Many people find it difficult and frustrating to weigh in on the 3PL VS 4PL controversy. What exactly do these words mean? And which choice is best for you and your requirements? Understandably, you've given this decision a lot of consideration. Making the wrong decision can be expensive and have far-reaching repercussions.
It can be challenging to determine whether you need a 3PL or a 4PL logistics provider to optimize your supply chain. Making the wrong decision will cost you millions of dollars and harm your customer service rate, so you'll want to get it right the first time.
In this post, we'll share my best concepts, compare 3PL and 4PL variations, and explain how these solutions will help your specific supply chain strategy.
3PL Vs. 4PL: Definition, Differences, Pros & Cons
What do 3PL Companies Do?
3PL stands for Third Party Logistics, so what exactly do these companies do? These firms handle a client's outsourced transportation and logistics activities. The client business, however, still retains influence. The standard and range of services provided by 3PL companies varies. Outsourcing can differ depending on the needs of the client and the services provided by the 3PL business. Many 3PLs are asset-based, which means they manage some or all of the resources used to deliver the services.
Using 3PL companies is a way for businesses to begin tapping into existing transportation expertise to support them. Companies will improve their operations by doing this at any level of the logistics process and ensuring that the right things are done in-house and the good stuff is shipped overseas.
What is a 4PL Logistics Company?
4PL or Fourth Party Logistics, businesses vary from 3PL options in how they handle their services. When operating with a 4PL supplier, the client relinquishes control over the outsourced activities and allows the 4PL company to manage the services.
If a client does not have an employee who manages transportation and logistics activities, a 4PL is widely used.
As a result, the 4PL firm must have complete access to its client's business processes and inner workings. After all, they are in charge of all administrative requirements, as well as oversight and management. To do so effectively and efficiently, they need access to the company's operations and the possibility of intense participation in the business and how it works. Without it, difficulties and misunderstandings are unavoidable.
If a client does not have an employee who manages transportation and logistics activities, a 4PL is widely used. As a result, the 4PL firm must have complete access to its client's business processes and inner workings. After all, they are in charge of all administrative requirements, as well as oversight and management. To do so effectively and efficiently, they need access to the company's operations and the possibility of intense participation in the business and how it works. Without it, difficulties and misunderstandings are unavoidable.
The 4PL can manage the entire supply chain of the company. The best 4PL firms can have a strategic analysis that the client can use. In this regard, a 4PL provider can take a more consultative approach than a 3PL, while several 3PLs can also provide this service. In a nutshell, recruiting a 4PL company entails outsourcing the complete logistics service and everything that comes with it.
If that is what your company requires, it will make sense to hire a 4PL company, but we'll go over the benefits and drawbacks of each option below to determine which is best for you.
What is the Difference Between a 3PL and 4PL Company?
The primary distinction between a 3PL and a 4PL is that a 3PL handles orders, while a 4PL manages whole supply chains.
Advantages of a 4PL Company
Supply chain optimization
4pl suppliers work hard to improve their clients' supply chain processes. Fourth-party logistics suppliers and their customers have a long-term relationship that goes beyond short-term transactions.
Since they have a valued friendship, 4pls hold their clients' needs at the forefront of their focus. This unity exists because both parties are dedicated to achieving the same goals.
4PLs act as a single point of communication between their clients and the supply chain partners of their clients. They oversee and assess all facets of their client's operations. Having a single point of contact for logistics coordination offers a valuable insight into a company's overall operations. 4PL partners use that viewpoint to find flaws in the client's system where you can increase performance.
Disadvantages of Using a 4PL Company
Limited operational control
Since the implementation and supervision of your logistics processes have been delegated to a third party, you won't have much say about how they run that part of your company.
Some third-party logistics providers may have prejudices against other companies with little to do with their success or reliability. Consequently, you can be forced to work in ways that aren't entirely helpful to your goals.
Limited internal capacity
It can be challenging to return to in-house logistics if you want to work with a third-party logistics provider. Since your logistics partner handles all aspects of your service, you are unlikely to have the experience, skills, or ability to operate your logistics.
Hiring a 4PL can be costly. Since your partner would handle the entire supply chain the same way that an in-house team will, the costs would be higher than most logistics management options.
Advantages of a 3PL
Third-party logistics suppliers have large resource networks, which have many advantages over internal supply chains. You can perform each phase of the logistics process quickly and cost-effectively with the help of a third-party logistics partner. Furthermore, 3PLs, like 4PLs, can use their contacts to obtain benefits such as volume discounts, resulting in lower costs and faster service.
Time and resource savings
A 3PL would not take complete care of your logistics while also saving you considerable time and money. Third-party logistics eliminates the need to procure storage space, transportation, technology, and personnel to carry out the logistics operation. Your 3pl partner will assist you in avoiding costly errors and connecting your company to a global market with low risks and high returns. Furthermore, 3PL companies manage billing, documentation, audits, hiring, training, and optimization to get the product to where it needs to be.
3PL providers are well-versed in industry best practices and keep up to date with manufactured goods, technology, and logistics trends. Furthermore, technologically advanced 3PLs such as Nextsmartship run robust software systems capable of inventory control, advanced reporting, and real-time monitoring. To ensure that the correct amount of product is delivered at the right time, the businesses use Only Time management practices.
Using third-party logistics allows you to scale labor, space, and transport to meet your brand's needs. Businesses with market conditions can easily switch between high and low seasons and grow into new markets. Third-party logistics will have the services required to sustain your company's growth as it expands.
Related article: How you can do Business on Walmart and Amazon Keeping in Mind the 1P and 3P Technique
Disadvantages of a 3PL Company
The most obvious disadvantage of working with a 3pl is that it restricts your leverage over your supply chain. As logistics are managed internally, the company's leadership takes the final decisions on all activities and can handle custom routes to achieve their objectives. Third-party logistics places you at the mercy of your partners' capabilities. Even if the third-party vendor meets all of the existing requirements, they will not satisfy new demands as the brand expands.
Choosing Between a 3PL or 4PL Company
Choosing a 3PL or 4PL company to partner with is a critical step in this phase. You want to be sure that you are dealing with a logistics company to place your faith. Examine the services they provide and those they do not offer to ensure they can do anything you need of them in the future. From there, you'll be able to find a service that's right for you and meets your needs.
Consider expense, freight management, and standards of control and oversight as well. These factors will differ from one company to the next, but they are all relevant when entrusting the logistics operations to a third party. As previously stated, you should find a company that takes an integrated view of technology and its use in your market.
Should I Work with a 3PL or 4PL?
It is entirely dependent on your requirements whether you work with a 3PL or a 4PL. As we mentioned earlier in this document, the degree of monitoring and supervision in place would be the most critical factor. A 4PL choice might be appropriate for you if you are comfortable handing over supervision and logistics management control to another organization. However, if you want to outsource those tasks while maintaining control over the operation, hiring a 3PL company makes even more sense.
3PL firms can provide a wide range of services and strategic perspectives to make a significant difference in your company. They are also a much more affordable and cost-effective method of logistics. And several of them provide appropriate software and technology solutions that you can seamlessly incorporate into your company. It is critical for modern companies with current tech expectations and approaches.
Next article: Dropshipping Versus Third-Party Fulfillment