3PL generally is about performing specific logistics functions such as trucking, storage, and handling, whereas 4PL is the one able to combine physically and virtually the entire supply-chain network.
3PL vs 4PL: Key Differences & Which One You Need
3PL vs 4PL: What is the difference and which one is suitable for you?
Efficient supply chain management has become the key to business survival and customer delight in the ever-changing global marketplace. Nevertheless, turning to logistic outsourcing has become a trend for numerous companies, and despite that, it can be quite a challenge for them to choose the right type of a logistics partner. 3PL (Third-Party Logistics) and 4PL (Fourth-Party Logistics) are merely two of the most frequently referred concepts.
If you are posing the question, "What separates 3PL from 4PL?" and endeavoring to decide which of the two supply chain models is best for your business, then you are at the right place. We are going to juxtapose 3PL with 4PL, break down their benefits, and in fact, even show you how to make a supply chain move with the best partner by your side.
What is 3PL? (Third-Party Logistics)
A 3PL company is a separate entity that is responsible for the performance of certain logistics operations for your company. These operations usually cover transportation, warehousing, inventory management, packaging, and order fulfillment. Routinely, by working alongside a 3PL, companies may access the skills and materials of the 3PL without investing in infrastructure or labor.
3PL firms perform the function of a connector between the producer or supplier and the final customer and, thus, take over the daily logistic operational chores. For instance, a company may appoint a 3PL to hold its stock in a warehouse and distribute the products sold to customers.
Benefits of 3PL Services
- Cost savings: Decreases the necessity of capital investment in warehouses, trucks, or technology
- Flexibility: Adjusts operations to meet the requirements of the market either by increasing or by decreasing the volume
- Expertise: The company gains specialized logistics knowledge and the associated networks
- Focus: It is possible for companies to direct their attention and resources towards their core business activities
3PL providers are the perfect partners for companies that want to become more operationally efficient but do not want to give up full control of their supply chain.
What is 4PL? (Fourth-Party Logistics)
A 4PL provider is also known as a lead logistics provider (LLP) and is a stage beyond 3PL in outsourcing work. The 3PLs that handle discrete logistics functions, the 4PLs that oversee the whole supply chain, and manage it on behalf of the enterprise. The task of blending different 3PLs, technology providers, and carrier companies for a collective logistics solution is included in this.
Use the analogy of 4PLs being strategic allies who delve into your supply chain design the most proficient logistics plan, and oversee the carrying out of this process till the very end. Along with offering complete supply chain visibility and real-time analytics, they also take on the role of supply chain consultant in many cases.
Advantages of 4PL Providers
- End-to-end supply chain management: Through the total control and unification of logistics functions supply chain management becomes more efficient.
- Strategic insight: As a result of just this insight organizations are enabled to make their processes optimized by saving costs, time and getting quality of services.
- Technology-driven: Basically, it uses the most advanced and complex software for the on-demand tracking and data visualization services.
- Single point of contact: Moreover, the client is able to have a much smoother access to the company as the person in charge is handling all the logistics partners under one umbrella.
4PL providers are the perfect solution for companies that are burdened with complicated supply chains and their management, and are seeking a well-thought-out plan and a high-level of coordination.
Key Differences Between 3PL and 4PL
| Aspect | 3PL (Third-Party Logistics) | 4PL (Fourth-Party Logistics) |
|---|---|---|
| Scope of Services | Manages specific logistics functions (warehousing, transportation) | Manages entire supply chain, including multiple 3PLs |
| Control Level | Operates under client’s direction | Provides strategic control and oversight |
| Technology Use | Provides operational systems for specific tasks | Uses integrated systems for end-to-end visibility |
| Business Role | Executes logistics activities | Acts as logistics consultant and integrator |
| Cost Structure | Pay per service or volume-based fees | Often involves a fixed fee for supply chain management |
| Best For | Businesses needing operational logistics support | Businesses seeking full supply chain optimization |
How to Make a Decision Between 3PL and 4PL Providers
Choosing between 3PL and 4PL depends mostly on the size of your business, the complexity of your supply chain, and your strategic goals. Below are some factors to consider:
When is 3PL the right choice?
- You want to externalize certain logistics functions but retain overall control
- Your supply chain is simple enough
- You are only concerned with making the supply chain more efficient and lowering your operational costs
- You like the idea of having a flexible supply chain without long-term contracts or with complete supply chain management
When is 4PL the right choice?
- Your supply chain includes multiple partners and very complicated processes.
- You want to be able to get in touch with only one person or one office for your entire logistics operations.
- You require strategic supply chain consulting and process re-designing.
- You want the help of technology and the use of the Internet for the sake of your supply chain to be able to see what is happening in real-time.
- You are more concerned with a long-term supply chain strategy than with giving orders for short-term tasks.
For instance, a retailer of moderate size could take advantage of a 3PL to manage warehousing and shipping, whereas a corporation with a global supply chain across several countries would probably need a 4PL to coordinate all logistics partners and to make the network run efficiently.
Benefits of 3PL vs. 4PL Logistics Services
Both 3PL and 4PL have their pros and cons based on your business requirements:
Benefits of 3PL
- Operational efficiency and cost savings.
- Access to the know-how and the logistics network.
- More freedom to organize your transport capacity according to seasons or fluctuations.
- Fast scalability without incurring heavy costs.
Benefits of 4PL
- Integrated supply chain visibility and administration .
- Long-term collaborations translating to being first in the market and gaining a competitive edge.
- Improved handling of risk along the supply chain.
- Use of advanced analytics for making supply chain decisions.
Conclusion
Understanding the differences between 3PL vs 4PL is part of the process in making the right choices for your logistics and supply chain management.
While a 3PL provider takes on the performance of specific logistics functions, a 4PL is that entity which has the higher-level, strategic, and also the integration, of the entire supply chain.
Jyoti Freight, one of the top freight forwarders, constantly looks for the best solutions to the client's problems. Either as a 3PL service provider or by offering the full 4PL program.
Upgrade your supply chain now! Reach out to us, and we will show you the way.
Frequently Asked Questions (FAQ)
3PL is the best choice when it is difficult for you to perform the logistics-related tasks and you want to maintain control over your supply chain.
4PL readily connects the entire supply chain first-hand to the customer, then the manufacturer; it performs the work, transports the goods for the client, and at the same time, makes coordination with other logistics partners hence a smooth link is established.
Definitely, some companies are 3PL dependent for their daily operations and 4PL dependent for management, supply chain stability, and strategy.
3PL pricing is majorly dependent on the services and volume of goods you want to transport, on the other hand, 4PL is generally charged at a fixed rate for the whole supply chain management.
