Logistics How does a 4PL price their services? – Quora

Logistics: How does a 4PL price their services?

, Author/Editor/Writer at Writers-at-Large

The two clusters are bit like legal pricing. Either you pay for time and work out a savings schedule to continue services or a share of the savings is earned by the 4PL as income. For more strictly transactional things, i.e. like a lawyer for a bog standard last will and testament, a straight fee per transaction is used.

The time model is mainly used for new services for existing clients, i.e. new markets, acquisitions, or corporate reorganizations where the network model, transportation matrix or customer base will be changing dramatically. You pay per hour for services, often broken out by type of labor. This can rack up quite a bill quickly but is really preferred when the unknowns of control, volume, demand, timing, etc. are so large that the 4PL is not willing to take risks on savings kickbacks. (Major factors: Weak process, unreliable forecasts, unstable market)

The kickback model is based around the unique offering of each 4PL. Think of it as the 4PL knows there will be cost savings and tries to set up a fair percentage and timing for the charges with the client. Not too greedy, but scaling with the savings. This is usually used when the business issue that is driving costs is known and the client lacks either resources or leverage to affect the issue well. 3PLs like this model when they can get a handle on previous running costs. Most prevalent when used against incumbents to snatch new business. (Major factors: Commodity level pricing, non-transactional complexity in process like call centers or spare parts storage, longer term desired)

The transactional approach is used where you cant be assured of volume, there is low risk , and there is a very regular process. I.e. cross-border freight consolidation. Once you get to a volume (in revenue) that works, this usually drops off quickly. Many times the time model will take over here if the customer cant ensure volumes, does not want transactional pricing, and still wants the 4PL. (Major factors: Limited volume, standard process, short or no commitment term).

There are hybrids of this type of pricing depending on how complex the core process is vs. all ancillary serice as well as the availability of idle resources in the 4PLs arena.

To get tighter pricing, limit complexity. Complexity requires higher educated personnel to coordinate, more supervision, and more inventory in process to cover all known forecast plans. To further reduce price variability, be flexible in exact solution and timing. Finally, once a process is as simple as possible and not too chaotic in method and timelines, single source the 4PL and its resources. The more fragmentation between new 4PL, existing providers, and old 4PL in terms of services, the more difficulties will exist for handoffs, finger pointing, and dropped balls. Keep track of what the 4PL stated was needed to drive the costs and exactly what they were covering to allow for future negotiations for either a contract renewal or new 4PL to take over.

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, Owner at LMJ Logistics (1958-present)

4PLs are focused on the logistics processes of the client, from the way they handle operations internally, through the partners/logistics suppliers they use, to customer service.4PL knows there will be cost savings and tries to set up a fair percentage and timing for the charges with the client. they charge either according to time or work.

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