3PL & 4PL Logistics Providers - S4 HANA Integration

Everyone working in the wider ERP Ecosystem have had heard about 3PL & 4PL. But what exactly does the terms 3PL & 4PL imply is understood by less than 10 Percent of the SAP brethren!!

3PL is a third party logistics provider who provides logistics services ( transportation, warehousing, packaging ) to a end customer.

Example : DHL Logistics providing warehousing facilities as a service to VW Europe. DHL takes charge of all the warehousing needs of VW. The warehouses are owned or leased by DHL from a seperate warehouse owner, DHL charges VW a annual fee for their warehousing services. VW has outsourced the warehousing function and has more time to focus on their core activity, manufacturing.

Example : VW had connected to Kuehne+Nagel for providing customer distribution services

across Europe. K+N would take charge of all the distribution activities from the VW warehouses which are managed by another 3PL provider, DHL. K+N and DHL teams would interface regularly for the VW operations under the watchful eye of the VW supply Chain team.

Now what is 4PL ? 4PL service providers offers services to the end clients without having any

assets. They are light on assets and high on human computing power. Example : 4PL Service

Providers provides detailed insights to the customers and helps them to make informed decisions while selecting the right 3PL partners. Imagine 4PL is a company of 5 logistics veterans based out of Munich who would advise VW on selecting the best 3PL warehouse provider for their Nordics operations. A company you can say similar to Hindenburg Research but without a destructive outlook.

So why will VW goto a 4PL Company before selecting a 3PL service provider.

Example : Brain Consulting is a 4PL company based out of Munich who advise clients on the

selection of logistics service providers in Europe.

VW will buy services from Brain Consulting for logistics vendor selection. The 4PL company will provide a neutral advice to VW since Brain Consulting is a pureplay advisory company without any transportation fleets or warehouses of their own. They do not have to push their own envelope.

Brain Consulting will design a logistics strategy for VW in Europe :

Spare Parts Warehousing - DHL

Outbound Logistics - Kuehne+ Nagel

Central Distribution Centres - Frigo

Inbound Logistics : Supplier Managed- Negogiate PO based on DDP INCOTERMS

Customer Physical Documents Delivery

Same Day Delivery : FEDEX

2 day Delivery : UPS

15 Day Delivery : POST NL

Imagine there is no 4PL player in the above equation, VW goes to DHL to design its logistics

strategy. DHL will never provide a neutral advice, instead it will be keep pushing DHL as a

vendor for all the logistics needs, be it warehousing, transportation, packaging, documentation.

To sum it up, 4PL players are non-asset based companies who use human intelligence and

market expertise to design a 3PL logistics structure for a product company. 3PL instead are

asset based companies who provide tangible services to the end client for their logistics

requirements.