In this article, Johan Faes outlines how the supply chain is evolving into an ecosystem in which 4P partners take on specialised tasks. Control lies with an independent 5P partner who ensures transparency, efficiency and trust in the chain.
Summary of this article
Supply chain collaboration is on the brink of a major change. There is much talk about it, and terms such as servitization, eco-systems, moving up the chain, partnerships and control towers come up regularly. I myself like to talk about '4th parties'. In this blog I would like to explain how I see the supply chain of the future. And how we can achieve it together.
The 4th party is a familiar term from logistics, where a 4th Party Logistics (4PL) is often used in addition to the 3PL’er. The difference between the two? The 3PL’er takes over transport and warehousing from (production) companies, the 4th Party Logistics is in charge of logistics in the supply chain. The 4PL’er preferably does not own transport or warehousing equipment, but offers services that in the long run improve the efficiency of the total logistics.
All too often it is assumed that a 4PL person not only directs logistics, but also manages and controls all the things that go into supply chain management. Such as integral planning. But is that true? Does the 4PL’er also deal with arranging taxes, import tariffs, compliancy, inventory optimization, human-resource planning, laws and regulations on hazardous goods, for example, and last but not least: packaging? Contrary to what you might expect, the answer to that question is very often “no.
Logical, because within the existing definitions, they do not automatically fall under logistics and only partially under supply chain management. This makes the role of a 4PL’er narrower than people sometimes assume. Nothing against 4PL’ers, because it is almost impossible to offer all these disciplines under one roof. But in practice, this will only achieve sub-optimization in the supply chain. This is why I advocate re-examining the 3P and 4P model. And to expand the model with several 4P’s and a 5P.
I envision an ecosystem in which not only a 4PL provider is active, but multiple fourth-party providers. These could include a 4PP provider (Fourth-Party Packaging), a 4PC provider (Fourth-Party Compliance), and so on. Each 4P provider manages its own area of expertise and its own network of third-party providers. All these 4P providers continuously report to a single lead coordinator: the OEM. The OEM can therefore be regarded as the fifth-party provider. In this model, supply chain optimisation is no longer merely an ambition, but a natural outcome.
The 4Ps prefer not to supply any products themselves and are completely independent. As far as I am concerned, this is the precondition for a good director’s role in the supply chain. The products are supplied by the implementers, the 3P’ers.
In his specialty, the 4P’er takes the (often non-core) activities of the OEM’s completely out of his hands. For example, in the field of packaging. His job is to optimize integration, quality, availability, efficiency and lead times in his own area of expertise within the entire supply chain. To do this, the 4P’er deploys intelligent ICT solutions to keep a complete picture of all information flows in the chain in his own field. In this way, the 4P’er contributes positively to the agreed service level (SLA) and to the Total Cost of Ownership (TCO) of the OEM.
The 5P’er gets input from all his external advisors, the 4P’ers. Based on that input, the 5P’er builds scenarios and makes decisions. Depending on the agreements (SLA or other agreements), the 5P’er determines which costs are justified in the case at hand and which scenario prevails. In this way, continuous optimization of the supply chain is achievable.
The OEM can very well fill the role of 5P himself. But it would of course be completely daring if the OEM could also outsource that role. Of course, this is only possible if a well-thought-out decision model is developed for this, on the basis of which the 5P can make decisions on behalf of the OEM.
This new ecosystem runs entirely on trust, knowledge sharing and direction. It goes without saying that in this model, the 4P-er can be expected to be independent. That he always delivers the right price-quality ratio and is also constantly working on optimization and innovation within his field. The 4P-er can do this, because in his specialism he has an unparalleled view of the total chain and the total need.
To be and stay in control, the 4P’er needs both insight and overview. Not only about their own processes, but also about the processes of any third parties (3Ps). This is even more true for the 5P’er, the spider in the web.
Wondering how far along your organization is? CQM’s Maturity Grid shows that a high level of automation is needed to be in control. It also gives you insight into factors your organization may still be able to work on to achieve a higher level of maturity.
Whether we call it servitization, moving up the value chain, new ecosystems or partnerships, the fact remains that the supply chain is calling for a new way of working together.
It is clear that a new ecosystem cannot be created overnight. We still have a long way to go, so let’s embark on that journey together. In this article, I have shared my perspective, and I would be interested to hear yours.
Johan Faes is founder and CEO of Faes. His vision for innovation, sustainability and supply chain collaboration is leading the company into a future as a 4PP partner for the manufacturing industry. His contributions share insights on strategy, leadership and the power of packaging as a process.
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