As Supply Chain Volatility Rises, 4PLs Prove Strategic
Providers Help Define Customers' Objectives, Produce Solutions
Key Takeaways:
- Customers' entire supply chains can be managed at a single point of contact.
- 4PLs provide an all-in-one management dashboard with detailed visibility.
- 4PLs are becoming a viable option for small business as well as multinational corporations.
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Steeper tariffs and rapidly changing trade policies have created a historic opportunity for fourth-party logistics providers as shippers contend with supply chain disruptions and uncertainty.
These unpredictable business conditions have added even more complexity to the already nuanced process of planning and managing freight transportation.
“Supply chains are full of complexity, jargon and overcomplicated solutions,” said Eric Rempel, chief innovation officer at . “But it doesn’t have to be.”
While third-party logistics providers arrange transportation and provide warehousing for shippers, a 4PL manages a customer’s entire supply chain at a single point of contact.
The role of a 4PL typically has been that of a “trusted adviser,” a function that has never been more valuable, said Rempel, who recently authored a book, Modern 4PL for Dummies, based on his 20 years of industry experience and thousands of conversations with shippers.
Redwood Connect
Redwood’s platform, like those of many 4PLs and technology providers, serves as an integration “hub” with hundreds of partner and tech connections already in place. Those encompass 3PLs, freight carriers of all modes, customs brokers, warehouses, freight forwarders and others. Shippers benefit by being able to connect with their system, then leverage a resource-rich network of providers throughout the supply chain.
“It’s a strategic play,” Rempel said. “Let’s first understand the complexity and nuance of the organization. What is your digital [supply chain] strategy, how does it integrate with all your other systems, and where are the gaps?”
As supply chain orchestrators and data aggregators, 4PLs provide an all-in-one management dashboard with detailed visibility, underpinned by a central data repository that’s continually fed real-time information.
Rempel noted the job of a 4PL is to define what the customer wants to accomplish and produce the right solution to get there. He pointed toward a focus on execution, selecting the right technology options, designing the supply chain network and identifying the right business partners.
“Let’s not be totally dependent on [the shipper’s] tech team to implement, which is often the most difficult part the project,” Rempel advised, adding that Redwood’s supply chain integration platform “turns what was traditionally tedious IT work into plug-and-play connectivity.”
, vice president of supply chain optimization for in the Americas, said 4PLs make supply chain management simpler for the client.
“It’s about people, process and platform. They integrate with us one time, we integrate with all their service providers and trading partners,” he said. “It’s the same experience globally.”
St. Amand noted the customer’s core competency is not logistics.
“They want hard core data and supply chain expertise,” he said. “The 4PL sits on top of that and manages the whole ecosystem, the entire journey of that product, then we assess and analyze performance to identify areas for improvement,” he said.
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In the future, 4PLs will be crucial to more than just the largest supply chains, especially in a fast-moving market, added Matthew Beckett, senior director analyst for research firm .
“One trend we are seeing is the concept around meeting the customer where they want you to be. That was missing early on,” he said, adding that 4PLs are not just for big multinational corporations anymore.
“That’s making [4PLs] more attractive to a wider audience,” Beckett said. “The barrier to entry is much lower, and the value creation opportunity is much greater.”
Shippers also are concerned with reining in rising costs.
Consulting firm , in its most recent Supply Chain Navigator report, projects that global supply chain costs will rise up to 7% above inflation by the fourth quarter of this year.
“Inventory stockpiled ahead of tariffs are now being depleted, forcing companies to restock at higher prices,” the report said.
With the cost of goods and materials rising, retailers face a choice between eating those cost increases or passing them on to customers to protect margins but risk losing their business.
AI and Automation
With the accelerating pace of technological change, artificial intelligence is enabling 4PLs to streamline some areas of logistics.
Among those are document processing, optical character recognition, customer service automation, appointment scheduling, pricing and rate management, and assistance with data mapping.
“AI agents are now doing what used to be in the planner’s head,” said Ann Marie Jonkman, vice president of global industry strategies at , a provider of supply chain management technology.
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Today, AI systems are processing the same volume of calculations that hundreds of analysts would have been doing with the same data, she said, adding that AI helps 4PLs become faster and more accurate in their decisions.
“We are monitoring network operations in real time, and making constant adjustments in factors such as the flow, cost, inventory levels, product locations and movement timing,” Jonkman said. “This enables us to identify the best solutions for achieving optimal velocity and availability.”
At the end of the day, 3PLs and 4PLs are enabling “dynamic placement of inventory, strategic allocation, and the positioning of buffer levels,” she said. “This approach helps determine the optimal balance between holding costs and the need to maintain enough stock levels to meet seasonal promotions, sales and revenue targets.”
During peak season, achieving that balance becomes essential, Jonkman said.
Managing Disruption
4PLs can deploy various tools and services to help shippers examine their networks and make informed decisions about sourcing strategies to minimize or avoid high-tariff situations, said Will Heywood, chief customer officer for .
“The first step is creating a replica of their existing supply chain, a map with associated volumes and costs that show current state,” he said. “Then, you can run ‘what-if’ scenarios with network design and optimization tools, as well as ‘digital twins’ where you can plug in real-time data, apply different the scenarios, and see what the outcome would be.”
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Such scenarios can simulate what production or sourcing costs would look like in different geographies, the costs to change from one to another, impact on supply chain velocity and the trade-offs, Heywood said.
“Those [scenarios] can help you understand and plan for the volatility and uncertainty in the market from a host of factors, including related tariffs that have come into effect this year,” he said.
Heywood also stressed that with international cross-border strategies, not one size that fits all. “Every supply chain, and the goods moving within them, have unique needs and requirements.” he said. “[Customers] want to know how they should be thinking differently and how to get better at responding to change.”
The role of a 4PL as a trusted strategic partner also extends into areas such as contingency planning and taking the logistics management burden off the shipper’s shoulders by being the overall director of supply chain execution activity across an ecosystem of partners.
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“Do what you do best,” said Glenn Palanacki, vice president of product management at Descartes, a provider of supply chain management software. “Allow the shipper or the 3PL to focus on their core competency and being the best at what they do or the products they sell.”
As the orchestrator of complex networks with many moving parts, 4PLs get the best rate possible for the right load from the right place with the right asset that can deliver the precise transit objective for that product, he said.
“[4PLs] are an extension of our customer’s customer and the satisfaction they experience with the product itself, and how the supply chain delivers on that promise,” Palanacki said.
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