Logistics is an integral and the most crucial part of supply chain management. From facilitating the smooth movement of goods from the warehouse to the customer to adding value to the business, it’s an indispensable part of the supply chain with tons of benefits.
Handling all the logistics can be a real challenge for someone running a business. There are a handful of different companies out there offering logistics services. It’s normal to feel lost trying to figure out which would work best for your business, right?
You must have come across 3PL and 4PL, the most common logistics solutions. What are these two solutions? 3PL vs 4PL: how do they differ from each other? Let’s explore!
What Is a 3PL? How Does It Work?
3PL (acronyms for Third Party Logistics) refers to the companies which provide external outsourcing ecommerce logistics to businesses. These services include a wide range of operations, from warehousing to order fulfillment, transportation, etc.
Companies and businesses working with a 3PL aim to free up employees to focus on more important tasks and business operations. FedEx and DHL are examples of 3PL companies.
Now, are you wondering how third-party logistics work or function? Well, the exact flow of operations will vary according to service providers; we can still have a glance at the general flow. Firstly, the logistics company takes charge of the business’s inventory and warehouse.
When an order is placed by the customer, the logistics service provider accepts the order. Next, the picker collects the items from within the inventory and packs it. The packed order is now ready to be shipped from the distribution center of the service provider by the shipping carrier. The shipping and tracking information are automatically updated on both the systems of the company and the service provider.
Third-party logistics offers you faster deliveries and reduced shipping costs. It optimizes the logistics and transportation process, promoting visibility within the supply chain. With a dedicated team of professionals handling the order fulfillment process, you and your employees have enough time to focus on other core aspects and operations of the business.
What Is a 4PL? How Does It Work?
4PL (an acronym for Fourth Party Logistics) refers to a logistics model wherein the logistics business outsources the entire supply chain and its operations to the logistics service provider. The service provider offers an end-to-end solution right from managing the supply chain to working on order fulfillment. You may understand Shopify and Deliverr as 4PL companies.
It’s a higher and more advanced level of supply chain management wherein the 4PL service providers look over and coordinate the working of third-party logistics. The most important advantage of working with fourth-party logistics is that they provide strategic insights into the supply chain, which ultimately helps them control it.
They primarily manage the tasks and operations associated with the supply chain and offer great data visibility, thus ensuring faster service at affordable costs. Despite being quite organized, there are some downsides to this too.
The business or the company has no control over the supply chain and the logistics, which may lead to potential biases. Moreover, communication issues and disruptions arising as a result of this are also common.
3PL vs 4PL: Key Differences
With both these logistics models right before you, you must be worried about which one you should choose. Well, here’s a complete list of differences between 3PL and 4PL, which will help you decide which of the two is best for your business.
1. Technology
Talking of the complexity of technological integrations, a 4PL is more complex in comparison to a 3PL. As it handles multiple 3PLs, it requires more complex integrations in comparison to a single 3PL.
2. Control
As a 3PL works directly under the control of the company, it doesn’t have any control of ruling in decision-making related to the supply chain. On the contrary, a 4PL handles the entire supply chain and thus has the right to provide suggestions and insights about it to the company.
3. Distribution
While 3PL handles the logistics of the company, 4PL handles the entire supply chain, including the logistics. It looks over and coordinates the working of third-party logistics. Thus, a 4PL has significantly more geographical coverage in comparison to a 3PL, as it has many 3PLs working under it.
4. Assets
Third-party logistics have the required resources and physical infrastructure, whereas they don’t own or lease any other assets. On the contrary, a 4PL is non-asset based and basically has technological solutions and expertise to manage, optimize and coordinate the supply chain.
5. Point of Contact
In fourth-party logistics, the service provider is the sole point of contact between the company and the supply chain. However, in third-party logistics, the company must look over and manage the supply chain much like other aspects of the business.
6. Suitability
Third-party logistics are basically concerned with daily logistics operations. On the contrary, fourth-party logistics is mostly about integrating, managing, and optimizing the supply chain. It’s why a 3PL is ideal for small and medium-scale businesses, whereas a 4PL is ideal for medium to large-scale businesses only.
7. Flexibility
A 4PL comes along with assets which allow it to change its working and operations according to the needs and demands of the client company or business. However, a 3PL cannot make any changes in warehousing locations due to changes in the company’s strategies.
8. Cost
4PL is generally costlier in comparison to 3PL. It’s because it’s more organized, comes with much more benefits, and offers a wide range of services, including the management of the warehouse and order fulfillment network.
3PL vs 4PL: Which Is the Best Choice for Your Business?
Based on popularity, a 3PL is the most commonly preferred logistics today. However, when it comes to choosing the best one among the two for your business needs, there are some things which you must consider.
First and foremost, you need to look into your operations. If you’re just starting out with your business, you can either have an in-house logistics team or 3PL. You may also go for a 3PL in case you’re looking forward to scale your business.
However, if you’re a large-scale or enterprise-level business, you should go for the sophisticated and organized 4PL. It’s because you can manage the entire supply chain from a single point. Moreover, before making the final decision, also think about the exact services you’re expecting from the service provider company.
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FAQs: 3PL vs 4PL
1. What is a 3PL?
3PL (acronyms for Third Party Logistics) refers to the companies which provide external outsourcing ecommerce logistics to businesses. FedEx and DHL are examples of 3PL companies.
2. What are the advantages of a 3PL?
3PL (Third-party logistics) offers you faster deliveries and reduced shipping costs. It optimizes the logistics and transportation process, promoting visibility within the supply chain. Moreover, it frees up employees to focus on other core aspects and operations of the business.
3. What is a 4PL?
4PL (an acronym for Fourth Party Logistics) refers to a logistics model wherein the logistics business outsources the entire supply chain and its operations to the logistics service provider. You may understand Shopify and Deliverr as 4PL companies.
4. What are the advantages of a 4PL?
The most important advantage of working with a 4PL (fourth-party logistics) is that they provide strategic insights about the supply chain, which ultimately helps them control it.
5. 3PL vs 4PL: which is the best choice for your business?
The ultimate decision depends on your business operations. If you’re starting off with your business or looking forward to expanding your existing one, go for a 3PL. Whereas large-scale and enterprise-level businesses must go for a 4PL.
Wrapping Up
While 3PL is a traditional logistics model, 4PL is a significantly advanced and newer model. However, both of them have their own advantages and disadvantages. Make sure to evaluate your business needs with the services provided by the service provider company in order to choose the best one for you.
If you need any help or assistance, go check out our indispensable solution, QodeNEXT. Please feel free to get in touch with us now to help you make the best choice to manage your fleet and optimize your process!
