The markets that logistics service providers serve are quickly changing. In response, both users and providers are innovating and expanding logistics capabilities. As a result, many third-party logistics providers (3PLs) and fourth-party logistics providers (4PLs) have added the range and scope of services they offer to shippers and other customers.
If you are a decision-maker, it is your job to understand the differences between a 3PL and a 4PL. However, the definitions of 3PLs and 4PLs have blurred over the years, as many people have struggled to differentiate between the two.
Related: Cargo Insurance
What is a 3pl, exactly?
According to the Council of Supply Chain Management Professionals (CSCMP) glossary, the first 3PLs were intermodal marketing companies that accepted loads from shippers and tendered them to railroads, becoming a third party in the contract between carriers and shippers.
3PL providers collaborate with a business, logistics provider, and carrier to handle such logistics tasks as warehousing, inventory management, and transportation. In addition, value-added services such as crating, boxing, and packaging may be provided while allowing the business’s overall control of the supply chain.
Also, 3PLs are directly responsible for designing, implementing, and operating or managing a solution for a specific part of a customer’s supply chain. As such, 3PLs enable companies to focus on other aspects of their business, such as sales, marketing, and product development.
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What is 4PL?
A 4PL is a logistics provider that takes third-party logistics a step further by managing resources, technology, infrastructure, and even working external 3PLs to design, build, and provide supply chain solutions for businesses.
The goal is to have the 4PL be the single interface between the client organization, and all aspects of the supply chain. Consulting firm Accenture originally copyrighted the term in the mid-1990s, but it has since fallen into generic use.
The 4PL can coordinate activities of other 3PLs that handle various aspects of the supply chain. The 4PL functions at the integration and optimization level, while a 3PL may be more focused on day-to-day operations.
What is the difference between 3pl and 4pl?
Understanding the differences between 3PL and 4PL is a critical first step toward deciding which would better optimize your business’s supply chain management. 3PLs and 4PLs are professional services that help companies to plan and execute logistics services.
4PL services typically encompass 3PL services and such services as logistics strategy, analytics including transportation spend, analysis, capacity utilization, carrier performance, business planning, and more.
An excellent way to understand the differences between the two is to consider the following: If a 3PL doesn’t offer a service, it will refer you to a different service provider with whom they have a pre-established arrangement or contract. However, if a 4PL manages your supply chain and deems a service to be beneficial, it will secure that service, regardless whether they directly offer that particular service themselves.
Related: Everything You Need To Know About Cargo Insurance
Why should I work with a 3pl?
3PLs can offer expertise, help streamline supply chains, and save time and money. Trusting 3PL experts with your shipping logistics can make a difference in the way business functions operate. Outsourcing 3PL will leave you with more time and resources.
Gain expertise
Businesses that are just starting out can gain expertise by outsourcing logistics tasks such as fulfillment, warehousing and shipping to a 3PL. By doing so will allow the business to focus on increasing its overall value to its customers.
Save on costs
3PLs have more of a leg up with freight companies than with individual shippers. Working with carriers on behalf of multiple customers, 3PLs can negotiate pricing based on order frequency and volume. Using a 3PL to manage all or some of your supply chain also provides the freedom to invest in other areas to grow and develop your business.
Scale operations
Most businesses experience changes in demand throughout the year. Using a 3PL allows you to manage troughs and peaks more effectively without committing to capital when you do not need to.
Test new markets
With an international 3PL, you have the option to test the waters in new markets without having to commit to any significant investments like your own warehousing space or staff.
Reduce risks
Shipping delays happen for several reasons. When unforeseen circumstances occur, a 3PL is responsible for making alternate arrangements to fulfill your orders as quickly as possible. You will also be protected in the event of damage or loss of goods.
Learn about international logistics
If you are selling internationally, 3PLs can take care of documentation, customs, duties, and other issues that can potentially delay your shipments and result in higher costs if not done thoroughly. Plus, you save time trying to solve government rules and regulations about different countries.
What should I consider before working with a 3pl?
- Volumes – Choose a 3PL that can handle your current volume, but that also will be ready if you suddenly increase new stock, increase your stock volumes, or have a spike in sales. You want to select a 3PL that can handle your business now and handle it when you’re at full speed.
- Business performance – Find out about a 3PL provider before you engage by checking references. Seek out contacts and information about on-time deliveries versus delays and how they compensate businesses when there are problems. Find out what their customers are saying about them – customer case studies and quotes are a good identifier of how the 3PL provider has built and maintained the customer relationship.
- Technology – Make sure that the 3PL provider’s technology works with how you drive and is compatible with your technology.
Key Point about 3pl and 4pl
Every business is unique in terms of its services, and the choice of a logistics model will depend on a business’s unique services. Regardless of what logistics model is used, however, optimizing the supply chain process for reduced costs and improved customer satisfaction should be prioritized.
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