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Delfour

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 to reality. Despite dramatic improvements in service offerings and systems, supply chain costs have continued to rise and manufacturers and distributors are constantly in search of new means to minimize these costs. With its ability to consolidate the management and control all aspects of a corporation’s supply chain execution processes with a single resource, versus assembling and managing an array of warehouse operators, transportation providers, and related service providers, 4PL operations hold tremendous promise for cost-sensitive manufacturers and distributors of products. Moreover, shifting the entire logistics responsibility to an outside resource allows the manufacturer or distributor to focus fully on its core business.

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

New Requirements, New Solutions

4PL is the natural and expected next generation of logistics management, with operations that extend well beyond 3PL and commence with supply chain system analysis, design, and planning. With a plan in place, the 4PL provider arranges for the means to execute it using either its own or contract warehouse and transportation resources. Managing the 4PL process requires a centralized software platform that provides positive control over all 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 contractors further adds to the complexity and reinforces the need for software that is highly automated, powerful in its functionality and flexible enough to accommodate the detailed requirements of each customer and each contractor.

Implementation Challenges of the Next Generation

A 4PL provider can be asset-based or non-asset-based. The assetbased 4PL provider might be a transportation company or a 3PL provider that has chosen to extend its capabilities to provide a fully end-to-end solution. The non-asset-based provider might be a new venture or perhaps a consultant. The non-asset-based 4PL provider essentially is a contractor-integrator with strategic planning capability that develops a total logistics strategy for its customer, going into the open market to obtain the various elements that are required to execute the plan.

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

In evaluating 4PL operations, companies and their potential providers should consider carefully several major factors, among them:

• 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 to preserve or is the 4PL provider free to renegotiate these or to scout the field for best price-performance scenarios?
• What kind of ERP and logistics management platforms are in use and is the manufacturer willing to explore new solutions?
• 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 wholesaling and distribution of product?

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

Leading the Way: 3PL Solutions

As the next generation of logistics management, 4PL requires its own generation of software, as did 3PL. Third-party logistics software platforms were created to supplement enterprise resource planning (ERP) systems, which are designed primarily as horizontal data management solutions that can be applied across a broad spectrum of business sectors. ERP systems capably handle a host of data management and accounting requirements. However, when they are called upon to support specialized business activities, such as logistics, they do so only marginally well and even then at the cost of considerable custom programming.

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

SmartEnterprise2 is built on Delfour’s Enterprise Foundation, a powerful integration layer that links a suite of technology tools that allow users and their customers to experience seamless warehouse management flow and profitability by sharing and collaborating throughout the receiving, inventory, fulfillment, and shipping cycles.

A companion transportation management system (TMS), SmartFreight2, provides the fundamental transportation requirements, such as load planning and routing as well as advanced capabilities 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 Process Management Systems

High-end 3PL and TMS operating control capabilities must be intrinsic to 4PL enterprise management software. Third-party logistics and TMS software, however, are essentially inward-looking. 4PL software must look both inward and outward to capture data from customers and collaborators and promulgate it throughout the system.

In one example, assume that an alert has been reported by an execution provider regarding a certain shipment. This alert is reported within the 4PL system so that subsequent activities pertaining to that shipment are performed on a basis of the most current data. In a second example, where 3PL providers have only statistics about their own facilities, 4PL software must enable the provider to deliver performance metrics such as delivery status and time-to-load shipments globally, across the entire supply chain execution 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 business partners need notification of key data factors in order to optimize operations as a result of dynamically occurring changes. Examples include problems and exceptions; confirmation of supply chain; analytic events such as production slowdowns or dropping perfect order percentage; and proactive notification of technical problems or issues. Alerts should be user-defined and communicated via prioritized delivery mechanisms.

Inventory Entity Management – IEM enables collaboration with ERP inventory systems and warehouse management systems at a level of detail suitable for each. The IEM system provides a bridge between the two at a global enterprise network level. IEM can also monitor inventory levels by client and trading partner, and it can enable recall management as long as the individual pallet shipment number is available in the 4PLdata warehouse.

Workflow Management – This capability supports management of the flow of goods within the entire supply chain lifecycle. It can be managed by shipper, customer, and consignee and can contain all of the business rules for B2B communications with partners as well as specific business and operational rules by shipper, customer, and consignee.

Billing and Auditing – Billing and auditing of carriers and logistics service providers is a fundamental element of the product suite. Manufacturers can audit all invoices from execution providers within the suite, and 4PL providers can audit their 3PL resources as well as generate invoices within this module. Since carriers normally perform such audits, this capability represents an additional 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 information on key events.

Freight Planning and Execution – Key components include load building and planning, rating, quoting, trip planning, dispatch, carrier audit, shipment tracing, billing, and settlements. Logistics planners can build loads for each specific execution facility, with access to all inbound and outbound shipments, and can optimize loads at best cost within service levels as well as monitor profitability by load, lane, and customer.

Reverse Service Logistics – Special processes for managing returned goods include validation of returns against returned material authorization numbers and managing inspection and disposition of returns.

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

Business-to-Business Engine – Electronic data communications are critical, and three basic data formats currently are in use: traditional electronic data interchange (EDI) using ANSI X.12 document sets; XML, which is a flexible Internet-oriented plain language 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 business processes that are defined within the system. It provides customer service with the means to track issues such as claims management, special requests, and service issues, and it also can provide visibility of events outside normal business processes.

Order Entry Management – OEM deals with issues beyond the normal scope of an ERP order management system, allowing logistics operators to create manual orders as well as to edit ERP- or Internet-based orders.

Receipt Management – This feature provides users with the ability to create receiving information when B2B purchase order/receiving information is missing. It can also edit ERP or Internet-based purchase orders.

Costing – This feature allows reporting for costs of handling and transportation to whatever level is specified within the execution 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 elements of the 4PL solution. The Data Warehouse is also an integral part of the historical reporting and business intelligence components.

4PL: On the Job

Today companies are exchanging transaction documents computer to computer in a hands-free, 24/7, electronic environment. Among the documents currently implemented or planned for EDI-enabled trading partners are purchase orders, advance ship notices, invoices, inventory inquiry/advice; and in warehouses: shipping orders, stock transfer shipment advice, shipping advice, and inventory adjustment advice.

In Brampton, Ontario, Hopewell Logistics is providing ambient warehouse space at its own multibuilding complex, as well as both ambient and temperature-controlled space through independent 3PL warehouse operators under contracts previously put in place by its customer.

Using Delfour’s WarehouseLogic warehouse management system in a networked environment as the facilitating software platform, Hopewell collects data for storage, retrieval, and distribution control from the production facilities and distribution centers on the system as well as from the customer’s national distribution center.

For movement of goods between the various production and distribution centers, Hopewell utilizes multiple carriers, coordinating shipping, tracking, and delivery through Delfour’s SmartFreight2 application. While removed from the day to day execution of the logistics processes, Hopewell’s customer maintains access and management ability through the e-Vista Web-based supply chain online order management and visibility application.

Tibbett & Britten Group Americas (TBG) is using a similar implementation 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. A WarehouseLogic user for five years, TBG is acting in a true wholesaler capacity for the first time with this implementation, taking actual ownership of inventory from frozen and refrigerated food vendors, subcontracting inventory storage and management to a 3PL logistics provider partner, receiving and fulfilling orders, and billing the individual retail outlets for product shipped.

An Idea in Its Time

Both of the examples cited are in the food industry and we are aware of 4PL activities under way in other sectors, notably in automotive manufacturing and electronics manufacturing. 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.

The now-proven viability of 4PL solutions also signals new opportunities throughout the logistics world, which is newly open to innovation. Arguably, it can create a more stable environment for 3PL facilities operators and transportation companies that currently may be struggling with profitability. The 4PL operator’s clientele benefit in a variety of ways, among them cost savings associated with in-house logistics management operations, savings resulting from more tightly negotiated contracts, and the added value of the specialized knowledge and expertise the 4PL operator brings to bear.

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