industry

INTRODUCTION

Frauke HeistermannMember of Management Board | AXIT GmbHChief Digitalization Officer | Siemens Postal, Parcel & Airport Logistics GmbH

IntroductionDigitalization allows new players to penetrate the 4PL market

Will truck makers become transport managers? And will shippers become 4PL providers? Will digitalization lead to a tectonic shift in the balance of power and reset the interrelationships in logistics?

That’s a safe bet, since the time seems ripe for a new (or newly appreciated) business model: Only a few years ago, 4PL providers still occupied a mere niche market in the shadow of the big logistics companies. Today, potential new players in this segment are finding a new and promising approach for their idea in the tools offered by cloud-based platforms and transport management solutions. Never before was it so easy to penetrate established markets and industries with the tools of digitalization, as this paper illustrates.

The new 4PL providers can conquer the market using the power of modern IT while exposing themselves to only minor risk. The software required to manage all the various stakeholders was once a barrier, but all that has changed: Register, customize, and you’re good to go – including end-to-end visibility.

Today, all the features needed to integrate network partners, manage supply chains, and secure processes are available to 4PL providers at the click of a mouse. It’s even possible to digitize all shipment-related data and information streams, including the management of complex processes relating to such things as customs procedures and the handling of hazardous goods. IT platforms also support innovative concepts of interactivity with the “internet of things” (IoT) to incorporate transport schedules, traffic data, environ-mental conditions, and more.

The 4PL providers of tomorrow are no longer merely the coordinators of logistics processes – they also manage data that delivers a competitive edge. The potential impact of all this on the logistics market is outlined below.

CONTENT

1. Definition of a 4PL provider in the age of digitalization

2. How digitalization shapes the structure of the 4PL provider market

3. Specific impact of digitalization on future 4PL offerings

In the future, 4PL providers will not just coordinate material assets such as modes of transport. Increa-singly, they will also manage data. Examples:

A - Data of the various players in a supply chain: shipments, tracking, documents, freight costs, customs, dangerous goods, transport packaging, transit times, schedules – even data from a broader eco-system

B - IoT data such as telematics and sensor data, pallet and container data – even equipment data on maintenance and production status, etc.

C - Data from non-logistics areas that are helpful or even critical to supply chain management: traffic, weather, labor strikes, environmental disas-ters, etc.

The rapidly evolving sophistication and scope of IT solutions made possible through digitalization paves the way for potential new players to thrive in the 4PL marketplace. Digitalization will also enable 4PL providers to offer completely new solutions, as we’ll see in the next section. 

In the future, 4PL providers will not

just coordinate mate-rial assets such as mo-des of transport. Incre-asingly, they will also manage data.

Wikipedia defines a 4PL provider as “an integrator that assembles the resources, planning capabilities, and technology of its own organization and other organizations to design, build, and run comprehen-sive supply chain solutions.” 4PL providers seek the best overall supply chain solution for their custo-mers and pursue this vision consistently to ensure the smooth coordination and organization of logistics processes along the value chain linking their custo-mers to other logistics service providers.

WE WOULD LIKE TO ADD THREE MORE ELEMENTS TO THIS DEFINITION:

The 4PL provider will increasingly be called upon to augment a company’s logistics processes by coordinating the entire supply chain made up of multiple companies (consignors, consignees, carriers, customs officials, service and software partners, etc.).

The 4PL provider might be a third-party player that offers its services on the market. The 4PL provider can also be the in-house logistics department of a shipper, however – so strong and qualified that it takes on management of the entire supply chain of the company and all integrated stakeholders.

The 4PL provider can also be the in-house logistics department of a shipper.

1.Definitionofa4PLproviderintheageofdigitalization

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The industrialization and standardization of 4PL software to manage and monitor transports has reached a new level of sophistication, greatly lowering the barriers to entry. This is drawing more players into the 4PL market. Later, we’ll see who those players might be, aside from the logistics service providers.

Moreandmore logisticsdepartmentsofmanu-facturing and commercial giants will leveragetheirin-houseexpertisetobecome4PLprovidersin their own right

Companies in the manufacturing and commercial sectors, depending on their segment, depend heavily on logistics. For many, it serves as a tool for customer retention and customer satisfaction, and its impor-tance is enhanced by service factors such as quality and reliability. Logistics is also a major cost factor, however: Special trips, costly express deliveries, wasted resources, and excessive complexity drive up expenses. The question for shippers, then, is whether they wish to build up or expand their own logistics expertise or instead outsource it to part-ners such as 4PL providers.

Many shippers opt to expand their own logistics operations to become 4PL providers. This means augmenting their existing transport management systems with software that lets them manage their complete supply chain, including all linked part-ners. This type of IT solution is typically a cloud-based platform specializing in integration and cross-enterprise collaboration. AX4 is one example of such a logistics platform. What was once a black box that kept shippers from managing their entire supply chain is now filled with state-of-the-art software offering end-to-end visibility.

A FEW ASSUMPTIONS:

More 4PL providers will enter the market, since softwareisnolongerabarrier

A software solution that makes it possible to integrate and manage various supply chain partners has traditio-nally been a unique selling point of 4PL providers. The barrier to entry was high, since such software solutions were not part of the standard IT available on the logistics market. In many cases, they were actually custom-deve-loped applications. They were expensive to implement, and they were expensive to operate.

The consistency and end-to-end visibility were not always there, so it also took a lot of hands-on “tweaking” by a lot of people with the right expertise to extract the necessary information.

For many companies, the lack of consistency and gaps in the software were a major disincentive to engage in 4PL. It’s a big risk, after all, to take on the responsibility for an integrated process that was still a black box in many respects. The result was that the 4PL market was very sparsely populated.

Digitalization is now fueling a boom in logistics IT solu-tions, and more and more companies are now actually using these solutions. So now, what used to be custom, standalone solutions or highly complex individualized programs are being industrialized or replaced by stan-dardized solutions. IT solutions that deliver end-to-end transparency across the supply chain, like the logistics platform AX4, are becoming the norm – faster and more affordable – and can be implemented without risk.

The integration of various partners, which used to take weeks or even months, is no longer such a daunting task thanks to today’s integration tools. Trucks, pallets, contai-ners, and the like – equipped with strong and sophisti-cated sensor technology – will someday actually report proactively and share their data without the need for any integration and without requiring any specific systems or people.

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2. How digitalization shapes the structureofthe4PLprovidermarket

Other scenarios are also beginning to emerge: Truck manufacturers are equipping their vehicles with smart telematics, sensors, and software. This will eventually allow them to offer their own trans-port capacities and compete in the traditional carrier marketplace. Shipping systems and trucks will then communicate directly about shipping demand and transport capacity without the need for carriers as the middlemen. The smart systems work together to automatically suggest free capacities that meet the needs of the shipper. Rating portals and user communities bring transparency to the quality of ser-vice so that this factor can be taken into account in the selection process. This scenario would represent a shift in the balance of power in the marketplace: Truck makers will become carriers, and shippers will become 4PL providers.

Industrycommunitiescandeveloptheirown4PLservices

Industries with a strong need for coordination and a large number of diverse players could come together as a community – like an intermodal trans-port company whose stakeholders include rail and terminal operators, carriers, consignors, and con-signees. This community can be the basis for establishing its own 4PL provider that would then offer services within the intermodal com-munity. The “ingredients” for the 4PL intermodal service provider would include comprehensive software and an integration solution along with a group of employees that would use this software to manage and monitor processes and make deci-sions. (Note: In a later phase, such decisions could also be made or at least prepared by intelligent software, as the specific digitalization solutions for 4PL providers listed below illustrate.)

4PL providers for industry communities will take hold in those areas where stakeholders are already working together collaboratively and are not in com-petition.

Bothnewandestablished4PLproviderswilllookfor new IT-driven USPs to further differentiatethemselves

The lower barriers to entry for 4PL providers means that today’s established providers will need to find new USPs to further differentiate themselves. This can be done by capitalizing on their head start and their knowledge of 4PL processes, tasks, and the pain points of their customers.

A new USP is certainly to be found in managing data and providing the new services this entails (see next chapter). Today’s 4PL providers already have access to vast data from the operational manage-ment of the logistics processes. Systematically buil-ding up “data lakes” and using analytics to interpret data makes it possible to offer customers greater added value like risk forecasting and recommenda-tions for how to prevent delays, cut transport costs, and reduce waste.

What was once a black box that kept shippers from managing their entire supply chain is now filled with state-of-the-art software offering end-to-endvisibility

2. How digitalization shapes the structureofthe4PLprovidermarket

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The digital supply chain provides end-to-endvisibility. The ability to predict problems such as

delays and the proactive suggestions reducerisks.

Integration–theprerequisiteforallothersteps–isnolongerabarrier

In the age of digitalization, integrating IT systems and partners into one process is no longer an obstacle: Interfaces are simpler and now deliver data in real time. Mobile apps bring all the players into the process, wherever they are – even those without access to a PC. Sophisticated IoT solutions will eventually liberate us from the need for any one stakeholder to provide data: Pallets, containers, trucks, and more will come equipped by default with an array of telematics and sensors, so they’ll actively report all the necessary data in real time.

These diverse and increasingly simple integration solutions remove barriers and risks, making it possible for 4PL providers to merge the data and supply chain partners under their management.

Risk management

The digital supply chain provides end-to-end visibility. The ability to predict problems such as delays and the proactive suggestions that come with this ability reduce risks by providing enough advance warning for corrective measures to be taken.

Augmenting logistics data with other big data – on traffic congestion, weather forecasts, strikes, environmental disasters, etc. – improves the fore-casting of delivery times and improves on-time per-formance, since it becomes possible to take coun-termeasures or adjust plans before it’s too late.

Reducedwaste

The data that gives 4PL providers a holistic view of the supply chain also lets them reduce waste across the board and drive down the costs associ-ated with waste:

Smart bundling of transports

Elimination of empty runs

Better utilization of existing capacities

Less administration, more efficient management of processes

Better decision-making thanks to the integration of existing information

Lowercostsofcomplexity

The costs of complexity include the expenses associated with a lack of transparency, redundan-cies, risks, higher inventory levels, administrative overhead, and management.

IT solutions provide greater transparency and stan-dardization, streamlining workflows and attacking these costs of complexity at their source. One more way in which digitalization helps 4PL providers offer their customers lean and efficient solutions, cut logistics costs, and improve agility – all of which makes them more competitive.

Green logistics

Earlier attempts to make transports more environ-mentally friendly – by integrating rail transport, for example – were often thwarted by the complexity and lack of transparency when switching modes of transport. Digitalization makes it easy to integrate various modes of transport into a single, uninter-rupted process that ensures end-to-end visibility. This makes it simpler and more attractive to use intermodal options with green modes of transport. 

3.Specificimpactofdigitalizationonfuture4PLofferings

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THEDIGITALSUPPLYCHAINFOR4PLPROVIDERS

With its AX4 logistics platform, AXIT offers providers the supply chain management software portfolio they need to manage 4PL services under their own brand.

A flexible toolset even allows 4PL providers to configure and administer entire customer solutions on their own and quickly adapt them to changing conditions.

AX4 is cloud-based and mobile thanks to the AX4 mobile app. Its comprehensive analytics tools offer the ideal conditions for end-to-end information flow and supply chain visibility.

CONTACT USAXIT GmbH

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Tel.: +49 6233 / 45943-0www.axit.de

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