Case 13 UPS Logistics and to Move Toward 4PL

Why would 3 PLs consider a 4PL strategy, bearing in mind the nature of the 3PL industry? Innovations in the logistics services business has resulted in the emergence of fourth-party logistics (4PL) providers. Generally, 4 PLs are involved in not only managing the physical movement of goods, but also more critical management and planning processes such as coordinating the movement of those goods. Despite intense competition in the industry and other inherent challenges, 3 PLs can consider a 4PL model for a number of reasons.

First, a 4PL model offers an additional stream of revenue. Also, the 4PL model is less asset intensive compared to the 3PL model (Hoek, 2014). With cost being an emerging significant consideration, this may be detrimental to the bottom line. More importantly, as 3 PLs often boast lengthy operational experience, they enjoy strong relationships with their customers (Hoek, 2014). These customers are likely to embrace 4PL services in addition to conventional 3PL services. The provision of 4PL provides an opportunity for strengthening customer relationships as the model offers value-adding activities (Hoek, 2014).

The benefits of strong customer relationships in the supply chain are significant, especially in terms of customer satisfaction and customer loyalty (Branch, 2009; Mangan, 2016). In an increasingly competitive business environment, businesses fight to maintain smooth relationships with customers. This minimises the possibility of switching to other alternatives on the part of customers. As the 4PL model is characterised by greater interaction between the 3PL and its customers, possibility of creation more valuable and enduring relationships are more likely.

More so, customers have an opportunity to get more customised services, which may further strengthen customer relations. How are the economics of the relationship affected and what are the coordination requirements to ensure return for both parties? While shifting to a 4PL model offers important benefits, it is worth noting that the transition may not be as straightforward as often understood. The 4PL model introduces a new relationship from a transaction economics perspective (Hoek, 2014). The manufacturer (client) bears greater responsibility for the relationship's success.

In essence, the client is involved in more coordination, greater sharing of strategic aspirations, as well as more comprehensive performance monitoring and evaluation. The client's increased responsibility for the success of the 4PL relationship is informed by the fact that the logistics provider becomes more involved in the client's supply and more reliant on the provider. Further, 4PL implementation entails the integration of information technology (IT) systems to support critical processes such as receiving orders from customers, ordering supplies, monitoring the client's inventory levels.

As customers, may often prefer these processes to be more customised to their specific needs, there could be challenges relating to scale economics (Hoek, 2014). Due to the new economic relationship, the transition to 4 PLneeds more concerted effort to ensure positive outcomes for both parties. One way through which successful transition can be achieved is ensuring effective flow of information. Indeed, the importance of smooth information flow in the supply chain is further emphasised (Mangan, 2016). As the supply chain often involves numerous entities, information must flow efficiently amongst the entities.

In the 4PL relationship, information relating to important aspects such as order status ought to be communicated as every stage of the supply chain process. This according to Hoek (2014) gives customers an opportunity to undertake any necessary adjustments. Also, the 4PL provider must offer extensive support to clients. UPS, for instance, operates its own call centre specifically dedicated to addressing client concerns relating to logistics. This provides further informational support.

What criteria might (potential) customers use to evaluate possible 4 PLs? Despite the associated benefits, choosing a suitable and reliable 4PL can be a challenging endeavour for customers; a challenge further compounded by the multiplicity of 4PL providers. 4PL services are provided by not only 3PL firms, but also consultants, transport companies, contract manufacturers, freight forwards, and IT vendors. This may often complicate the process of choosing 4 PLs. Customers can rely on a number of criteria to evaluate possible 4 PLs.

These include the provider's commitment to the 4PL concept, logistics capability, strength of IT infrastructure, information management capability, supply chain management capability, ability to manage change, and dependence on own assets (Hoek, 2014). These aspects can tell a lot about a 3PL's ability to offer 4PL services in a reliable and consistent manner. For instance, having robust IT systems places a service provider in a better position to manage the flow of information.

Similarly, competent human resources and capital assets provide assurance to customers that a provider is indeed capable of adding value to the supply chain. How would 3 PLs score on these criteria against competition (contract manufacturers, consultants, IT vendors, transport companies, and freight forwarders)? Competitors may score better or poorer than 3 PLs on the above criteria. For instance, transport companies and freight forwarders often focus on the physical movement of goods, implying that they pay little or no attention to the 4PL concept.

Therefore, 3 PLs score better on commitment as against the 4PL concept compared to transport companies and freight forwarders. Nonetheless, management consultants and IT providers may score better as they focus on value adding processes such as concept development and IT implementation, respectively. As for logistics capability, 3 PLs perform the best compared to competitors. Their advantage particularly emanates from their ability to offer high-speed delivery and their immense logistics expertise.

3 PLs also perform better than competitors in terms of initiating and implementing change, though management consultants present major competition on this aspect. For IT systems and information management capability, IT providers obviously beat 3 PLs as IT is their core competence. However, 3 PLs perform better compared to the rest of the competition since strong IT infrastructure has increasingly become an important ingredient for operational logistics. Without robust IT infrastructure, 3 PLs may not effectively handle the ever more complex logistics operations. The other criterion is supply chain management capability.

On this aspect, management consultants perform the best given their extensive expertise and business networks. Though 3 PLs have more experience in supply chain management compared to transport companies, freight forwarders, IT vendors, and contract manufacturers, they are limited by the fact that they have conventionally focused on logistics. For the aspect of dependence on own assets, management consultants rely on human resources only, while IT vendors rely on IT systems and human resources, giving them an advantage over transport companies, 3 PLs, and contract manufacturers;.