How to Transform Your Supply Chain Through a 4PL Approach

Tags: Supply Chain Management, Partnership

Illustration representing strategic thinking

When companies have a huge hill to climb in strategic business process change, radical growth they don't know how to handle, market volatility, acquisitions, or significant supply chain performance issues, a fourth-party logistics (4PL) provider strategy can help align and direct projects with an eye toward future goals.

The 4PL engagement begins with formulating a supply chain strategy. Companies may have goals and objectives, but those don't necessarily paint a picture of what they want to be and where they want to go. A 4PL approach helps define the supply chain capabilities and characteristics an organization wants to develop, and establish the methodologies necessary to drive results month-to-month and year-over-year to achieve that vision.

The second part of a 4PL strategy is establishing a governance process—ensuring key stakeholders are involved with reviewing projects, opportunities, and standard methodologies. This includes project, financial, and implementation management.

With these two bases in place, the 4PL partnership can go in multiple directions. Often a 4PL provider will work with a customer to create a funnel they can use to channel projects through the methodology and governance processes. Companies can progressively work toward bigger goals by fast-tracking quick wins—transportation rates and optimization, as well as DC network rationalization, for example.

As an organization streamlines its supply chain, it frees up cash that can be injected elsewhere. A successful 4PL engagement blends strategy and execution, with each feeding the other. A methodology must be in place to set goals, measure performance, and progress toward bigger gains by meeting more easily recognized goals.

The last part of the 4PL implementation involves aligning capabilities to demand. Functional needs change as the company and provider accumulate quick wins and move toward achieving their vision. Scope will change with different ebbs and flows, and resources will flex according to different skillset requirements. By contrast, in a traditional 3PL partnership the service provider will hold onto scope, such as managing a DC.

Ultimately, it all reverts to the initial strategy. What are the company's long-term objectives? What does it want its supply chain to look like? A company's future state vision is often radically different than the current. Progress toward an enterprise's goals is never a straight line. It changes because the business will inevitably change.

3 Situations a 4PL Can Improve

Could your company benefit from working with a 4PL partner? If any of these descriptions fit, it's possible.

  1. Any significant change in a company's position in the market or in the market itself can be a 4PL trigger. If there is a lot of consolidation, new entries and competition, or a series of acquisitions and accumulated resources, companies may consider driving transformational change in order to meet market or competitive requirements.
  2. A commonality of resources and skillsets—or a lack of diversity in talent and expertise—may require an infusion of fresh thinking and new scenarios to take the organization to the next level.
  3. Supply chain disorder is a sure sign that a 4PL could be of use. Is the supply chain highly decentralized and difficult to manage? Does a company run all its warehouses the same way, or does each have its own processes? How lean is the supply chain? If there are big gaps between goals and reality, a 4PL approach can help accelerate migration toward better standards and greater efficiencies.