Outsourcing the outsourcing

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Let us assume that you have been dropshipping for a couple of years now and you now need more control. Perhaps you are researching 3PL or even 4PL? You’ve come to the right place – read on! There is a bit of a debate raging on the discussion forums of professional logistics providers and outsourcing. From the depths of cyber space comes the roar of disagreement over where 3PL services end and 4PL services begin. To the impartial observer, and for a business looking for the best solution to their supply chain challenges, the line in the sand between 3PL and 4PL is constantly shifting.

The overriding fact of the matter is that 4PL (Fourth Party Logistics) is a relatively new and still emerging coalition of evolving supply chain solutions. To make matters even more confusing for businesses trying to decide between a 3PL service provider or a 4PL, many 3PLs are constantly moving above and beyond the traditionally defined scope of operations, offering services and solutions that many in the 4PL camp insist belong to them.

While the roles, functions and responsibilities of First Party Logistics providers (1PL) and Second Party Logistics providers (2PL) are clearly defined and understood within the industry (e.g. inventory on consignment), those of 3PL and 4PL are not. This contributes to many debates amongst the logistics community, and businesses serious about matching the perfect logistics provision partner to their needs can often find this a difficult decision to make.

This being said, it is important to at least know the key differences between a 3PL and 4PL service provider.

Third Party Logistics

One of the most widely accepted definitions of 3PL and 4PL can be found in the glossary of The Council of Supply Chain Management Professionals (CSCMP).

According to the CSCMP’s definition, 3PL is defined as the outsourcing of much or all of a company’s logistics to an independent third party provider. This third party provider needs to be a highly specialized company with the infrastructure, technology and expertise to professionally carry out a diverse range of operations of varying complexity and integration.

A 3PL is most typically responsible for offering solutions across the following range of logistical services – transportation, warehousing, cross docking, inventory management, packaging and freight forwarding.

Both small businesses as well as massive multi-national corporations utilize the services of 3PL providers to handle their logistics to great effect. The bottom line is that many businesses either do not have the expertise to handle their logistical operations competently themselves, or they simply do not wish to spend the time and resources in-house. Usually it is more efficient and cost effective to secure the services of a 3PL to take care of all their logistical functions.

An often-used contractually binding condition of a 3PL is that whilst a 3PL is assigned the charge and responsibility to receive, hold, store and transport consumer goods, they do not at any point take ownership of the products. They merely act as facilitators.

Essentially, freight forwarding companies, courier companies and any others that integrate logistics and transportation services as a third party provider can be considered a 3PL.

Fourth Party Logistics

Fourth Party Logistics providers (4PL) are essentially independent, separate entities contracted by a business to manage and control the entire supply chain. This includes coordinating the relationship between the client and all the 3PL providers they may use or require.

A 4PL takes on the full responsibility of managing every aspect of a business’s supply chain and is not limited solely to the receiving, storage, picking, packing and shipping of consumer goods. A 4PL essentially offers a comprehensive, all-inclusive supply chain solution whereby a business can completely entrust the operation of its supply chain in every aspect to the 4PL.

Perhaps the largest benefit a 4PL offers businesses is their capacity to handle the sophisticated integration of all electronic systems between their client and the logistics companies. Until now, by outsourcing their logistics operations to highly capable third parties, 3PLs have managed to fill the gap for businesses looking to streamline their operations, reduce costs, and gain a competitive edge by improving sales and service delivery. However, 4PLs have introduced another set of benefits to organizations looking to outsource their logistics.

By placing a formidable set of resources and skill sets at their client’s disposal, 4PL service providers move beyond the scope of traditional 3PL companies. This includes bringing together a number of outcomes-oriented aspects into play for their client. A good 4PL harnesses its highly trained team of people, broad knowledge base and leading edge technologies to assess, define and implement the strategic vision for their customers supply chain. They do this in a way that will have the greatest impact on both the productivity and efficiency of the organization.

While hard to define in concrete terms, a 4PL is increasingly the go-to option for businesses who need to outsource their supply chain challenges, and who require a comprehensive solution to bring their logistics, knowledge base and IT systems into alignment.

The 4PL provider has evolved, and will continue to evolve, as the only entity and organization to handle every aspect of its supply chain. For manufacturers and distributors this means that one ‘super entity’ can handle their complete supply chain, which includes every aspect of its inventory management processes. The 4PL, when all is said and done, is the ultimate supply chain outsourcing solution.

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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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