When talking about logistical services, there’s quite a bit of confusion around 3PL (3rd Party Logistics) and 4PL (4th Party Logistics). Some 3PLs even call themselves 4PLs, which only adds to the misunderstandings. If you’re considering outsourcing your logistics, you’ll want to know exactly what you’re getting into and what to expect from your provider. So, what are the main characteristics of 3PL and 4PL, how do they differ, and which one is best for you and your company?
3rd Party Logistics (3PL)
Within a 3PL model, a company keeps control of its management oversight but outsources responsibilities of transportation and logistics. In turn, this outsourced provider might go on to subcontract some of their responsibilities. The logistics provider is in charge of receiving, handling and delivering the goods. They may also take on other tasks like packaging and warehousing in order to increase their value.
Let’s think about an apparel company moving clothes to a store. In a 3PL model, the apparel operation works with a fulfillment company that maintains a whole fleet of trucks. The fulfillment company will be in charge of getting the clothes in boxes and transporting them to the proper clothing store.
In this model, there are three parties: the business (the apparel company), the logistics provider (the ones who package the clothes), and the carrier (the ones who get the clothes to the store).
4th Party Logistics (4PL)
Moving up to a 4PL model, we find that the company outsources its logistics management as well as the execution through the supply chain. The 4PL provider usually gives more insight and management to the supply chain as a whole, and essentially, the entire logistics operation is outsourced.
Looking back at our apparel example, the apparel company may bring in a logistics company to manage a 3PL. Instead of the apparel operation working directly with the fulfillment company, this responsibility is outsourced to the logistics business. The logistics business will make sure that the fulfillment company does its job in packaging and delivering the clothes.
In this model, the same three parties involved in the 3PL model still exist. However, the logistics provider and carrier do not answer to the business itself; instead, they are overseen by a company (the fourth party) appointed by the business.
Pros and Cons of 3PL
Adopting a 3PL model allows a business to create a more cost-effective and efficient supply chain. The business owner is no longer responsible for delivering the product and can instead focus on other aspects of the company.
Many DEAR customers use third-party logistics (3PL) for their distribution and fulfillment needs. Currently DEAR only provides native integration with one external fulfillment provider, Fulfilment by Amazon (FBA). However, other 3PL and external fulfillment providers can connect with DEAR via our API if required.
DEAR allows your external warehouse/fulfillment center to be created as a separate location in DEAR as well as allow sales order details to be communicated to your external fulfillment center. It also has the ability to synchronize inventory quantities once orders are fulfilled and receive shipping/tracking information from the fulfillment service.
In addition, you can set up this integration in such a way that FBA stores all your stock and takes and fulfills orders, while DEAR only tracks what you’ve sold, what you’re owed, and what stock is remaining.
However, a 3PL model means that the business has less control and oversight. Using a 3PL can save time, but the business is a bit removed from some of the major processes of delivery, and it can be harder to maintain customer service and quality. Using a 3PL model can also create a dependency on the logistics provider, and if a business decides to change providers or reclaim the operations, these processes can get complicated.
Pros and Cons of 4PL
Many of the pros and cons of 4PL are similar to those of 3PL. The business will save even more time by not having to deal with the logistics provider, but there is another step away from the processes themselves.
4PLs can be more streamlined than 3PLs since every aspect of your supply chain will know exactly who to answer to. For complex supply chains, this can be a huge asset. However, many of the day-to-day decisions of your company will be out of your hands.
Which Should I Use?
Both the 3PL and 4PL models are beneficial in certain situations and industries. Two of the main things to consider before moving forward with either model and the amount of control you want and the amount of labor you’re willing to invest.
If you’re looking for more control, a 3PL model will give you a bit more say-so than you find in a 4PL. However, if you’re okay being more hands-off or truly want to give these responsibilities to an outside source, then a 4PL will work beautifully.
Also, consider the labor you can/will provide. If you want to be more involved and can handle more paperwork, a 3PL model will suffice. But if you are unable to give more manpower or can’t handle the piles of paperwork, a 4PL model may work better for you.
Boost Your Business with DEAR
Wherever you fall in your logistics decision, DEAR Systems can help with your day-to-day operations. We serve customers in virtually every sector to help them with inventory management, automation, sales, purchasing, manufacturing, POS, and so much more.
Our customers rely on our personalized attention and affordable prices, allowing them to focus on the aspects of the business that they’re truly passionate about. Contact DEAR Systems today to discover how we can help you.