If you run a business, chances are high that you have considered hiring a third party logistics provider at some point.
When businesses expand, they often face challenges managing their logistics effectively. This is where third-party logistics (3PL) and fourth-party logistics (4PL) services come into play.
While both aim to streamline the supply chain, they offer different levels of service and technology.
Understanding the difference between 3PL and 4PL can help business owners make the right choice for their logistics needs.
What is 3PL?
Third-party logistics (3PL) providers handle specific logistics functions such as warehousing, transportation, and order fulfillment.
Businesses typically partner with 3PLs to optimize part of their supply chain operations, allowing them to focus on other areas of the business, like marketing.
What is 4PL?
Fourth-party logistics (4PL) providers are often called lead logistics providers (LLPs). They take logistics management a step further.
A fourth party logistics provider offers a more holistic approach. It oversees the entire supply chain as well as other 3PLs contracted by a company.
This type of logistics provider acts like an advisor on everything. They oversee the transportation inventory management and optimize the entire logistics process.
Which type of company should consider using 3PL?
Suppose you are a small business with a plan to expand over the years, or you are an entrepreneur selling Christmas decorations. In that case, you should consider using a third party logistics provider.
Small to medium-sized enterprises often lack the resources to manage their in-house logistics and benefit from 3PLs for warehousing, transportation, and distribution.
E-commerce businesses can also benefit from 3PLs as they provide benefits like fulfillment, returns, and fast shipping.
Seasonal businesses are also prone to using 3PLs due to the fluctuating demand for their services. By using a third-party logistics company, it’s easier to scale your supply chain network up and down as needed.
Companies that should consider using 4PLs
Larger businesses often have complex supply chains to manage. They require advanced management and technology to make sure all operations run smoothly, including different contracted 3PLs.
Here’s how you know if your business would require the help of fourth party logistics.
Large enterprises function best with the help of 4PLs. Companies that require end-to-end supply chain management are the best candidates for consulting a 4PL.
A business needing integrated solutions like logistics strategies and inventory management will benefit the most from these logistics services.
Tech driven companies often turn to 4PL for help as they rely heavily on technology and data analysis, real time tracking, and optimization.
To simplify the operations of a highly complex business, 4PLs can help multi-modal logistics.
Key features of 3PL vs 4PL
What kind of services companies can expect from different logistics providers is crucial.
- Warehousing and distribution: 3PLs manage product picking, packing, and shipping.
- Transportation: A third party logistics provider manages the transport of goods using carriers like Zoom2u, UPS, or FedEx.
- Customer service: 3PLs provide real-time tracking, proof of delivery, and driver ratings.
- Scalability: 3PLs are ideal for companies still hoping to expand but not yet ready to handle an in-house logistics model.
- Supply chain management: 4PLs provide a ‘full package’ by managing the entire logistics service.
- Consultation: 4PLs are experts on improving efficiency, but also cost-effective and allowing for growth.
- Technology: Advanced technology, like AI, robotics, and real-time data, is used by 4PLs.
- One-point solution: 4PLs serve as a one-stop shop, handling everything, which is ideal for larger companies that need help with warehousing and last-mile delivery.
Key differences between 3PL and 4PL
Both 3PL and 4PL have the same objective: to improve the supply chain and make it more efficient for businesses.
However, there are differences between the outcome and the scope of the service.
- A 3PL provider focuses on specific logistics tasks (Shipping and warehousing).
- A 4PL has a broader responsibility, managing the entire logistics service.
Visibility: Regarding control and visibility, 3PLs still allow a business some control over its logistics processes. This gives a small business owner the extra peace of mind that they still hold the final say.
But, 4PLs take full responsibility for managing and optimizing the supply chain, which is typically what larger corporations want.
Cost: 4PLs would be more expensive; however, they are cost-effective for large-scale operations, allowing a business to scale faster.
While 3PLs are ideal for smaller businesses, they can be expensive. They may require long-term contracts and can exceed a small business’s limited budget.
NOW READ: AI in logistics: Problem-solving takes a giant leap
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About the author
Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
