What is 3PL – and When Should You Switch to 4PL

With hi-speed logistics and supply chain management being the norm of the day, companies are always on the lookout for ways to make their operations leaner, cost-effective, and efficient. Two of the most frequently used terms for the identical are 3PL and 4PL. It is essential that businesses know what 3PL is and how it is different from 4PL so that they can make a well-informed decision in how they will manage logistics. One comes to learn what 3PL is, 3PL vs. 4PL, and a general overview of when a business should transition from using a 3PL service provider to a 4PL service provider from this article.

Learning what is 3PL

3PL, third-party logistics, is the outsourcing of logistics and supply chain functions to a dedicated provider. Providers handle some of the functions of a company’s logistics needs, including order fulfillment, warehousing, inventory management, and transportation. Firms can maintain their focus on core competencies, product development, and marketing and avoid logistics complexity with the use of a 3PL provider.

A standard 3PL service provider provides a range of services that accommodate the needs of the business. For example, they can undertake shipping of goods from warehouse to warehouse or to end users. They can further provide warehousing of inventories, where products are warehoused in the most suitable environments and readily distributed. Apart from this, 3PL companies also perform order fulfillment in the process of product picking, packing, and shipping to customers.

The Shift to 4PL: The Broader View

While 3PL handles some of the execution of the logistics functions, fourth-party logistics, or 4PL, is strategic and integrated in scope. A 4PL provider is an integrator that designs and implements a full supply chain for a business. While the 3PL partners are standalone operations of the supply chain, the 4PL partners get hold of the whole gamut of activities of the logistics process, ranging from procurement to procurement, inventory to even customer services.

The control level and level of strategic commitment stand as the best discriminator for the 3PL and the 4PL. A 4PL partner joins the firm as a member, an enterprise-level, single-source provider of all processes throughout the entire supply chain. They leverage advanced technology, analytics, and marketplace expertise to optimize the supply chain for maximum efficiency, detect areas of inefficiency, and connect solutions that drive long-term growth.

3PL vs 4PL: Main Differences

While comparing 3PL vs 4PL, one must comprehend the fundamental difference in terms of their activity and task. The 3PL company is largely task-oriented in nature, and with the task of executing certain functions of logistics as per the guidelines set forth by the firm. They delineate boundary lines drawn by the company so that it can deliver services like carriage or warehousing based on the direction of the customer. Even though effectiveness and capability of the above works are enabled through means of 3PL providers, its nature is limited to working generally on operating procedures.

Contrary to this, a 4PL provider undertakes a more management and strategic role. They plan, implement, and manage the whole supply chain, typically making hard decisions in the best interest of the firm. It involves choosing and managing 3PL providers, negotiating with suppliers on contracts, and implementing technology for supply chain visibility. The 4PL provider is an ally to the firm by being very closely involved in making the firm’s logistics plans firm up with its long-term ambitions.

The second most significant difference between the 3PL vs 4PL debate is how much customization and integration can be achieved. While customizable services are being provided by 3PL providers, they remain to a certain extent standardized because they must serve various customers with somewhat similar requirements.

 When to Consider Making the Transition to 4PL?

Whether to stay with a 3PL or to switch to a 4PL depends on numerous variables like the size of your business, the complexity of your supply chain, and your long-term strategies. For small and medium sized businesses with complex logistics needs, a 3PL company will do. Such companies may not require the top-level management and strategic solutions of a 4PL, and the efficiency and cost-effectiveness provided by 3PL companies are usually enough.

But as a firm grows and its supply chain develops complexity, the limitations of 3PL can be at top of mind. Firms with international expansion occurring in foreign regions can become burdened with their interactions with custom houses, management of multiple carriers for 3PL, or coordination of transportation networks around the world. Through centralized coordination, increased visibility, and visionary strategy, a 4PL solution can be highly beneficial in this case.

Cost will also be factored in making the choice between 4PL and 3PL. Even though more costly because it is so advanced, the service of a 4PL will save stratospheric long-term cost by streamlining the supply chain and eliminating waste. Companies will have to balance cost against value in making the decision as to whether the value-added service of a 4PL is worth the money.

Making the Right Choice for Your Business

Having the ability to select between 3PL and 4PL is a matter of seriousness to be determined upon careful consideration of your company’s immediate needs and final goals. Understanding what is 3PL and where it stands in terms of 4PL is the initial step to that decision. For organizations in need of operational efficiency and savings on some of the logistics activities, a 3PL organization would be best. But for experienced supply chains or for aggressive expansion, a 4PL partner provides the integration and strategic expertise to prosper in a competitive market.

Finally, the transition to a 4PL must be done only after examining in great detail the intricacy of your supply chain, the strategic requirements of your company, and the ROI potential. With the appropriate logistics company, whether a 3PL or a 4PL, you can run your business leaner, more scalable, and more profitable today.