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The Independent 4PL

By: Contributed Content, Singapore
Published: Apr 15, 2011

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Partsch

This is the first of two articles on 4 th Party Logistics (4PL) by Dr. Wolfgang Partsch, president of ISC Global. In this article, he discusses the fundamental quality that makes 4PL service providers successful - being completely independent. The second article will focus on the benefits of a 4PL's role as an integrator of the supply chain.

At this years' briefing on Singapore's Economic Outlook for 2011, Ravi Menon, Permanent Secretary of the Ministry of Trade and Industry said, "The key macroeconomic challenge this year will not be growth but dealing with emerging cost pressures." For supply chain managers, this is a very serious problem. Already, the overall logistics costs have reached an amount of 25 - 27 % of total expenses for average industrial businesses today, according to recent analyses done by 4PL Central Station AG. I foresee four major avenues of these cost pressures: 1) Demand in the economy is growing faster than supply resulting in an imbalance, forcing companies to take knee-jerk reactions (not very costeffective) to match demand. 2) Menon also anticipated a higher than expected inflation this year. Rising prices would only add to logistics costs. 3) As transport volumes continue to increase, we will see a higher number of bottlenecks in transport capacities, especially since transport infrastructure is not as developed in Asia as it is in Europe and America (Singapore being an exception). 4) The continued increase in oil prices due to risks and growing uncertainties in oil producing countries as well as growing international demand poses another problem.

Asia is lagging behind Supply chain managers are being forced to rethink their supply chain models and practices. In Europe and America, these similar conditions led to the rise of 4 th Party Logistics (4PL). 4PL service providers have seen great successes in reducing logistics costs and optimising efficiency and control throughout the entire supply chain. However, in Asia, the 4PL concept is still in its infancy and has not seen as widespread adoption compared to America and Europe. A key reason for this is a lack of knowledge about how 4PL works and also the low number of 4PL vendors operating in the region. A secondary reason is the mentality "if it works, why change it" among Asian businesses, which signifies a lack of awareness of the improvements 4PL can bring to a supply chain, especially since cost pressures were not such an important issue until recent years.

4PL - Independence is Key A 4PL provider is an independent, non-asset based integrator that plans, steers and runs all aspects of a client's supply chain solution. It is extremely important that a 4PL provider be completely independent and not have any assets (equipment based, costintensive business using own vehicles, terminals, warehousing structures, order-picking facilities, etc.) and the fixed costs they involve as it would lead to a possible bias during the provision of services. For example, it would make sense for a service provider shipping your goods to Malaysia to port directly in Malaysia (e.g. Johor Bahru) and then transport them by land. Instead, if the service provider owns a warehouse in Singapore which is operating at low capacity, they would rather store your goods in Singapore in order to receive a return on their own assets and then transport them to Malaysia, resulting in supply chain inefficiencies and an increased cost for yourself.

http://www.procurement-online.com/news/25758[15.05.2011 21:04:36]

Procurement, The independent 4PL, ASIA, Logistics, Shipping transport, Road Logistics, Port logistics, | Procurement-Online

Agility through Independence By being completely independent, a 4PL service provider is able to analyse, model, integrate, control and monitor the client's in-house and external logistics operations totally free of any compulsions, existing agreements or alliances. As a result a 4PL service provider is extremely agile. For example, if a warehouse cannot be cleared in time for your goods delivery to the warehouse, immediately the 4PL is able to identify the best alternative solution instead of waiting for the goods to be cleared as most 3PLs would have to, giving an organisation the best flexibility and keeping unnecessary costs low. In this manner, companies can avoid bottlenecks as the 4PL is able to source for the best alternative to ease potential cost pressures. Alternatively, with this agility, the 4PL can move inventories for the customer at certain times and locations to focus on minimising taxes and interest rates which significantly reduce the working capital costs or an organisation.

Conclusion With the increased cost pressures being forecasted, logistics providers are needed that are capable of combining their own knowledge and capabilities regarding development of new networks with best-in-class operative resources to increase efficiency, and to lower costs in procurement, in-house operations and distribution. 4PL service providers are definitely one option to take supply chain management to the next level. Their strength relies in the fact that there is no off-the rack solution. Rather it is customised for each individual supply chain, using the best available resources from a completely independent position at any point in time to reduce supply chain risks. Even then, it is liable to change again and again as a business grows and company goals and KPIs change. As supply chains become longer and more complex, organisations are beginning to use 4PL provider's to tap on their expertise and management capabilities and are seeing financial rewards for crossing the chasm and adopting new concepts and solutions.

Dr. Wolfgang Partsch, president of ISC Global AG in Basel, Switzerland, and ISC Far East Pte Ltd in Singapore (a true 4PL service provider), is a pioneer in the supply chain industry. He has been acclaimed as the person who first coined the phrase "Supply Chain Management" in the early 80s, also leading the first ever Supply Chain Management project. He and his team have formulated many of the best practices and methodologies that we see today. Today, he continues to innovate new supply chain solutions as part of ISC Global. To learn more about 4 th Party Logistics, contact Dr. Wolfgang Partsch at
w.partsch@iscgloballtd.com

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