What is a 4PL?
A fourth party logistics providers is a company that holds no physical logistics assets, but coordinates the supply chain though its access to monitoring data and IT. You can read more about this intermediary structure here.

http://fourthpartylogistics.wordpress.com/2009/05/23/fourth-party-logistics-providers/

4PLs apply for both finished goods and service parts, however, in this post we will focus on 4PLs for service parts.

4PL for Service Parts

This is a very natural combination for the following reasons:

• Service parts are often held at locations that are owned by different firms that do not pool inventory
• Large companies do a very poor job at implementing service parts systems. This is a bit of a conundrum in the industry and has to do, at least partially, with the fact that service organizations are very under-emphasized by corporations. This means they are lower on the priority list and get far less investment than the finished goods side of the business.
• While big companies generally lack the motivation, the small companies in the service chain – the dealers, lack a web-centric focus, and are too small to develop integrated service based IT systems
• Finished goods forecasting and inventory systems do not work very well for service parts because their forecasting is different, and because service parts systems must habitually reposition inventory to reduce obsolescence.

Because of these factors, service parts IT spending and capability greatly lags the investments made in the finished goods parts of corporations. Because so many companies are generally disinterested in investing in service parts, the net result is that service parts habitually suffers from poor supply chain management. However, what this means, is that the market offers a very good opportunity for 4PLs.

Industry Popularity

Given the opportunity, one would think 4PLs would have already set their sights on this market. Not so. Performing a search for fourth party logistics providers and service or spare parts brings few results. We found remarkably little published and remarkably little focus on the part of companies attempting to build this market. So whatever the opportunity, it is not anything close to an industry trend as of yet.

It seems pretty obvious that 4PLs and service parts go together, however, a search on Google for “service parts” and “fourth party logistics providers” brings up our blog on 4PLs for the first 4 results. Many of the other results below don’t really cover the issue and are false matches. Why aren’t more companies focused on this?

4PL or Parts Hub

In the article on auto service parts networks, we describe the problems that plague these networks, and discuss how these networks could be made more efficient. A software vendor saw our article and contacted us to talk about it. After we spoke with John Snow at Enigma (a software firm focused on service part content management and decision support), we learned that he also came up with a similar concept years ago. We have since adopted Enigma’s term which is the “Part Hub” to describe this network design where inventory from non-associated dealers is pooled and co-managed. We won’t go into the description and design in this post, because it is fully explained in the link below.

http://spplan.wordpress.com/2009/05/16/auto-service-part-networks-are-a-mess/

A part hub would be one way to approach the problem, and it is no doubt the right answer for some sectors. Other sectors may instead rely on a “fourth party” to organize and coordinate their part information, and provide a collaborative unified view. The right approach has less to do with technology, and more to do with how much centralized control there is in the network in question. There are a lot of layers to the present service part network onion, and a number of way to peel it. However, there is no doubt in our mind that this problem will be solved with the development of an IT platform that accepts feeds from multiple sources and has the ability to manage inventory at many different organizations as if it were one.

Possible Solutions

There is a continuum on which possible solutions for 4PLs focusing on service parts networks would rest.

For instance on one extreme would be a SAP SCM solution combining Service Parts Planning (SPP) + Event Management (EM) + a web front end. However, while a favorite of big companies, we think this solution would be a bit expensive, complex and overall too “heavy” for a small nimble 4PL. On the other side of the continuum would be the Amazon.com solution.

The process flow looks like this:

• Dealers would submit their inventory to Amazon by web, or flat file
• Orders are placed on the Amazon.com site and electronically forwarded to dealers
• The package is shipped by UPS or DHL or other and the vendor, taking advantage of Amazon.com’s interface to these carriers, and Amazon displays the transit progress through its website to end customers (as with any normal Amazon.com order).

However, this solution, which is available to use right now by any dealer network interested in doing so, simply by signing up to sell on Amazon.com, is missing some desired functionality.

How to Add What is Missing

What is missing from the scenario above is forecasting and order management – which accounts for things like supersession / interchangeability. For this, other systems would have to be incorporated that would provide this. However, a 4PL could use the Amazon.com front end and tracking capability – which is free – with a forecasting package and order management decision support system.

The Intermediate Design

The 4PL would simply need to get inventory on-hand balances and sales histories from its network, and put them into a forecasting engine. It would then send the recommended order amounts to the network as flat files, which the network dealers can decide to order or not to order. The actual on-hand balances are maintained by the dealers, through uploading to Amazon.com. The order management and supersession would most likely be another site, where customers would go. (Service parts have a lot of permutations and complexity, and therefore they require a specialized order engine.) This would be the site where customers would begin. However, instead of trying to process the order, each part would simply have a link to Amazon.com within the interface. In this way the supersession or order management engine is integrated with the order creation and tracking of Amazon. Once the correct part is chosen, the user is taken over to Amazon.com by selecting a buy button. This type of hyper-linking integration is no where near enough taken advantage of, as companies continually attempt to create their own functionality, rather than using the functionality of large platform providers.

Is this really integration?

It may not seem like integration, however, if the user does not need to make extra keystrokes or mouse movements, we propose that it is integration. In our view many of the ideas of integration are overly IT focused. That is an IT person might say that since the applications are not exchanging data (flat files or XML, etc.) the example above, with regard to the order management to Amazon.com is not integration. Our answer would be — who really cares? If the experience is seamless to the user, and allows them to use the best of different systems, that is integration. Too much effort is being spent trying to reinvent something that has already been accomplished and actually mastered. Why not take advantage of it and enhance one’s standing with your customer? No one will mind being forwarded to Amazon.com for order submission because Amazon has a top flight shopping front end, payment and checkout interface. A final advantage is Amazon has a better order history function, as well as a “wish list” (things not yet ordered but desired), making it even easier for end customers to keep track of and schedule their future orders.

In order to fully communicate this concept, we thought we would develop a simple graphic which shows which entities are interacting, and what are the major data interactions or interface interactions between them.

This diagram shows which parties or hosted software providers would exchange data with other parties.

On Demand and Web Centric Throughout

Amazon.com is already web centric. It is important, although not necessarily critical, that the forecasting and order management / supersession software be web centric as well. This means that the software providers should offer web based access to their products. This would allow the 4PL to simply use the software as a service. Integration would occur via the web with simply FTPing files between the servers of the various software companies, dealers and Amazon.com. Some of the file transfers would be automated, but some would be manual. This 4PL provider could be located anywhere and could service multiple dealer networks, in many different industries, all based upon electronic data transfer from different systems, and all using the same web-centric integrated solution. The pricing could be incremental, allowing both big and small dealer networks to participate. A network may start small, but then add dealers as the network’s capabilities become known and other dealers begin to get interested in joining.

Post Reference

Several months after writing this article we came upon an article written by Greg Baxter, President of Baxter Planning Systems. In it he describes the limitations of spreadsheets and how in his view, remote software can help reduce the planning in isolation that continues to plague most planning environments. See his article here:

http://www.supplychainbrain.com/content/nc/technology-solutions/saas-on-demand-systems/single-article-page/article/tough-love-for-spreadsheets-its-time-they-were-sent-packing/