Our industry, like so many others, has long been blessed with a wretched excess of buzzwords and terms. We have spent so much time thinking out of the box about the paradigms of globalization in the new millennium that we have not had time to push the envelope in the development of our E-commerce business models.
Once, during a performance evaluation, when Dilbert was asked what he had accomplished, he responded, “Well, I have used my empowerment to create a new paradigm, and I teamed across financial boundaries to improve quality. I dare say I was customer focused and market driven. I proactively found excellence in the midst of chaos. I re-engineered my core processes and embraced change”. To the boss’ question, “Was that sarcasm?” Dilbert replied. “To be honest. I don’t know either.
Logistics and supply chain management have always been fairly straightforward disciplines, but for years, in my opinion, we have been plagued with the excessive, and arguably incorrect, use of the terms third party, third party logistics, and 3PL. One warehouse company even went so far as to advertise 3PL logistics services. Now, once again, the term 4PL has started to get more mention in white papers and opinion pieces. The definition of a 4PL is a little vague, but many refer to it as an enhanced 3PL, which really doesn’t help much.
Contrary to most popular opinions, the term third party was first used to describe shippers’ agents. The Hub Group, founded in 1971, was one of the early third parties, as were companies such as National Piggyback Corporation and Alliance Shippers. Usage of this term was logical since it properly described the interjection of a third party into the transportation contract. For example, if a company (Party Number 1) wished to ship a trailer in intermodal service over a rail carrier (Party Number 2) it could deal directly with the carrier or arrange for transportation through a shippers’ agent (Party Number 3). This was advantageous since because of the volume involved, the cost of the transportation utilizing the shippers’ agent usually was less than if the transaction had been handled directly with the carrier Motor carriers, warehouse companies, and railroads were known and referred to by their own competencies. To do otherwise, would have caused enormous confusion. Suppose that, using the above example. Party Number 1 had utilized a contract warehouse to distribute its products and a shippers’ agent (Party Number 3) to arrange for the transportation. Would the warehouse company be Party Number 4, or possibly Number 1 ½?
“To be honest, I don’t know either.”
In the 1980’s, the term third party became widely used to describe any provider of logistics services, and in many cases, was not a proper use of the term. The term fourth party has been around since the 90’s, but seems to be gaining renewed emphasis as a firm that assumes functional integration that has been atypical of a traditional third-party arrangement. Believe it or not, a fifth party also has been suggested to integrate the integrators. If one were more cynical, it might be suggested that the fourth and fifth layers are an unnecessary duplication of activity.
Before we all get buried in a morass of semantics, perhaps it would be helpful to return to clear and basic terms. When a firm outsources a logistics function, or group thereof, it simply is contracting with another firm that has the requisite service offerings and expertise. If we refer to that company as what it is – a logistics service provider – then the relationship would be much clearer. Whether the provider furnishes motor carriage, warehousing, order fulfillment, or freight bill payment, the term logistics service provider remains constant. If one prefers acronyms, LSP does not assault the senses or twist the tongue, and is easy to decipher.
As supply chain and logistics managers, we should try to simplify where we can. In this new world of AI, AR, ML, and Blockchain, our jobs are tough enough without adding more vocabulary stress.