Sustainable cost reductions obtained by using a fourth party logistics provider

Abstract

Background: In a rapidly changing global business environment, the outsourcing of logistics activities to fourth party logistics (4PL) service providers is growing in popularity as a strategy for efficiency and customer service improvements. However, there are very few empirical studies on logistics outsourcing performance. In addition, there is a lack of information on the effectiveness of a 4PL model, especially from a South African perspective.

Objectives: The main purpose of this study was to determine if the use of a 4PL model to manage the courier distribution for a major retailer in South Africa was able to achieve ongoing cost savings for the client.

Method: This research entails a case study of a large non-food retailer in South Africa. Secondary quantitative distribution cost data covering a 10-year period was analysed, using a time series method. The findings were verified through semi-structured interviews of key personnel involved in the implementation and management of the outsourcing contract.

Results: The outsourcing of courier distribution management resulted in the targeted cost savings for the client organisation to be exceeded. Cost savings were consistent over a 10-year period.

Conclusion: The findings of this study supports the theory that the outsourcing of logistics functions can result in sustainable cost savings for clients if done properly. It adds to the limited body of independent evidence that exists on the matter of sustainable results obtained from 4PL outsourcing agreements.