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ConTRACTing And RElATionsHiPs 179
made-to-order engineered components are not. Four questions seem to influence
whether e- procurement will be appropriate.
1 Is the value of spending high or low? High spending on purchased products and services
gives more potential for savings from e-procurement.
2 Is the product or commodity highly substitutable or not? When products and services are
‘substitutable’ (there are alternatives), e-procurement can identify and find lower
cost alternatives.
3 Is there a lot of competition or a little? When several suppliers are competing,
e- procurement can manage the process of choosing a preferred supplier more effec-
tively and with more transparency.
4 How efficient are your internal processes? When purchasing processes are relatively inef-
ficient, e-procurement’s potential to reduce processing costs can be realised.

First-, second-, third- and fourth-party logistics

An important decision for companies dealing in physical products (such as manufactur-
ers) is how much of the logistical process of organising the movement of goods to trust
to outside service providers. The extent and integration of this type of service provision
is often referred to as first-, second-, third- or fourth-party logistics (or 1PL, 2PL, 3PL,
4PL for short). However, the distinction between the PL classifications can sometimes
be blurred, with different firms using slightly different definitions.
● First-party logistics (1PL) – is when, rather than outsourcing the activity, the owner
of whatever is being transported organises and performs product movements them-
selves. For example, a manufacturing firm will deliver directly, or a retailer such as a
supermarket will collect products from a supplier. The logistics activity is an entirely
internal process.
● Second-party logistics (2PL) – is when a firm decides to outsource or subcontract logis-
tics services over a specific segment of a supply chain. It could involve a road, rail,
air, or maritime shipping company being hired to transport and, if necessary, store
products from a specific collection point to a specific destination.
● Third-party logistics (3PL) – is when a firm contracts a logistics company to work with
other transport companies to manage its logistics operations. It is a broader concept
than 2PL and can involve transportation, warehousing, inventory management and
even packaging or re-packaging products. Generally, 3PL involves services that are
scaled and customised to a customer’s specific needs.
● Fourth-party logistics (4PL) – is a yet broader idea than 3PL. Accenture, the consulting
group, originally used the term ‘4PL’. Their definition of 4PL is as follows:
‘A 4PL is an integrator that assembles the resources, capabilities, and technology of its own
organisation and other organisations to design, build and run comprehensive supply chain
solutions.’

4PL service suppliers pool transport capabilities, processes, technology support and
coordination activities to provide customised supply chain services for part or all of
a client’s supply chain. 4PL firms can manage all aspects of a client’s supply chain.
They may act as a single interface between the client and multiple logistics service
providers, and are often separate organisational entities founded on a long-term

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