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Name Your Terms

By Clifford F. Lynch

DC Velocity, July 2005

A few weeks ago, as part of a supply chain course I teach at a local university, I decided to introduce the class to the wonderful world of logistics service providers. Almost immediately, we got bogged down in definitions. As an experiment, I asked the 16 students to come back the next week with a definition for "3PL," "4PL" and "LLP." They were allowed to get these from any person or written source they cared to, except the class textbook. The results: Five variations for "3PL," seven for "4PL," and general confusion about what an LLP might be (except for the three students who defined it as a "limited liability partnership").

Later that week at a meeting of managers from a logistics service provider, I asked a similar question. And although the managers were able to agree on a definition for "3PL," when it came to "4PL" and "LLP," they were even more confused than the students.

The term "3PL" was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only two parties, the shipper and the carrier. When IMCs entered the picture – as intermediaries that accepted shipments from the shippers and tendered them to the rail carriers – they became the third party to the contract, the 3PL. But over the years, that definition has broadened to the point where these days, every company that offers some kind of logistics service for hire calls itself a 3PL.

The term "4PL" has generated even more confusion. The term is generally considered to have been introduced by Accenture, which registered it as a trademark in 1996. Accenture described the 4PL (or fourth-party logistics provider) as an integrator, but today consultants, software companies and even 3PLs lay claim to being a 4PL. (And if Accenture decided to pursue every company that called itself a 4PL in violation of its trademark, no courthouse would be large enough to contain all the litigants.)

The term LLP, or lead logistics provider, is probably the most transparent of the three. As the name suggests, a lead logistics provider "takes the lead" in providing some functions and subcontracting for others while providing one central control point. But wait, isn’t that a 4PL?

By now, you’ve gotten the idea. We desperately need some standard definitions. If it were up to me, I’d adopt the definition of "3PL" found in the Council of Supply Chain Management Professionals’ glossary, which reads as follows:

"A firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together, by the provider. Among the services… [3PLs] provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding."

Since the CSCMP definitions get a little fuzzy on 4PL/LLP, I’d suggest using Accenture’s definition of 4PL, as follows:

"A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution."

As for the LLP, I would suggest the following:

"An LLP (lead logistics provider) serves as the client’s primary supply chain management provider, defining processes and managing the provision and integration of logistics services through its own organization and those of its subcontractors."

Of course, it’s also true that the whole semantic nightmare would disappear if we simply dispensed with the "3," the "4" and the "L." If we just called the company what it is – i.e., a logistics service provider – the relationship would be clear. And for those who like acronyms, "LSP" neither assaults the ear nor twists the tongue. Personally, I’m not all that concerned how we define the terms – as long as we all do it the same way.

 

 

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