4PL logistics providers — Scaling up supply-chain efficiency About 75 per cent of the Fortune 100 companies and about 45 per cent of Fortune 500 companies have now gone in for 4PLs.

The term "4PL" was actually coined by the consulting group Accenture. In fact, they also hold the trademark to the name 4PL.

Accenture defines a 4PL in the following manner: "A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions."

The transport sector in India: Manufacturers do not seem to pay much attention to their transportation needs, relying on the conventional way of calling up truck operators and getting the best rate. Thus, the firms end up paying a lot of money on transportation simply because of poor planning on distribution.

However, things are changing with the entry of foreign companies that, usually, have strong logistics support. This and the increasing realisation of the importance of timely delivery of materials and products are slowly changing the way companies are looking at logistics.

In this context outsourcing of logistics makes a lot of sense for Indian firms not many of which have a professionally run logistics division, feel logistics experts. This will free companies from the worry of getting materials on time or distributing their products within and outside the country.

According to global consultancy firms, outsourcing of logistics became popular in the Netherlands in the 1990s, mainly inspired by the work of Prof Michael Porter, of the Harvard Business School, on core competencies and creating competitive advantage.

Though India is still an emerging market in manufacturing, the presence of multinational logistics firms, including SembCorp, Exel and BAX, and a couple of Indian firms such as GATI and TVS Logistics is slowly changing the way products and materials are distributed.

In the last five-six years, some of these firms introduced 3PL (third party logistics providers) in India and have now gone a step further by introducing 4PL (fourth party logistics providers). The latter, the most sought after by firms abroad, are slowly becoming popular among large Indian firms, say logistics experts.

In 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL.

Leading Indian firms in various sectors no doubt have huge outlays on logistics. Sectors such as cement, FMCG, electronics, consumer durables, and automobiles spend over Rs 2,000 crore each every year, says Mr V. Sanjeevi, Director of the Chennai-based e-Logistics Private Limited, a consulting firm on logistics, which is a 4PL.

Other major industries with a sizeable logistics cost include pharmaceuticals (Rs 700 crore), food processing (Rs 200 crore) and paints (Rs 250 crore).

While the 3PL concept has around been in India for some time, MNC and large companies are now going a step further and want to outsource their entire logistics to a 4PL. "To cut the logistics cost, Indian companies in many sectors would be forced to go for a 4PL," say experts.

Globally, about 75 per cent of the Fortune 100 companies and about 45 per cent of Fortune 500 firms have now gone in for 4PLs.

This trend is fast catching up in India too, says Mr Sanjeevi.

In India, IBM, Dell, Nike and Philips have handed over their logistics operations to 4PLs. Much of the 4PL service includes execution of activities directly or through 3PL service providers. e-Logistics has been involved with a few leading multinational companies on the strategy to be adopted for Indian operations, Mr Sanjeevi said.

According to him, the 4PL service seeker looks for logistics solutions from 3PL service providers which, in turn, could engage other service providers.

The logistics activities and solutions cover order compilation and despatch planning, physical transportation, in-transit monitoring, confirmation of deliveries, payment to transporters etc.

For the clients, engaging a 4PL means getting effective transport along with an entire distribution system, high reliability, transparency, quality, efficiency and design new distribution scenarios, says Mr Sanjeevi.

Though the management fee looks like an additional cost, the client receives more tangible and intangible benefits in the form of reduced transport rates, of at least 10 per cent. Further, the clients need not have in-house logistics expertise.

Says Mr S. Ramkumar, Vice-President, Marketing, SembCorp Logistics (India) Private Limited, 3PLs adopt a scientific approach to logistics, to optimise cost and improve service levels and response. They also help clients achieve efficient inventory turnover and working capital management.

On the other hand, 4PLs facilitate single-point reference for all logistics needs, possess knowledge of logistics to obtain most efficient and effective solutions, have manpower resources of higher quality to supervise vendors and ensure continuous process improvements and, above, all an IT base to network customer systems.

According to Mr Ramkumar, 3PLs provide firms with forwarding and contract logistics by taking care of the management of complex service chains.

However, a 4PL manages a comprehensive supply chain solution for a client, which is crucial for companies looking to reducing cost. Incidentally, many IT firms abroad solely rely on 4PL IT

systems that cover inventory management and billing accounts receivable as well as sales accounts.

A 4PL, he says, may be an established business partner elsewhere in the world or in a previous business of the company and, hence, is seen as being more reliable and credible, especially if a company is entering new markets, he says.

According to Mr Ramkumar, a 4PL takes advantage of local cost efficiencies at each location while at the same time administering it overall. Also, since their scope covers the entire country, there is economy of scale.