3PL and 4PL: What are they?

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When it comes to the back of house processes your business needs to function, the likes of inventory management and warehousing, the supply of products to customers, freight and couriering, you have options.

You don’t have to be responsible for it all yourself, you can outsource it. However, how you outsource, how much you outsource and to who are all the questions you need to find answers to. This is where third party logistics (3PL) and fourth party logistics (4PL) providers come in. To help you decide whether this could be something your business could benefit from, let’s take a look at what they actually do.

Third party logistics vs. fourth party logistics

What third- and fourth-party logistics means has differed greatly over the years, especially as companies have grown and adapted. Also, the difference between the two can sometimes be pretty ambiguous with companies offering different solutions that blur the lines. So to keep things easy, we are going to look at each of them in very simple terms. First, let’s make it clear that 3PL and 4PL have very little to do with selling inventory on consignment.

Now, third party logistics are essentially specialized providers, whereby they will take care of a single function for you. This can be inventory management, warehousing and distribution, freight forward, cross docking, any number of things.

Fourth party logistics on the other hand look after more than one function, with most normally taking on the entire supply chain process and management. Most 4PLs will also look at the planning and design sides of the process and make adjustments to improve your supply chain as they go too.

How 3PL and 4PL providers can help your business

By outsourcing any or all of your processes to a third or fourth party logistics provider, you can benefit greatly. You can achieve greater economies of scale by allowing them to take care of certain operations in your supply chain that can become costly, and especially with 4PLs by outsourcing to experts you will gain a greater level of efficiency throughout your supply chain. As an example, just think about how much extra square meterage can cost you to house bulky stock items, whereas outsourcing it to a third party who has large warehousing space will mean your costs will be vastly reduced.

Remember though, outsourcing doesn’t mean you can wipe your hands of that part of the business and forget about it. You still need to ensure that you have a high level of oversight over what’s going on. There’s no point outsourcing your shipping and freight for example, and then not knowing what’s happening if you get customer support queries or complaints. That’s a one way path to losing customers.

One way to ensure your customers are happy and your brand sentiment remains high is by integrating your software with that of your 3PL or 4PL. That way you’ll all be on the same page with each knowing exactly what the story is with your inventory, incoming supplies and outgoing stock. And of course, keep communication high on the agenda.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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