Every successful business operation in online business and e-commerce demands systematic management, whether its logistics or supply chain. To effectively combat this hurdle, Third Party Logistics (3PL) and Fourth Party Logistics (4PL) service providers come into play. Both providers have a centric goal: optimize your management and amp up your business game. While 3PLs are more efficient in daily logistics functions, 4PLs are well equipped with the advanced strategic direction of your supply chain. Keep reading this article to comprehend the basic differences between 3PLs and 4PLs and decide which one is the right pick for your business.
What is a 3PL
3PL, which stands for Third-party logistics, is an external service provider dealing with your company’s logistics. 3PLs are proficient in managing aspects of your logistics, like transportation and warehousing. Although these are the primary services offered, additional assistance a 3PL provider delivers includes inventory management, order fulfillment, packing, etc.
As a company, you handle the management while relying on a 3PL provider for logistics when you opt for their services. In this manner, you can reduce your operational costs and increase scalability. Also, find ample time to focus on areas that need your special attention.
Although 3PLs can effectively improve scalability, efficiency and reduce cost savings of your business, a more detailed insight into their numerous advantages are given below:
Integration of Advanced Technology
3PLs are adept at leveraging the latest technology to handle your logistics effectively. By applying the updated version of the Warehouse Management System (WMS) and other software, these providers manage your transportation, order fulfillment, and inventory in a practical way.
Increased customer satisfaction
Unlike E-commerce retailers, 3PLs have only one goal in mind: efficient logistics management. As a result, all the goods are delivered on time, and order fulfillment is always up to the mark, directly imparting a positive customer experience.
Since 3PLs are well equipped with market fluctuations and trends, they can aid you in making informed decisions. Therefore, collaboration with a 3PL provider can reduce your risk of facing unfavorable circumstances and errors.
Now, coming towards the negative side of working with a 3PL service provider, the most common disadvantages are given below:
Usually, availing the services of a 3PL can reduce operational costs, but at times, some providers might have hidden fees associated with it. Additionally, as your business grows, the prices of 3PL services might increase, costing you more than your company’s in-house logistics operation.
Loss of control over your logistics operation is another major disadvantage of using a 3PL service provider. Your company becomes dependent on 3PL from inventory to order fulfillment. Eventually, a mistake at their end might harm your company’s reputation.
What is a 4PL
4PL, which stands for Fourth Party Logistics Provider, handles all aspects of your supply chain along with logistics. It is one step ahead of 3PLs, and often, both work in harmony to generate the desired outcomes for companies. The services a 4PL provider offers include management of inventory, order fulfillment, handling resources, and tackling entire supply chain operations.
When you opt for 4PL services, you let the provider handle all your supply chain. Unlike 3PLs, 4PLs have a more strategic approach towards your business and provide valuable insights to ramp up your business.
4PLs have much to offer to e-commerce retailers and businesses, from cost efficiency and flexibility to market expansion. The main advantages of 4PLs are given below:
Management of the Entire Supply Chain
4PLs have a holistic approach towards all the aspects of the supply chain and effectively take charge of it. In return, your company will grow on a vast scale, and as a retailer, you can focus on its other technical areas.
Single Point Of Contact
Since businesses have a direct point of contact with a 4PL provider, all logistics and supply chain operations are handled successfully. Moreover, the communication process becomes seamless and requires minimal time.
Just like everything has its advantages, the disadvantages accompany it. Availing 4PLs can negatively harm your objectives if they are not appropriately aligned with your business. More major drawbacks are given below:
Lack Of Control
Just like 3PL, working with a 4PL service provider might even result in a high dependency. Hence, you have significantly less control over your business, and in adverse situations, this can be risky.
High Operational Costs
Although 4PLs are in charge of your entire supply chain, it will help in increasing long-term savings. However the costs of services are considerably higher than conventional logistics providers.
3PL Vs 4PL: The Difference
Having discussed a detailed insight into 3PL and 4PL functionality and basic pros and cons, let’s navigate their capabilities and features. Read the key differences given below to learn better.
Operational vs. Strategic Focus
3PLs have an operational focus, meaning as a provider, their services are solely inclined toward managing goods, delivery, and storage. Contrary to 3PLs, 4PLs manage logistics and supply chain with a strategic approach.
Asset Ownership and Layers of Service
3PLs often own physical assets like warehouses, trucks, and storage rooms and, therefore, have strong command over the execution of most logistic operations. Unlike 3PLs, 4PLs do not own assets and thus have a more strategic role in maintaining their services.
3PLs mostly have a transaction relationship with the business i.e., they are concentrated on providing their services to the best. While 4PLs, as mentioned earlier, engage in a strategic approach in tackling the entire supply chain, tend to have a better relationship with the business.
3PL providers are efficient and specialized in managing all areas of logistics like inventory, order delivery, and storage. Unlike 3PLs, 4PLs manage the entire supply chain with an objective-aligned strategy.
Considerations Beyond the Discussions
Lastly, one major thing to consider when comparing both 3PLs and 4PLs is the expertise, experience, management capabilities, and value for money for both providers. For 3PLs, command of technology plays a crucial role, and so does geographic coverage. An understanding of supply chain components, strategic planning, use of technology, and long-term growth potential plays a role when 4PLs are to be considered.
Who Should You Choose for Your Needs? 3PL or 4PL?
Deciding who you should choose for your business depends on a variety of factors. You cannot opt for a service provider unless you are well-equipped with your business needs, goals, objectives, and size. The tips given below will aid you in making a better decision.
If your basic need is management of operations and logistics, 3PLs might be the perfect fit for you. 3PLs streamline tasks like warehousing, order fulfillment etc. But if you are looking for more strategic management of your supply chain, a 4PL is the right provider for you.
Asset Based Requirements
If you require physical assets such as warehouses, delivery vehicles, etc, then you should go for 3PLs, as most of them own these. But if you are looking for more strategic planning and do not require any physical assets, then 4PL is the right option for you.
Size Of Business
If your business is small- to medium-sized, then go for a 3PLs service provider. But if you own a large size or have international reach, 4PL services are better suited for your needs.
If you are looking for straightforward and cost-effective logistics services, then 3PL services are suitable for you. However, if you want broader supply chain management and have a higher budget, then 4PLs can be a better fit.
To sum it up, choosing a 3PL or a 4PL service provider can be a missing puzzle in boosting your business’s growth. Before you opt for one, understanding the difference between 3PL and 4PLs is the single most important thing to do. Doing so will aid you significantly in making an informed decision, so your business can thrive exactly how you want it.