IT Service 4PL

What is 4PL? You may take reference here.

In my view, difference of 4PL and 3PL/LLSP is including (but not limited to) below areas

• 4PL run the budget. 4PL can do sourcing for 3PL and execute vendor management responsibility on behalf of its client.
• 4PL coordinators end-to-end. 4PL orchestrates all 3PL’s activities for end-to-end supply chain, from warehousing, shipping arrangement, to custom clearance.
• 4PL shares the pain and gain with its clients. 4PL monitors and analyzes service and supply chain performance for its client; and to find opportunities for improvement.

When I think about 4PL in logistics last week, one thought came to my mind that “we can have IT 4PL because one company can have many IT supplier – service, hardware and software and there is need for coordinating”. However, after thoroughly thinking, I realized that it may not be as simple as such.

Coordinators are needed by anywhere; but why we need forth party service providers for logistics?

• We have a very large number of different parties involved in the game including suppliers, customers, and logistics service providers. It’s really pain in the ass for manufacturing or selling companies to manage all of them so as to move toward the same direction.
  • Logistics service providers have very specialized expertise – warehousing, shipping-line, air-line, freight forwarder, custom agency. Besides, we have geographic and country diversity. We can easily talk about 50 different carriers for overland shipping in EU, or even 100 different carriers in just one state of India.
  • For international manufacturing companies, we can easily talk about 1000 suppliers for raw materials and 100-5000 customers per country.
• Overall coordinating is must-have and end-to-end view can improve business. But they are normally not the core capabilities of manufacturing or selling companies.
  • For example, for international logistics, to deliver on time on budge require coordinating among all parties from the exporting countries to importing countries.
  • Look at the other side, loading and shipping optimization solution is basics for a specialized carrier.
• We have large scale of spending so that we have potential for improvement. Logistics spending (including transportation, duties, warehousing) can reach to 5%-10% of total sales revenue.

But when we look at the IT from the same perspective, its complexity is far less than logistics, at least right now.

• We have limited number of IT related suppliers –hardware, software, service; compared to logistics area.
• Coordinating is necessary but the scale and urgency is not comparable to logistics.
• Spending is limited and I believe we do have space for improvement; but, it’s not a convincing business case.

However, like every other area of our business world, IT is becoming more and more complex. For example, ERP is acting more and more like single-source-of-truth system with all the basic transactions; and companies start to reply on other software or SaaS solution for advanced-level business management, like salesforce.com for managing sale activities, Llamasoft for supply chain network planning, Concur for expense, etc. Potentially, one day, we may need an IT 4PL.