CPG Companies Increase Use of 4PLS

Fourth-party logistics (4PL) providers manage the direct-to-consumer (D2C) supply chain end-to-end via a network of third party service providers. © Gorodenkoff – stock.adobe.com.

Broader Capabilities Improve Last-mile Service, Overcome Supply Chain Woes

By Tom Egan, Vice President of Industry Services for PMMI, the Association for Packaging and Processing Technologies

Consumer packaged goods (CPG) companies have relied on third-party logistics (3PL) providers to handle an array of transportation, warehousing, and value-added functions such as customer service, order management, sales support, e-commerce, and IT integration according to logistics industry^1,2 reports.

As e-commerce grows, CPG companies are facing a rising demand for direct-to-consumer (D2C) shipments. Unfortunately, their warehouses may not be set up to serve these customers efficiently. This is especially true for smaller firms, according to “Packaging and Automation in the Warehouses of the Future,” an industry report from PMMI Business Intelligence, a Division of PMMI, The Association for Packaging and Processing Technologies.

D2C solutions

The solution is to hire a 3PL service provider. Joining forces with a 3PL partner is particularly desirable for CPG firms with multiple plants producing different products. With 3PL support, the manufacturer can ship the products from each plant to the 3PL provider, and orders can be fulfilled from there.

However, sometimes broader support is needed. Thus, CPG firms are hiring fourth-party logistics (4PL) service providers to manage the supply chain end-to-end via a network of 3PL operations. As a result, 3PL and 4PL distribution comprises up to 50% of D2C shipping by CPGs, and the use of these logistics companies is expected to increase, according to the PMMI³ report.

In fact, Facts and Factors^4,5 reported the 4PL segment already dominates, accounting for more than 62% of the global logistics market in 2022. A projected 3.92% compound annual growth rate (CAGR) through 2028 ensures the 4PL segment will continue to dominate, according to a second report from Facts and Factors.

Benefits derived from a relationship with a 4PL service provider include faster fulfillment, operational efficiencies, cost savings, and expedited deliveries. In addition, the report notes, 4PL service providers can help reduce overhead, labor, and inventory costs; eliminate wasteful procedures; simplify the supply chain; and enhance purchase leverage through an extended supplier base.

The 4PL scenario is particularly compatible with omnichannel fulfillment, an increasingly popular strategy as e-commerce has gained market share. With a 4PL service provider, customers receive products in the most efficient manner whether it’s via warehouse, 3PL provider, retail outlet, or store pickup.

A strength of both 3PL and 4PL service providers is the increasingly data-driven nature of the operations. This addresses the growing demand from CPG companies for package traceability and assurance of on-time fulfillment. An array of emerging tools is evolving to support traceability and reduce theft, fraud, and delivery errors. This includes sophisticated software platforms and smart labels with printable electronics, which enable manual barcode scanning to be replaced by an automated process.

Sustainable supply chains

CPG companies also are taking steps to make their supply chain more sustainable. This endeavor is spurring interest in logistics vendors that practice carbon reduction efforts such as route optimization. As a result, many logistics firms are exploring the use of alternate fuel vehicles (biofuel, electric, hybrid, hydrogen-powered) and last-mile delivery options including bikes, parcel lockers and drones.

For example, Tyson Foods, Inc.⁶ is experimenting with autonomous refrigerated box trucks on pre-determined, short-haul routes. Operating 18 hours a day, the trucks, which are equipped with custom-designed sensors for fail-safe, short-haul B2B operations, will deliver Tyson^®, Jimmy Dean^® and BallPark^® products, among others, to the company’s distribution and storage facilities in northwest Arkansas.

Shifting to autonomous trucks is expected to yield workforce, efficiency, and sustainability benefits. Tyson⁷ anticipates it will be able to shift drivers to other transportation positions within the organization, mitigate driver shortages, and enhance supply chain reliability while increasing asset utilization within its short-haul logistics network. The move also supports inventory objectives and provides a more responsive, high-frequency approach to goods movement while reducing emissions and boosting fuel economy.

At Mars Inc., logistics is one prong of its six-pronged effort toward its target of net-zero emissions by 2050. Its Net-Zero Roadmap⁸, which lays out the path toward the goal, focuses on shipping products shorter distances and maximizing vehicle utilization. The plan also advocates switching from trucks to rail or water transport options, which generate lower greenhouse gas emissions, and considers the potential of alternate fuels like biodiesel blends, hydrogen, or electric power.

Sustainable packaging

Another way for CPG manufacturers to reduce the environmental impact of their products is by designing packaging for optimum logistics and sourcing locally to reduce travel time, cost, and distance. Tactics include lightweighting to reduce freight weight and improving cube to fit more product per truck or other conveyance and minimize the number of trips.

Today, right-sizing equipment, which can create an optimized box for each shipment, can help CPG firms and their logistics providers conserve corrugated, reduce the need for dunnage and bracing, and lower transit costs such as postage.

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About the Author

Tom Egan serves as the vice president of Industry Services for PMMI, the Association for Packaging and Processing Technologies. He joined the PMMI staff in 2003 following more than 20 years in the packaging industry during which he was also an active PMMI member. Learn more at www.pmmi.org.

Sources:

1 Zimmerman, Daniel, “4PLs Will Be the Logistics Trend of 2023,” Extensiv Blog, 4PLs Will Be the Logistics Trend of 2023 | Extensiv, accessed Dec. 13, 2023.

2 Industry Research, “Logistics Services (3PL and 4PL) Market Size & Revenue by 2028 …,” Logistics Services (3PL and 4PL) Market Size & Revenue by (globenewswire.com), accessed Dec. 13, 2023.

3 PMMI Business Intelligence, a Division of PMMI, The Association for Packaging and Processing Technologies, “Packaging and Automation in the Warehouses of the Future,” Executive Summary, September 2023.

4 Facts & Factors Research, “Logistics Market Size, Share Global Analysis Report, 2023–2030,” Press Release, Logistics Market Size, Share, Growth, Global Trends, Forecast to 2030 (fnfresearch.com), accessed Dec. 15, 2023.

5 Facts & Factors Research, “4PL Logistics Market Size, Share, Growth Analysis Report …,” Press Release, 1 new message (fnfresearch.com), accessed Dec. 13, 2023.

6 Cuneo, Elizabeth, “Boosting Brand Sustainability by Improving Logistics and Shipping Footprint,” Packaging World, Nov. 9, 2023.

7 Tyson Foods, Inc., “Tyson Foods and Gatik to Deploy Autonomous Trucks in Northwest Arkansas to Optimize Supply Chain Efficiency,” Press Release, Sept. 6, 2023.

8 Mars Inc., “Net-Zero Roadmap,” PDF, 2023, Mars Net Zero Roadmap 2050 Multimedia Assets | Mars Incorporated, accessed Dec. 16, 2023.