This is an interesting question that has been put to me in the past – can a 3rd Party Logistics (3PL) company operate as a 4th Party Logistics (4PL) service provider?
Lets look at how it might happen in the real world:
Imagine your company approached your 3PL airfreight service provider and asked for a warehousing service they could not provide. Your airfreight 3PL would be keen to keep your company happy so they approach another 3PL, who can provide the warehousing service required. The airfreight (primary) 3PL are happy to act as mediator and invoice you for the new warehousing service from the other (secondary) 3PL company. Your company receives an invoice from your airfreight 3PL for the warehouse services and has no direct contact with the warehousing company.
In this respect your 3PL is now acting as a 4PL service provider as they have introduced a second company into the service model by subcontracting the warehousing service.
On the surface this seems like the ideal solution. The customer has got the additional warehousing services they require and can continue their existing business relationship with their original 3PL provider. Yet, there are a number of serious issues that can arise from this model.
Communication and Control
Any instructions must go through the primary company, which are then relayed, to the secondary company. You have introduced a ‘middle man’ to your service model. This will slow down communication of instruction and introduce the element of error as, if your instruction is not recorded correctly, can lead to misinterpretation and a communication breakdown. Your company has no direct control.
As you have no direct contact with the secondary company how do you know they can provide the service to the standard you require? You only have the assurance of the Primary Company – but do they fully understand your requirements?
As the Primary Company is not Independent their reason for choosing the subcontracted company could be any one of a number of reasons. A friend or family member could run the secondary company – a number of ethical breaches could have been made. If the secondary company is not legitimate any goods on their premises could be at risk. Being shielded in this manner could put your company’s goods at great risk.
The primary company would, no doubt, add a surcharge onto the charge from the secondary company. Therefore your company is paying more for the service than if you went direct.
So, even though it would appear a good model it can be a high risk for your company.
In this scenario it would be wiser to work directly with the Warehousing Company. Feel free to ask for recommendations of other companies but ensure you assess what is the best for your business as part of your service procurement process. Your company can work with multiple 3PL providers if it is the best solution for your business. It will ensure security, direct communication and minimise costs.
A key point for a 4PL service provider is that they should act as a ‘neutral lead logistics provider’. The services they offer should be based on suitability and quality of service and should not be bias in any way.
If you would like to read more on the other party logistics service (1PL to 6PL) models, please review my previous article here.