A note on centralised decision making and the role of 4PL providers.

A note on centralised decision making and the role played by 4PL providers.

The other day while taking the case study of Kimberly Clarke and their vendor managed inventory programme in US for the senior PGDBM students at XIME, we had an interesting suggestion/observation coming from the students side that centralised inventory management is more efficient than decentralised inventory management. Indeed, it has been proved in literature that centralised inventory management is more efficient than decentralised ones. In fact, my thesis had some bearings on how centralised decision making will make an inventory system more efficient and lead to cost reduction. It is basically because in decentralised systems, the independent entities upstream and downstream, often under different management control will be working at optimising their local costs than optimising the supply chain costs.

Optimising the entire supply chain costs would entail some entities incurring higher costs for the sake of the whole supply chain, which would not happen in the case of decentralised networks. But how can different entities working at cross purposes of local optimisation work for the overall benefit of the entire supply chain ?

It is in this context that we discussed about an external entity who co-ordinates the functions of the different players in the supply chain.We have the different third party logistics providers who perform the different functions for the organisation like transportation, warehousing, IT etc.. The fourth party who co-ordinates all these functions for the organisation, in turn acts like a centralising authority overseeing the different functions of the organisation being implemented by again different entities, we call this centralising authority the fourth party logistics provider.

In short, the fourth party logistics provider acts as an integrator of multiple 3PL providers. This integration is not only across one organisation function, but multiple functions across multiple organisations. The 3PL provider is thus able to integrate functions for the organisation at a higher level. The organisation benefits from the 4PL provider not only from the higher level integration and aggregation which is provided to the organisation, but also from the superior learning and implementation the 4PL player has across different similar or dissimilar organisations.

george..