It’s important to understand that the legislation, HR 4040, is an update to the Consumer Product Safety Act. It defines penalties and lays the foundation for legal remedies associated with faulty products marketed to children such as the toys which have been highly publicized recently. Lastly - while the definition is contained in product safety legislation focused on children’s products, I fully expect it to be referenced elsewhere.
So what does this mean to the profession? This definition puts the 3PL in a position apart from manufacturers and distributors, and one which is not to be considered during product recalls and legal actions. In our highly litigious society, anything that exempts a party from legal action has to be considered “landmark legislation” from their perspective. However, many supply chain partners may not welcome this so warmly, as it does not allow them to “spread the pain” associated with these actions to the 3PL.
This new definition may also be problematic for progressive companies that WANT to move up the value curve and start to take on more responsibility under Performance-Based approaches. It is not uncommon for a 3PL to own and control inventory/ obsolescence management under a performance-based approach. Today – the term 3PL is so broad that most outsourcing relationships fall under 3PL. With this definition – some companies may not want to associate themselves with the term 3PL. Others who are risk averse might love it.
And how does the new 3PL definition relates to 4Ps? The recent announcements do not spell out the definition of a 4PL. However the common definition of 4PL (and the one that is listed in the Council of Supply Chain Management Professionals Glossary of Supply Chain Terms) is:
“Fourth-Party Logistics (4PL): Differs from third party logistics in the following ways; 1) 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 2) 4PL organization acts as a single interface between the client and multiple logistics service providers; 3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and, 4) It is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.”
If 3PLs can’t be held liable – how does that relate to 4PLs? Can they? I could see this being interpreted in funny ways….such as Joe Logistics guy tells his boss who wants to potentially outsource “those 3PLs are those lazy warehouses that won’t take responsibility……we shouldn’t outsource."
I want to end this blog by thinking about this as an evolutional step in the history of our profession as it relates to the warehousing profession. In the past – there were simply warehouses that a company paid to do warehousing services. Then along came 3PLs who wanted to be more “value added” in an effort to charge higher prices and get better margins. They seemed to separate themselves from the traditional “public warehouses” in their imaging and marketing efforts. Then along came the 4PLs who wanted to be more “strategic” and separate themselves from the 3PLs – once again trying to chase higher margins through a more prestigious image of what they do. I wonder how this formal definition will evolve the industry further.
I could easily see that the higher end 3PLs will want to pitch themselves as “responsible” entities so they can charge higher premiums – and as such start rebranding themselves as NOT being “your typical 3PL." If they do this – will we end up with a new term? Or will the 3PLs we know today shift to 4PLs? Or will all of the 3PLs jump up and down and claim victory because they are immune from responsibility?
And of course HR 4040 is U.S. law only, how will the rest of the world view the legal position of the 3PL?
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