Third-Party Logistics vs. Fourth-Party Logistics
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.