You will get no argument that the increasing complexity of logistics management coupled with the explosion of information technology has created fertile ground for a "supermanager" of sorts for intricate supply chains. Moreover, academicians, consultants and third-party logistics providers, not to mention customers, say that the need for such an entity is growing all the time. Its job: to supervise all aspects of the supply chain of a manufacturer or distributor and to be the sole point of contact between that company and its array of logistics and information service providers.
What gets the hairs bristling on the necks of the 3PLs and consultants is when you start to narrow down who is more perfectly suited for the supermanager's role. And there are sensitivities at work here. For example, using the term "4PL" - for fourth-party logistics provider - instead of the more palatable handles of "logistics integrator" and "lead logistics provider" rankles the 3PLs to no end. That is particularly so when the 4PL concept is presented as a product from, and the holy ground of, the consulting firms. It certainly derives from that community; 4PL was coined and trademarked by Andersen Consulting. On the other hand, consultants take umbrage to the charge that they have attempted to manufacture a market by coining, trademarking, and then relentlessly flogging the future of the 4PL. An old-fashioned turf battle is brewing. And you don't have to scratch too far below the surface to get a reaction, particularly from the 3PLs that have invested in technology, human resources and alliances in order to present a single point of contact for operation of a customer's supply chain. Those leading firms include Menlo Logistics, Ryder System, Federal Express, UPS Logistics, GATX Logistics, Exel and Schneider Logistics.
But first, here's the deal from the Andersen side of the equation, according to James W. Moore, an associate partner with Andersen Consulting.
"The pace of change has been accelerating, the complexity has been accelerating, and our sensation - and we're not alone in this - is that there's a role emerging for a complexity manager," says Moore. This complexity manager - call it a 4PL or logistics integrator or lead logistics provider or supermanager - would be, in Moore's words, an "on-purpose entity with shared risk/reward and would have multi-function management responsibility, including supply-chain planning, some information technology capabilities, the more traditional transportation and distribution disciplines, and a multi-provider management function."
That's what Andersen is doing in the United Kingdom, Moore says, where it is serving as a 4PL for Thames Water. "That's a cooperative venture where we perform their supply-chain operations for them. They are the largest water utility in the U.K."
Expanding into the 4PL role constitutes an interesting shift for Andersen, as the consultancy's general position has been on the front end of a logistics solution: The troops typically go in to a customer location, collect information, perform due diligence and provide a white paper solution. A logistics firm usually then manages the business.
The leading 3PLs have a different take on the 4PL phenomenon. "The 4PL to me is nothing more than the lead logistics provider, and that name has been around for quite some time," says Rodger Mullen, vice president and general manager of Schneider Logistics.
The root of the issue, says Mullen, is that whenever service providers go into a logistics outsourcing project, the customer these days essentially wants one company and one point of contact to do it all. "However, given the way logistics organizations exist today, there isn't really one company that has all the core competencies to do everything that a truly global customer wants to do. In order to get to that total end-to-end solution, the lead logistics provider or 4PL in essence contracts with different providers, assembles those end-to-end solutions, manages them and serves as the single point of contact to the shipper." Schneider has been providing that comprehensive, single-point-of-contact service for GM's Service Parts Division and has several other irons in the fire, Mullen says.
"There's a lot of talk about how the concept of the 4PL developed, but one theory is that the consulting firms really wanted to figure out a way to create an ongoing revenue stream to supplement their project work, and therefore they coined the phrase 4PL, which basically meant that they were going to manage the 3PLs on a continuous basis for a client such as a manufacturer or distributing company," offers Todd Carter of GATX. "That's maybe the more cynical theory. The more optimistic theory is that because of the growing criticality of information in managing the supply chain, it was a natural progression."
Jim Fields, director of business development for Menlo Logistics, sees it this way. "The 4PL terminology has grown out of the consulting industry in what I think was really an attempt to create a market and position the company as the logical party between customer and the 3PLs," says Fields. As that go-between, the 4PL would be in position to manage what many consider is the most important aspect of the operation - the customer relationship.
On the practical front, however, Fields questions the need for an additional player here. "I don't think the 4PL role references anything more than what 3PLs and some of the largest integrators have been doing - being the single point of integration of information flow and operational responsibility for an entire enterprise or a defined portion of that enterprise," he says. Menlo provides re-engineering services, performs systems integration and subcontracts with and manages third- party service providers for a number of customers, he says. "And if the scope of your outsourcing contract is such that you will be acting as the sole conduit or the sole responsible party for the outsourcing of this scope of work and are the sole point of responsibility back to the customer ... well, if you want to call that 4PL or 5PL or systems integrator, the principle is the same, the responsibility is the same, and the operation is the same."
Bringing another company into the mix as a supermanager of sorts raises the cost-versus-value question, says Fields. "This puts another layer of cost into the supply chain, and the challenge is to understand what kind of value is created by having this other group aside from the 3PLs. Does this company bring enough value to justify itself? I don't think it does."
Prof. John H. Langley, Dove Distinguished Professor of Logistics at the University of Tennessee, understands the friction between the 3PLs and consultants, but he sees a new demand developing in the logistics arena as changes in supply-chain practices cause supply-chain managers to place value on three emerging competencies. One competency is in managing the activities of more than one third-party logistics provider, and there are both operational and strategic elements to this, he says.
A second competency is managing the availability and utilization of knowledge. "The natural reaction of most people is to say, 'I can be responsible for my own knowledge, thank you,' but I think, given how quickly things are changing today, that it's not unreasonable to actually hire an expert to manage the knowledge - to process information, utilize it and make it available - in the same way you might have legal counsel to make you aware of the latest developments of a legal nature that impact your business."
The third competency focuses on information technology. "Things are changing so quickly today in the IT sector that you really have to have not only a capable party but one that has core competency in knowing what systems are available and how to utilize and integrate those systems with other capabilities."
These three competencies clearly exceed what might normally be expected from a 3PL, the professor explains. "That in my mind would justify the business case for a fourth-party provider," says Langley. "The question that comes up is - and it's a valid question from a customer firm or a 3PL - am I suggesting they cannot do these things themselves? I'm not suggesting that, but I'm suggesting that certain competencies are needed. If you are a 3PL and you have them, great, you should be going full speed ahead." He adds that no reason exists why a 3PL could not bring these competencies into its service portfolio by subcontracting.
Andersen clearly hopes to see a fruitful market for consultancies in the 4PL arena - at least for their consultancy - but backs off from confrontational language and talk about a turf war.
"I don't see it as a struggle between the consultants and the 3PLs, and we certainly don't view ourselves as competitors to 3PLs," says Moore. "With a new role like the 4PL, a role that is mostly global, information technology rich, asset-free ..... I don't think that puts us in conflict with 3PLs. We're consultants."
The key thing that is happening in the supply chain is that time now is often more important than geography, he explains. "The management of time and the associated optimization of the use of time throughout a supply chain is oftentimes a skill set provided by information technology people and consultants, more so than the third-party logistics firms have in past," he points out. "Certainly the 3PLs are catching up, but the primary role we see for the 4PL is the management of complexity and time."
"We all agree in this business that information has become as important and sometimes more important than the actual physical movement of the product," says Todd Carter of GATX. "Information on orders, on inbound material, on shipment accuracy, inventory control ... all of this is highly critical information. And as that information becomes even more critical, the reliance on information itself and the systems to manage it has become increasingly more important, which has really led to this role of a logistics integrator."
Carter acknowledges that a 4PL/logistics integrator could be either a consultant or the lead logistics provider, depending on the customer's most pressing needs. "The role of the lead logistics provider is knitting together for a manufacturer or distributing company the services of various transportation and warehousing companies and third-party service providers," he says. "The first question we have to ask is whether there is potential value in a company acting in the role of a lead logistics provider or 4PL."
If one thinks that the answer to that question is yes, as Carter does, the next consideration is who might be best positioned to be of value to particular manufacturers and distributors. "Certainly 3PLs bring the advantage of operating experience: We've lifted the boxes and kicked the tires, we know how things are supposed to operate and we know what to do if operations break down. But, typically, compared to the consulting firms we may be weak on management talent, organizational talent or process re-engineering. So depending on what you're after from a 4PL, you might look one way or the other."
|"The supply-chain space with the addition of the e-economy is getting very complex, so you have a classic cohabitation."|
-James W. Moore of Andersen Consulting
Enjoy curated articles directly to your inbox.