Does the complexity of your logistical needs require 3pl or 4pl? Depending on your business’ needs and complexity, one may definitely be the better choice.
What is the difference between a 3pl and a 4pl provider?
The main difference between 3PL and 4PL is that 4PL handles nearly the entirety of a supply chain, while 3PL is primarily concerned with handling just the logistical process.
Third-party Logistics: 3PL
A third-party logistics company handles physical distribution and logistics. 3PL companies do this by using their own resources, such as a network of freight transportation providers and warehouse facilities to help clients ship or store their products to meet their needs.
3PL companies leverage their experience and partner contacts o ensure all steps are taken to keep the client’s products safe.
Still, a third-party logistics company can have many variations depending on their specialties. According to the Council of Supply Chain Management Professionals (CSCMP), the legal definition is: “A person who solely receives holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”
In plain language this means that a 3PL company holds or transports a a client’s product (i.e., a product that they do not own).
What Does a 3PL Company Specialize In?
3PL companies tend to specialize in:
- Order fulfillment
- Inbound and outbound freight
- Freight consolidation
- Inventory management
The above third-party logistics services are scaled and customized to fit a client’s specific requirements.
One client may not require warehousing, whereas another will, yet another may require temperature controlled warehousing. This versatility and ability to accommodate makes 3PL companies adept at providing different services to different clients.
Fourth-party Logistics: 4PL
The full nature of 4PL is still heavily debated. There are other definitions out there, but here’s one that’s more popular:
In short, a 4PL company doesn’t stop at outsourcing logistics services, but also outsources the management of those same services
4PL companies will generally have no way of transportation or warehousing, but rather use the transportation and warehousing services of a 3PL company. There are of course exceptions to this.
What Does a 4PL Company Provide?
A fourth-party provider will tend to cover (generally through 3PL partners):
If we reference the CSCMP again, a 4PL company differs from a 3PL company in the following ways:
- 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;
- 4PL organization acts as a single interface between the client and multiple logistics service providers;
- All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and,
- It is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.
The CSCMP definition is a “supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution”.
This means is that a 4PL company essentially deals with the planning, management, designing, and optimization of a supply chain from start to end, and does so by outsourcing required services to trusted partners.
3PL vs 4PL: Which Logistics Service Is Right for You?
Overall, third-party logistics and fourth-party logistics inherently operate the same way, but consist of different moving parts.
Because a 3PL company arranges freight carriers and warehousing by dealing directly with the service providers, the fewer parts in play may work perfect for your small business.
A 4PL company, on the other hand, may be a good fit if your business is more expansive. A 4PL provider will arrange the same services and employ companies such as 3PL companies, who leverage their warehousing and vast network of carriers.
In the end, the goal of both 4PL and 3PL companies is to provide a client with a comprehensive, end-to-end supply chain.