If you have chosen to use an outside provider for your logistics needs, the next step is to decide whether a third-party logistics (3PL) or fourth-party logistics (4PL) model is right for your logistics operations and supply chain.
To make the right decision, it is important you know the difference between 3PL and 4PL.
What is 3PL?
In simple terms, a 3PL will offer a variety of logistics services such as freight transportation, order fulfillment, and warehousing to product companies who need to ship, store, and transport goods. In other words, a 3PL acts as a middleman between your business and the carriers that deliver your products to customers. Most 3PLs manage or own their own facilities where the seller’s inventory is stored and fulfilled.
What is 4PL?
A 4PL provider is an integrator that manages all aspects of the supply chain. Going beyond physical logistics, a 4PL may include elements of IT, procurement, and finance. A 4PL may outsource the management of physical goods to one or several 3PLs.
It may seem that the differences between a 3PL and 4PL are slight, but a company seeking the right fit of services and support for their growing business, the distinction can be huge. For example, both will rely on the latest in IT to help optimize your supply chain communication and accuracy. However, a 3PL is more likely to have proprietary tech systems for tracking units across the supply chain and bundle that service into the overall cost of their support, while a 4PL may provide a higher-level analysis of data to help inform your business decisions for long-term growth.
Comparing a 3PL vs. 4PL
Here are the main differences between a 3PL and 4PL, as well as a list of advantages that each provide.
Core Competencies and Focus
A 3PL provider focuses on the day-to-day operations of your supply chain logistics while a 4PL focuses on optimizing your entire supply chain. Consequently, a 4PL takes over the entire operation and allows you time to grow and expand your business. A 4PL also acts as the sole point of contact in your supply chain, but a 3PL only takes care of certain aspects of the supply chain.
The way you interact with a 3PL provider is usually transactional. The relationship is often more about lane costs rather than strategic elements. On the other hand, a 4PL provider relationship will be more about long-term strategy. A 4PL provider will likely help you to organize, lead, design, and coordinate your supply chain.
Systems and Assets
3PL providers often own many or all the necessary assets you need to run your supply chain including trucks, distribution centers, and warehouses. In contrast, 4PLs are normally non-asset based—they may own IT systems and intellectual capital, and mainly provide logistics expertise. They also focus on finding the best suppliers and vendors for your business at a reduced cost.
Costs and Overhead
Most 3PLs have many industry partners and connections to resources—such as shared warehousing— which can help reduce logistics costs and boost efficiency. Conversely, a 4PL is focused on reducing the entire operational cost of your supply chain while improving performance. A 4PL provider helps you cut costs in various ways through bundling of services such as lean manufacturing, reverse logistics, and optimization of procurement practices.
Three Top Advantages of Working With a 3PL
1. International Reach
3PLs can help avoid cross border obstacles in global trade. 52% of organizations outsource cross border logistics to 3PLs according to data from a 2018 study conducted by Peerless Research Group. 3PLs have knowledge of local markets, regulations, and government agencies, and can help you handle aspects of international shipping such as customs clearance and documentation while you focus on areas of your core competence.
2. Improved Customer Service
In today’s experience-driven economy, working with the right 3PL can help improve your customer service. According to the 2020 24th Third-party Logistics Survey, 83% of shippers agree that using 3PLs has contributed to improving services to customers.
3PL providers ensure your orders are delivered fast and on time by qualified drivers. These customer-facing benefits help you improve your customer delivery experience and increase the lifetime value of your customer. Keep in mind that a 4PL may manage multiple 3PLs and are one step removed from a seller’s product and the day-to-day operations of the business.
3PLs have scalable resources such as labor, space, and transportation to help you meet your inventory needs and allow you to adapt to seasonal demands. This means you do not have to worry about inventory and warehouse costs hurting your bottom line.
Three Top Advantages of Working With a 4PL
1. Vendor Management
As a single point of contact, a 4PL acts as an intermediary between you and logistics providers. Therefore, you do not have to deal with the challenges that normally exist across managing multiple partners. The 4PL will coordinate the efforts of one or multiple 3PLs so it’s one less thing that you a seller has to worry about.
2. Solution-Oriented Approach
A 4PL is a neutral party who will design supply chain solutions with respect to your business requirements and not the available infrastructure associated with vendors. As a result, your supply chain will be tailored to your specific needs and industry requirements.
3. Single View
A 4PL will aggregate information from multiple 3PL providers and give you a single view of your metrics, inventory, order status, shipment status, billing, and EDI across the network. This level of visibility will allow you to get a better pulse of your supply chain and adjust quicker to market demands. In addition, this allows you to meet customer demand regardless of the status or location of the inventory.
3PL or 4PL? Which should You Go With?
A 3PL provider will take care of your daily logistics needs but will leave the management to you. If fulfilling orders is getting in the way of growing your business and you have the labor resources and expertise to manage all your logistical operations, a 3PL might be a good fit for your business. On the other hand, a 4PL provider can take full control of your logistics operations, taking on more comprehensive management and oversight of multiple logistics providers.
While 3PL and 4PL offer distinct advantages, the choice of the logistics model you choose ultimately depends on what works best for your business growth needs.
If you’re looking for a 3PL with fulfillment centers in cities across the US, we own and operate facilities in The Bay Area, Los Angeles, and Kentucky. Use DCL’s national footprint of warehouses to distribute your inventory across the country to reduce transit times and save on shipping costs. If you need fulfillment or shipping support and want to partner with DCL Logistics, we’d love to hear from you.