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Fourth-party logistics

Fourth-party logistics (4PL) is a service in which an external service provider handles the design, planning, optimization, and operation of a company's supply chain.

The 4PL concept In the field of logistics, a 4PL is described as a service provider without its own assets such as vehicles, warehouses and distribution centers, or other equipment. Instead, a 4PL handles the continuous planning, optimization, and operation of customers’ supply chain networks.

A 4PL is tasked with taking on a management and integrator function in the supply chain and to increase supply chain efficiency. In its role a 4PL acts as a neutral agent between its customer and other service providers, while aiming to optimize the various services it manages. Because the 4PL’s function involves continuous optimization, it needs to have access to a well-developed IT system. This helps ensure that various services can be integrated.

Types of 4PLs

The market currently features three distinct types of organizations that are in line with the 4PL concept. These include: •	Third-party logistics service providers (3PL) that provide 4PL-type services (also referred to as lead logistics providers) •	Internal 4PL service providers without their own logistics assets or resources •	External 4PL service providers without their own logistics assets or resources

3PL providers often provide 4PL services and position themselves in the market as lead logistics providers. Customers and many critics, however, often question the neutrality of such businesses since they have a vested interest in utilizing their own assets and equipment such as trucks, trailers and drivers. The 3PL that operates as a 4PL thus needs to prove that its services are indeed the best possible choice for the customer.

Some companies that functioned as third-party logistics providers in the past later adopted the 4PL moniker to set themselves apart from other 3PLs. This setup, however, represents a conflict of interest for the 3PL between using its own assets and finding solutions that are best for its customer. A neutral 4PL by most definitions, should not possess physical logistics assets such as trucks, trailers, warehouses, or containers in order to be truly effective for its customer. An independent non-asset based 4PL can thus be effective in lowering costs and adding value to customers’ logistics processes. Not owning logistics equipment that needs to be utilized to cover costs gives an independent 4PL the flexibility to make sourcing decisions based on what is best for the customer. This can include sourcing transportation services from logistics carriers who can offer the best rates, the highest service level, or fastest delivery times.

Benefits

Functioning as a general contractor, a neutral 4PL aims to combine supply chain services that cost less and provide high service levels, often as part of a long-term multi-year contract. Many companies that work with a 4PL benefit from the logistics and supply chain expertise they offer. The benefits for many businesses that partner with a 4PL include:

•	Reduced supply chain costs and higher or stable service levels •	4PL handles the complexity of supply chains •	Quick return on investment owing to qualified 4PL staff, IT capabilities, and a thorough understanding of the market. •	Increased transparency with regular reports and supply chain monitoring