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While third-party logistics providers will likely meet some companies' needs, others may require a fourth-party logistics provider's more extensive services. Supply chain leaders should learn the differences between the two so they can decide which type is best for their company.
The main difference between third-party logistics (3PL) and fourth-party logistics (4PL) is in the amount of services offered. 3PL providers offer logistics services that include warehousing, inventory management, order fulfillment and shipper services, and clients can select some of those services or opt for all of them. Meanwhile, 4PL providers manage the overall supply chain and can also take charge of areas such as managing other providers, coordinating technology and managing finance.
Here's more about the differences between the two.
What is a third-party logistics provider (3PL)?
Most of a 3PL's services focus on order fulfillment and distribution. A 3PL's services may include receiving goods at a port of entry and transferring them into storage at the 3PL provider's warehouse as well as picking goods for an order, packing them and transporting them to their destinations. A 3PL may also reorder goods to maintain healthy inventory levels.
Some 3PLs offer extra services such as kitting, assembly and reverse logistics, among others. Some 3PLs use their own resources and infrastructure, such as warehouses and truck fleets, while other 3PLs use storage and transportation provided by other companies but serve as a single point of contact and coordination for their clients.
Companies can outsource some aspects of their logistics servicing needs, such as transportation, to a 3PL provider or choose to have a 3PL manage most or all of their services.
Advantages of working with a 3PL
3PLs can offer companies the following benefits:
- 3PLs can tailor their services to clients' needs.
- 3PLs are often less expensive than 4PLs.
- 3PLs often possess extensive knowledge about the markets where they provide services.
- Some 3PLs offer limited 4PL services, so a client can explore potentially outsourcing other aspects of their supply chain.
What is a fourth-party logistics provider (4PL)?
A 4PL focuses on the high-level planning, strategy and operations aspects of a company's supply chain. A company can outsource its entire end-to-end supply chain management to a 4PL.
4PL services differ between providers, but they can include a variety of functions, including transportation, e-commerce services and improving supply chain operations.
4PLs also sometimes coordinate technology, procurement, finances, strategy and operations across the supply chain. For example, a 4PL may combine its services and subcontractors on the same software platform to facilitate supply chain management. They can arrange procurement, payments and product flows and work directly with suppliers and manufacturers.
4PLs may work on strategic operations, assisting with areas such as supply chain network design and resource management, among others.
Like 3PLs, 4PLs may provide some or all of these services, or they may contract out some of their services. Even if the 4PL contracts out some services, it remains the client's central point of coordination and contact.
Advantages of working with a 4PL
4PLs can provide companies with the following benefits:
- 4PLs allow companies to outsource their end-to-end supply chains if needed.
- 4PLs can save companies time because the 4PL manages a variety of in-house, subcontracted and other services.
- 4PLs can save companies money because the 4PL takes on supply chain-related costs like software platforms, finance and procurement.
What are the differences between a 3PL and a 4PL?
3PLs and 4PLs provide different levels of services. Most of a 3PL's services involve order fulfillment and getting products to customers. 3PLs work regularly with a company's internal supply chain management team to ensure operations are running smoothly, and a 3PL includes company employees in operational and tactical decisions.
By contrast, a 4PL is a better choice for companies looking to outsource their entire supply chain, including finances, technology and procurement. A 4PL coordinates the entire lifecycle of product logistics, from suppliers and manufacturers through to end customers.
4PLs also focus on optimization and improvement, regularly analyzing supply chain operations and attempting to make them more efficient and productive, and they offer consulting and support services.