Understanding 4PLs, 3PLs. The role of the actors in the logistics drama.
“All the market’s a stage, And all the 4PLs, 3PLs, companies and individuals merely players.”
In the drama of logistics, we have various actors in it. All these actors fulfill a role in making sure the product moves from one place to another. (If you’re wondering why we feel logistics is transportation. Please read our primer for logistics here.)
The term we use to qualify the role of the actor is call PL (Party Logistics) in short. Let’s look at the role and the PL through a drama narrative.
Once there was a Watch maker called Mr W, he lives in Thisland.
He has a customer called Mr B who lives in Thatland.
Mr B placed an order of 100 watches costing 10,000 credits with Mr W.
Mr W thus went out to look for the only trucker in town: Mr T.
“Dear Mr T, I need your help to move my watches from Thisland to Thatland.” said Mr W.
“Sure, I will move the watches for you provided you pay me everything in advance. If not, there is no surety that after I deliver my goods, I will receive payment.” Said Mr T.
“I can’t do that! My customer will only pay me the cost of my watches after I have delivered the watches in full.” said Mr W.
“In that case, I am sorry. I can’t offer you credit terms to take on a job. Plus there is no guarantee of payment.” said Mr T.
They thus parted ways unable to agree on transporting the goods.
Mr 3PL overheard the conversation and he had an idea.
“Mr T, how much would it cost you to transport the goods to Thatland? What can you provide as guarantee to me that you will deliver when I have paid?” asked Mr 3PL.
“Mr 3PL, it will cost me 1000 credits to deliver the goods. As proof of delivery (POD), if your recipient signs on the POD. I believe that will be proof that I have completed delivery. For each delivery I will ensure you a signed POD on paper.” said Mr T.
“That sounds like a plan. Agreed!” said Mr 3PL.
Mr 3PL then went to see Mr W.
“Mr W, I think I can help you solve your problem. I have 2 requests that I would like you to consider.” said Mr 3PL.
“I believe I can help you deliver the goods to Thatland provided you pay me 1200 credits for the delivery. As proof of delivery. If I can give you a document with your customer’s signature on it. Can that become evidence that I have completed the job?” asked Mr 3PL.
“Yes! That would be most acceptable!” said Mr W.
“My second request is this. I need to pay for transportation in advance and only collect my charges from you 14 days after giving you the paper POD . All this requires time because I need to wait for trucks to come back with the paper copy. I would need to charge an extra 200 credits for extending this advance payment to you. Is that acceptable?” Asked Mr 3PL.
“Mr 3PL, your arrangement and request is acceptable. I am willing to pay you 1400 credits for ensuring delivery and for extending credit to me.” said Mr W.
Mr 3PL then made out a simple agreement with Mr W and another with Mr T.
Mr T came the next day to collect the goods and to deliver it within 1 week.
As Mr W’s sales increased. He awarded more jobs to Mr 3PL. He felt that it was better to let Mr 3PL manage the coordination and payment for his needs. He could focus on what he loves best: Making beautiful, expensive watches.
As for Mr T. He likes the arrangement of Mr 3PL paying him in advance for all transport jobs. All he needs to do is deliver goods.
We have used a simple story to explain the role of each actor in this logistics drama.
To describe it simply:
1PL (1st Party Logistics) refers to the cargo shipper or the cargo recipient. So from the story above Mr W (Watch maker) and Mr B ( Buyer) are the 1PLs.
2PLs is MR T (the trucker). 2PLs are the guys that actually transports the products. Hence shipping lines, airlines and truck companies are 2PLs in the modern logistics world.
3PLs is Mr 3PL. 3PLs are companies that helps 1PLs to work with 2PLs.
3PLs started because in shipping products, lots of coordination happen. Often different trade conditions exists so 3PLs started by marrying 1PLs and 2PLs together. They take all the difficult tasks from each onto itself and enable successful shipping. Famous 3PLs for example are DHL, Khehne and Nagel (KNN) in the area of transportation.
You may also have heard of 4PLs, (4th Party Logistics Providers). How do these guys work?
Imagine a new person Mr 4PL coming into Thisland. He felt that he wanted to help Mr 3PL do his job easier. So he proposed a software that allows for booking via the web. It also allows POD over the web to be transmitted immediately.
This software would have the following benefits:
- Allow MR W to book shipments easier.
- Allow POD to be sent back to Mr W quicker (next day for example).
- Allow Mr 3PL to get paid earlier as electronic POD can be provided 1 day after completion without waiting for the paper POD.
Mr S would thus fulfill the role of a 4PL in a simple sense. Although not involved in the transportation. He provided value to help all parties do the business better.
From the above example, he simplifies the activation, tracking and completion reporting process. By doing so, he makes shipping more simplified and visible.
4PLs came into being because businesses wanted to help other businesses please their customers better. They want transportation to create better value for all parties.
4PLs thus started to help businesses answer questions on how to make businesses better. They often provide enhanced transportation solutions to take businesses forward in the industry’s infancy.
To maintain impartiality. 4PLs often are independent businesses. This is because they must provide impartial information to the businesses that hire them and may need to manage 3PLs that work with them.
4PLs today focus on other things besides simplifying transportation solutions. They focus on how to do businesses better.
They do it by creating better networks to distribute products. Tapping on trends to help businesses grow (like FTA development). Helping business make shifts in thinking (eCommerce distribution). Thinking about how to conduct business and how to change in step with their customers (SCM instead of Logistics).
FWS is such a company. We provide 4PLs solutions and 3PLs solutions if our client so desires in the area of transportation.
We are here to help businesses create, re-invent and deliver better value. We know that ‘The business that today innovates is better prepared to compete in the future.’
If you feel creating value and preparing your business for future trends is what you need. Do contact us.
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Our next few articles focus on the actual services in logistics. We aim to help you understand how logistics concepts which is basic to SCM is critical to your business.