There are many different terms and abbreviations used in the supply chain industry. These terms can be overwhelming, especially if you are branching into a new area of the industry. Two of the most common terms you might hear are “third-party logistics” and “fourth-party logistics”, but what do these terms really mean? What is the difference between 3PL vs. 4PL? Keep on reading as we explain 3PL vs. 4PL, and the different levels and advantages of logistics partners.
What Are the Different Levels of Logistics Partners?
First-party logistics (1PL) is defined by an enterprise that distributes goods or products from one location to another. An example of this is a local farm that transports fresh milk directly to a grocery store for sale.
Second-party logistics (2PL) is a business that owns assets, like planes or vehicle, to transport products from location A to location B. The same local farm can hire a 2PL provider to transport their milk from their farm to the grocery store.
A third-party logistics (3PL) model is defined by an enterprise that overseas management, but outsources certain operations of transportation and logistics to a provider. This provider may subcontract out all or some of the process. A 3PL provider may also offer additional services, such as crating, boxing, and packaging, to add value to the relationship. The local farmer may hire a 3PL provider to package the milk in cartons and send them from the farm to the store.
Fourth-party logistics (4PL) is when a business outsources the responsibilities of their supply chain, as well as the management of logistics activities. They offer more strategic insight and management over the entire supply chain of the business. The 4PL provider essentially outsources the entire logistics operations. In our example, a 4PL provider may oversee the communication with the farmer to produce the right amount of milk depending on the demand at the grocery store.
Finally, a fifth-party logistics (5PL) provider offers innovative logistic solutions and develops a supply chain network. Their goal is to increase value and efficiency all throughout the supply chain by using technology such as blockchain, robotics, Bluetooth beacons combination, and radio frequency identification devices (RFIDs).
As you can see, as the business moves from the 1PL model to the 5PL model, more of the logistics management is put in the hands of the provider, rather than the business itself. The most common models used today are 3PL and 4PL services, and here’s what you need to know about each of them.
Advantages of a 3PL Provider
- Resource Network: A 3PL provider has a large resource network that provides advantages for in-house supply chains. Using their network, they will execute each step of the supply chain in the most efficient and cost-effective way. They can leverage relationships and volume discounts, which can lead to lower overhead and faster service.
- Save Time and Money: A 3PL provider will eliminate your need to invest in warehouse space, technology, transportation, and staff to execute the logistics process. You also won’t have to worry about paperwork, billing, audits, training, staffing, and optimization.
- Scalability and Flexibility: Another benefit is the provider’s ability to scale space, transportation, and labour according to your inventory needs.
Advantages of a 4PL Provider
- Network Efficiency Analysis: There are many aspects that make up a supply chain network. These include shipping, distribution, warehousing, physical sites, and information flow. A 4PL provider can help businesses manage these processes.
- Information Technology: Workflow includes a variety of business rules and software that can lead to automated actions to eliminate the need to communicate. A 4PL provider can offer valuable information technology and software that increases visibility on a real-time basis.
- Solution-Oriented Approach: Another advantage of working with a 4PL provider is that they aim to design the solution first, with respect to the business’ requirements. They have expertise of end-to-end operations that relate to warehousing, distribution, freight, and information technology, and provide the best fit solutions for the client.
The Difference between 3PL and 4PL
The difference between 3PL services and 4PL services is not in the way they operate, but the extent of services they provide. As you can see from the examples mentioned above, a 3PL provider focuses more on arranging freight carriers and warehousing by dealing directly with the service providers. A 4PL provider arranges these same services but goes the extra mile for its clients by employing companies such as 3PL providers. They manage these 3PL companies and others to provide the business with a complete supply chain.
Benefits of Lean Supply Solutions’ 4PL Service
If you run a medium- to large-sized business, or if your business has been growing rapidly, it may be time for you to choose the right logistics provider to help you. The two most common options are 3PL providers and 4PL providers, but if you want all the possible benefits, 4PL services are what you need.
Lean Supply Solutions will integrate your supply chain for you. We will assemble and manage the resources, capabilities, and technologies of your organization with the assistance of external service providers, so that you have expertise to manage your resources. Our services include contract logistics, e-commerce fulfillment services, inventory planning and management, supply chain management and optimization, pick-and-pack services, freight and warehousing, reverse logistics management, and more.
When you’re ready to make the call, Lean Supply Solutions is ready to help you. We rise to the challenge of meeting our clients’ needs. To learn more about outsourcing to our 3PL logistics services or to ask any questions, contact us today.
Having a plan for logistics in supply chain management is extremely important to your success as a business, as well as to your customer satisfaction. There are many factors involved in creating an effective logistics plan, which includes automation, delivery time, and coordination. However, even if your business is successful there is always room for improvement. As your business grows you need to find ways to streamline logistics planning processes so you can be successful. Here are some tips that show the importance of logistics and supply chain management, and where you can get the help you need.
Logistics Strategies Generate Positive Business Results
An experienced third-party logistics partner can make the back end of your business appear effortless. They will bring good logistics strategies to the table that are efficient, clear, and measurable. It’s easy for transportation operations, roots, and item locations to become a mess, so having a strong logistics plan can prevent issues from happening in these areas. Your logistics strategy should be designed to coordinate your goals and policies with your transportation and distribution partners. It should be adaptable to changes in your supply chain to avoid your customers from being affected. A good logistics strategy should include the following to provide positive business results:
- Ensure the right people in your organization are aware of changes in the supply chain
- Involve the right number of warehouses or distribution centres
- Measure the frequency that products should leave each warehouse or distribution center
- Regular reviews to find out if the logistics partnerships are working well for you and your customers
- Regular strategy revisions for optimization
Logistics Help Businesses Create Value
Key logistics strategies do more than promote positive results for your business. These strategies also create value for your customers. The better you are at making your products more available to your customers, the more valuable you can make your commodity. Raising demand also raises the value on certain items as they become available on a global scale. Be sure to review your strategy when issues negatively impact your customers. By dealing with issues on the distribution or transportation side, you can add value for them. If issues like warehouse overload continuously impact certain customers, you can adjust to provide better service and resolve this problem.
Logistics Reduce Expenses for Effective Cost Accounting
Another big challenge in supply chain management is operating costs. These can be challenging to manage in your cost accounting procedures, but with a good logistics program, you can maintain these costs and reduce expenses in areas like climate control, warehousing, and transportation. A good logistics strategy can also eliminate larger expenses entirely, so you can take more to the bank.
Logistics Improve Warehouse Management
The more effectively you can manage your logistics, the better your warehouse management will be as well. Your warehouse operations are highly dependent on the type of goods. If you distribute perishable goods like food, your logistics strategy should develop a warehouse inventory plan that minimizes the wastage of goods. By working with a third-party logistics provider, you will have full visibility of the priorities and weak points in your business so that you can create effective solutions.
Logistics Strategies Strengthen Customer Loyalty
Your business may already be able to attract new customers through your robust marketing strategy; however, it is important to boost your logistics strategy to strengthen your customers’ loyalty. If you generate new leads but fail to make them repeat customers, your business will not grow as you plan. You need to make sure you consistently get your orders in on time and resolve customer issues quickly. You need to make yourself a dependable company in order to maintain your customer base and have a steady stream of revenue. A solid logistics strategy guarantees that you can repair areas in your supply chain that are not dependable enough for your customers.
Logistics Plans Help You to Deliver Products on Time
Did you know that late deliveries can lead to a loss of customers? Companies like Amazon thrive by offering same-day shipping and getting their products to their customers on time or before. They provide tracking information so customers can prepare for the arrival of their orders and this feature helps them measure their expectations. By working with a third-party logistics provider, you can stay competitive and meet your customer expectations. On-time delivery should be one of your primary goals. Making sure your products arrive to your customers on time is affected by several factors which include lead time management, inventory management, and supplier management.
Lean Supply Solutions Provides Logistics Management Support
There are many benefits to working with a third-party logistics provider that offers logistics management support. When you partner with an organization like this, you will be able to focus on your core competencies while they take care of the back end of your business. Working with a 3PL provider can help you deal with the challenges of a growing business, whether you are a small- or medium-sized organization. With a 3PL provider’s supply chain services in your hands, you can benefit from their efficiency and talent. A 3PL provider will also offer you many advantages such as supply chain management software and technology that increase visibility and communication between you and everyone in your business network.
If you are looking for the right company to partner with, Lean Supply Solutions is the answer. We rise to the challenge of meeting our clients’ needs through our services which include product fulfillment, warehousing and distribution, e-commerce fulfillment, warehouse pick and pack, order fulfillment, and more. To learn more about outsourcing your supply management in Toronto or to ask any questions, contact us today.