We know that there’s a certain amount of ‘Alphabet soup’ in logistics. It can feel like there’s an acronym for everything, and TBH, there is. (See what we did there?!)
Even types of logistics companies have one; you might have come across 3PL and 4PL in your experience with the freight sector. But what do they mean, and how will that affect your supplier selection?
In short, 3PL and 4PL are two different business models, and knowing the differences will ensure you choose the right one for your needs.
Want to know what those differences are? Let’s learn!
What Is A 3PL?
A third-party logistics provider, or 3PL, offers outsourced logistics services, such as warehousing, transportation and order fulfilment. They typically handle all of the tasks involved in getting products from the warehouse to the customer, including managing returns.
Key Services
3PLs provide services that help business manage their supply chain operations more efficiently so that they can focus on core business activities.
3PLs offer services such as:
Warehousing
Providing storage space for stock, 3PLs help businesses by managing their inventory and keeping goods safe until they’re ready for shipping.
Order Fulfillment And Returns
3PLs cover the picking, packing and shipping of warehoused goods and ensure items reach their customers on time and safely. They also handle returns, exchanges and repairs.
Transportation
By coordinating shipments with different carriers for optimised order delivery, 3PLs get products to customers or other distribution points.
Inventory Management
3PLs track stock levels in real-time, helping businesses avoid overstocking or running out of products.
3PLs use advanced technology like WMS, or Warehouse Management Systems, to support them as a full-service logistics centre. Investment in tech means fewer mistakes, more efficient deliveries, and accurate inventory management.
The Benefits
Let’s run through the business benefits of partnering with a 3PL.
Cost Savings
From optimised shipping rates to reducing infrastructure spending, and from lowering labour costs and overheads to improved inventory management resulting in a reduced risk of overstocking or running out, 3PLs streamline logistics operations to save you pennies at every angle.
Improved Efficiency
Utilising advanced technology means 3PLs’ warehousing capabilities are extremely efficient with a heavily reduced error rate. 3PLs typically have broad and established networks with carriers, warehouses, and suppliers, meaning they can leverage economies of scale and access better rates and optimised shipping routes.
Scalability
3PL provide a fully scalable service that can be tailored to meet the exact needs of clients, offering advantages to businesses when it comes to flexibility and cost management. A scalable 3PL solution enables you to adapt your logistics requirements without needing to invest to do so.
Scalability also allows for simple and quick expansion into new areas or geographic regions because a 3PL already has the infrastructure to support you.
Expertise
3PL providers are experts who take on your logistics operations so that you can focus on core competencies, which, in turn, enables you to maintain growth and remain competitive in your market.
With the latest knowledge of rules and regs, they can manage issues that arise, keeping you compliant and within budget.
What Is A 4PL?
A 4PL takes on a higher level of responsibility than a 3PL. Not just limited to covering logistics operations, 4PLs are strategic partners that oversee and manage the entire supply chain on behalf of their clients.
Where a 3PL focuses on taking on specific logistics tasks like warehousing, transportation, and order fulfilment, a 4PL oversees multiple 3PLs and other logistics providers to offer an end-to-end supply chain management solution. 4PLs focus on coordination and consultation to create a seamless supply chain network.
The Benefits
What are the benefits of using a 4PL to streamline your logistics operations?
360-Degree Approach
4PLs have a holistic approach to supply chain management, offering a comprehensive solution that integrates and optimises every aspect of logistics through the supply chain. With a complete and deep understanding of the supply chain, 4PLs expertly highlight and improve inefficiencies to reduce costs and ensure all elements work seamlessly.
Robust Network
4PLs can offer tailored logistics solutions to meet unique business needs because they have a strong, extensive network of 3PLs, carriers, suppliers and technology partners. This network enables 4PLs to choose cost-effective and efficient partners for every logistics task involved in the supply chain and beyond.
Single Point Of Contact
Using a 4PL provides businesses with the huge convenience of having one single contact covering everything logistics-related. 4PLs act as a central hub, reducing the risk of miscommunications and inefficiency.
Due to the level of management you receive, partnering with a 4PL will cost you more than a 3PL.
The Key Differences: 3PL vs. 4PL
While both 3PLs and 4PLs play crucial roles in logistics, their focus areas, levels of control, and approaches to supply chain management differ significantly. Let’s break down the key distinctions:
Core Function
3PLs focus on specific logistics tasks. In comparison, 4PLs take on a broader role, covering the transportation of shipments and the integration of technology. 4PLs are your one-stop shop for the entire logistics process, coordinating multiple 3PLs.
Supply Chain
3PLs get your goods from A to B extremely efficiently, including offering data insights like real-time inventory tracking and shipping analytics.
4PLs, however, zoom out to see the bigger picture, analysing your entire supply chain and coordinating every aspect to optimise it from end to end.
Communication
4PLs offer a single point of communication for what can be a very complex logistic operation involving many parties. Though this is highly convenient, it also means messages are delayed as they have to filter through the chain to the 3PL before making it to the 4PL – and back again.
Partnering with a 3PL provides businesses with more direct comms, meaning issues can be addressed with more agility.
3PLs And 4PLS: Working Together
Like anything, teamwork can make the dream work. And 3PLs and 4PLS make an incredibly powerful team. Think of 3PLs as the relay runners, doing their best to get your cargo where it needs to be. The 4PLs are the coaches, strategising, optimising, and guiding the process.
4PLs oversee the entire logistics operation, analysing business goals and creating streamlined strategies to get you there. They select and manage the 3PLs from their extensive network of trusted providers to build that dream team.
The 3PLs’ role in this collaboration relies on their expertise and skill in warehousing, transportation, and order fulfilment. They work hard to manage the day-to-day operations and take good care of your goods; unlike 4PLs, who won’t ever physically touch the goods themselves, 3PLs are hands-on with shipments.
3PL vs. 4PL: Which Is Best For Your Business?
When deciding between a 3PL and a 4PL, understanding your business goals and needs is vital. Here are some key considerations.
Business Size And Complexity
A smaller business with less complicated supply chains may benefit from the direct communications and focused services of a 3PL. Larger businesses with global reach may find the services of a strategy-focused 4PL more appropriate because they manage multiple providers and optimise the entire supply chain across multiple markets and geographical regions.
Logistics Expertise
If your business has a well-established logistics team, the provision of a 3PL might suffice. However, if your team lacks expertise or you want to focus on core competencies, partnering with a 4PL can give you the necessary strategic guidance.
Growth Goals
For businesses wanting to expand into new markets or scale up their operations from domestic to global, a 4PL can be a smart choice. This is because 4PLs provide strategic guidance to help optimise the supply chain for future growth, including pinpointing opportunities for higher efficiency, providing expertise that helps businesses navigate new challenges and leveraging a robust network of trusted providers.
While they excel at handling operational logistics tasks hands-on, 3PLs may not offer the same level of long-term strategic support.
Choosing The Right Logistics Partner For Your Business
Both 4PLs and 3PLs play significant roles in the movement of goods around the world, saving businesses money and smoothing out supply chains for maximum efficiency. 3PLs manage the physical movement of goods, whereas 4PLs oversee logistics more holistically, with a broader view of your business goals.
For some businesses, a 4PL’s expertise and consultancy approach will put them in a better position, while for others, a dedicated 3PL can be enough to sustain and grow their company.
Want to know if you’re better suited to a 3PL or 4PL? Millennium can help. Get in touch today for our expert advice.