There is often a fair amount of confusion and debate around the difference between 3rd Party Logistics (3PL) and 4th Party Logistics (4PL). While they are indeed different, and offer different levels of logistical services, some 3PLs call themselves 4PLs, and vice versa. This of course, tends to further confuse the matter.
When it comes to logistics, many businesses find that outsourcing is not only the most cost-efficient approach but also the most effective. After all, logistics providers are experts in their field, and should know how to get the most effective and efficient results. If your business has chosen to use an outside provider for your some, or all, of your logistics, then the next step is to decide whether a 3PL or a 4PL is the right service for you.
So, what is the difference?
In a nutshell, the difference between the two is that a 3PL handles your shipments and a 4PL handles your whole supply chain. While this is a simplified version of the true picture, it’s a good starting point, and one we can elaborate on further as we go.
The main characteristics of a 3PL
Most of the time, a 3PL will be receiving, handling, storing and delivering your goods. Usually, they will do so under the name of your business not theirs. This isn’t a large distinction for many companies but is an important one for some.
A 3PL may provide the warehousing, packing and even some of the inventory management of your products and stock, depending on the needs of your business and what has been agreed to be supplied. Perhaps the most important consideration is that with a 3PL, the business is still, to some degree, in the managerial seat.
The main characteristics of a 4PL
A 4PL, on the other hand, offers all the same things that a 3PL provides, as well as managing the overall supply chain, right down to the legal paperwork and managerial decisions. In other words, when a business signs a contract with a 4PL provider, they are signing over the complete control of their entire supply chain. This means that the 4PL will use their own resources to ensure your business’s supply chain needs are met, but that your business has no control over how that happens.
There are of course pros and cons to both approaches, something which each business needs to consider before deciding which way to go.
Which road should I take?
Perhaps one of the most important questions a business can ask themselves, when deciding between a 3PL or 4PL provider, is ‘how much control do I want to have?’, closely followed by ‘how much labour am I willing or able to invest?’.
Again, this is perhaps an overly simplified approach to a complex decision, but it’s a good starting point, and one that often predicts which way you and your business are headed.
On one hand, a 3PL provider will take care of the bulk of the actual moving and storing of your stock, but will leave the management to you. This can be both positive and negative, depending on your resources. Does your business have the knowledge to deal with legal papers and insurance? Do you have the manpower and expertise to manage the overall logistical operation?
On the other hand, a 4PL provider will handle everything, including the many responsibilities that go along with it. But, from a managerial point of view, your business will have no say in how that is carried out. Ultimately, the provider is in full control of your logistical operations, providing they meet the requirements of your contract.
Lay it out and plan it out
Like with any business decision, small or large, the best thing you and your business can do is to sit down and look at it from all angles. Once you know what your business needs are, what resources you have available, and what factors are top priorities, then your decision-making process, and subsequent implementation, will go much smoother, and have less chance of causing problems down the line.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. When not writing about inventory management, you can find her eating her way through Auckland.