Understanding 4PL Logistics

The world of logistics has never been as complex as it is today. Countless small cogs have to work together in order to bring a delivery from warehouse shelf to destination. But the organisation of a delivery – especially to other countries across customs borders – is not the only challenge. Global political crises, extreme weather phenomena or even events such as the Covid pandemic demand fast, flexible and often unconventional solutions from logistics companies.

At the same time, the digitalisation of the logistics industry offers great potential for analysing, optimising and tracking logistics processes in real time. Efficient, reliable and economical logistics can mean a clear competitive advantage. In 4PL Logistics or 4th Party Logistics, the service provider is given a particularly high degree of responsibility to strategically manage and organise the logistics processes of a company.

What is 4PL Logistics? Definition and explanations

While in 3rd Party Logistics, the service provider takes over certain subtasks within the supply chain and often carries them out themselves with their own resources, the focus of 4PL is on planning, optimisation, control and monitoring.

The pure 4PL as an ideal type

A 'pure' 4PL provider can be defined as a service which stands between a company and its logistics partners and controls, monitors and integrates their efforts or also incorporates them into a seamless IT platform. This ideal type of 4PL does not have its own logistics assets such as warehouses or lorries.

A 4PL company can also be a joint venture, which a company forms together with freight forwarders, warehouse operators and IT service providers to analyse and optimise logistics processes.

Mixed forms in practice/Lead Logistics Provider (LLP)

The lived practice of the logistics world often deviates from academic definitions of terms, and terms such as 3PL and 4PL are used equally arbitrarily. Nevertheless, there is of course a shared understanding of what 3PL and 4PL mean, but the transitions are often fluid.

Therefore, it is important to look above all at the services offered in concrete terms and less at the label itself.

For example, a large logistics company can have its own warehouse resources, but still act as an independent 4PL, which always strives for the optimal solution in the customer's interest.

In fact, Röhlig combines the expertise of a 4PL with the experience and resources of a contract logistics provider with more than 40 warehouses worldwide and almost 265,000 m² of storage space (as of the end of 2023).

A longer established term is that of the Lead Logistics Provider (LLP): it refers to the most important 3PL provider, which is commissioned by the customer to manage the other 3PLs. As a result, it has the task of a 4PL, but is also active within the supply chain as a 3PL.

Classic 4PL services and activities

The logistical challenges for a company can be immense. Imagine a company that orders parts for its production across three continents and must organise the flow of goods in such a way that enough components are always available, but at the same time the limited storage capacities are not exceeded. Missing parts bring the production process to a standstill, but having no space for deliveries is also a problem.

The distribution of the finished products is equally complex. Orders with concrete volumes must be served on time via the corresponding deliveries. Thus, it is important to interlink production logistics and distribution logistics.

A 3PL offers specialised services in sub-areas – with a focus on warehousing, followed by transport. This is where it plays to its strengths, but the coordination of all activities along the supply chains does not fall within its area of responsibility.

To do this, it would need deep insights into the company's processes and structures and a connection to the data flow to analyse the relevant company key performance indicators (KPIs). This in turn requires experience, expert knowledge and the appropriate digital tools.

It becomes obvious that quite different things are required of a 4PL service provider than of a 3PL provider. A 4PL company thrives on data, modern IT systems and the specialists who draw the right conclusions from these tolls – whether it be to control specific flows of goods or to uncover valuable optimisation potential.

4PL Logistics – 4 focus areas

Supply Chain Management: this can include the entire supply chain from raw material procurement and parts supply to delivery. The 4PL company takes care of monitoring the processes; in the event of unforeseen difficulties, it finds alternative solutions. In doing so, it coordinates the various 3PLs that are part of the supply chain. In addition, it evaluates the data with the aim of increasing efficiency and reducing costs. It has an eye on the big picture, but also for details such as ramp management using track and trace for efficient deliveries. If required, not only existing structures are optimised, but also completely new networks are created. This applies to both warehouse management and the entire transport process.
The respective industries and business areas can present very different challenges. When selecting a 4PL service partner, it is therefore advisable to also consider its experience in the field.
Recruitment of suitable providers: the 4PL selects the appropriate 3PL logistics service providers, whether freight forwarders, courier services, packaging companies or warehouses etc., based on defined criteria (e.g. costs, quality, reliability) within the framework of tender management. It benefits from its market knowledge and expertise.
IT Integration/Data Management: a 4PL service provider has the task of recording information from the different IT systems of the partners involved in the supply chain in a uniform system. Powerful tools for data evaluation make structures visible and allow performance analyses based on defined KPIs.
Network simulations allow alternative scenarios to be played through to optimise existing structures or, for example, to plan new locations if required. The overview gained as a result also explains why the 4PL service provider is often referred to as a Control Tower. It controls the existing processes, but also proactively monitors and analyses them with a view to potential improvements. The spectrum ranges from service quality and adherence to delivery dates to warehouse utilisation and transport costs. The CO2 footprint of the various transport modes is also an important topic. Not surprisingly, the topics of AI, Internet of Things and Big Data are also playing an increasingly important role in the analysis of the various processes.
Modern digital solutions can increase transparency over processes and costs, makinng improvement measures possible! For this reason, the development of Digital Solutions is one of Röhlig's top priorities.
Risk Management/Improving Resilience: In recent years, the demands on flexibility and resilience in the supply chain have grown significantly. The increase in global crises from the Ukraine war and the shelling of cargo ships in the Suez Canal to extreme weather phenomena due to climate change (e.g. low water due to drought in the Panama Canal) to the pandemic often cause unexpected interruptions or delays in the supply chain.
A 4PL service provider can identify and assess potential risks, develop emergency plans, differentiate the supplier base, set up buffer warehouses and take other measures to increase resilience or increase the resilience of the supply chain.

Advantages of 4PL

The advantages of a 4PL partner can be summarised as follows:

A 4PL provider takes over the complete logistics process instead of just sub-areas. The focus is on organisation, management, analysis and strategic orientation.

This eliminates the challenge for a manufacturing company of coordinating the activities of different 3PLs.

Especially for larger companies with varied production processes, the complexity of the supply chain can be enormous. Since each cog is connected to the other and moves the others with it, even small, often unrecognised defects affect the overall performance of the supply chain.

A 4PL organises and optimises the supply chain. Powerful digital solutions make transport processes visible and show the pain points where improvements make sense.

The basis for this is the networking of the individual IT systems and their data to bring them together on a central platform, such as a control tower.

In summary: a 4PL service provider ...

reduces costs
optimally coordinates delivery processes
centralises the management of the supply chain and becomes the single point of contact for all logistics
increases the scalability of the supply chain (ideal in case of high market volatility)
increases the resilience and flexibility of the supply chain ...
... including risk management and contingency plans
monitors transports in real time
measures performance and creates clear reports
makes processes and costs transparent
proactively searches for improvement possibilities/strategic consulting

Disadvantages of 4PL

Choosing a 4PL company harbours great potential. At the same time, this means a big step for a company, which should be well thought out. Last but not least, you relinquish a great deal of control, trusting that the 4PL is better able to manage and strategically align the current supply chain.

Here it is helpful to know that the 4PL provider can already demonstrate extensive experience in the industry or with companies with similar structures.

One rightly expects the 4PL provider to have expert knowledge, digital tools at the highest level, but also a powerful network of reliable partners for the individual areas of the supply chain.

At the same time, the 4PL company gains deep insights into the key figures of the company – here, too, you have to be completely convinced that the 4PL partner handles the data responsibly.

Employee involvement

Ultimately, you should also involve your own employees in the change process, especially if internal structures such as logistics departments are affected. Here, any changes must be communicated early and transparently – for example, that employees will be involved in cooperation projects with the 4PL or will be given new tasks within the company.

The specialist knowledge of the employees, often accumulated over many years, should be retained as a valuable resource for the company.

Dependence on the 4PL service provider

This blog make it clear that working with a 4PL service provider means a major commitment and a certain dependence on the service provider.

The networking and integration of IT systems is of course also an investment in time and money: the digital transformation mustn’t disturb ongoing operations. Here, too, the experience of a 4PL provider pays off regarding the practical implementation of what sounds promising on paper.

4PL: Summary and conclusion

A 4PL service provider can represent a significant competitive advantage, especially for complex, global supply chains. The central control and optimisation of all logistical processes allows cost reductions, an increase in efficiency and more resilient supply chains.

Powerful IT systems allow monitoring, analysis and optimisation of the entire supply chain from a central location. In the ideal case, a 4PL service provider offers superior digital solutions as well as logistics expertise, industry experience and a service provider network to improve the supply chain.

However, as the commissioning company, you have to relinquish a large degree of control and allow access to a lot of data. The human factor also plays a role: are employees open to change? How do you deal with existing logistics departments?

All in all, a 4PL service provider opens up the possibility of strategically optimising logistics processes beyond the operative business. If you strive for long-term cooperation with a 4PL service provider, you should pay close attention to the selection of the partner.

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4PL Logistics: Information & Background