Online Business
November 20, 2021

3pls And 4pls: How Can Supply Chain Management Minimize Cost?

Logistics is a subject which is attracting a lot of attention.  The reason is simple.  A planned logistic activity minimizes unwanted expenses, thereby increasing the profit to the concerned person.  Nowadays, “PL” is the most frequently used abbreviation in the market.  What is  “PL,” and how is it related to logistics?


What is “PL”?

According to logistics terminology, ‘PL’ refers to ‘Party-Logistics Provider.’ It can be considered a model depicting the number of parties involved in the supply chain. If keenly observed, the model may vary from 1PL to 10 PL. The supply chain may contain one party logistics provider, and the services may increase up to 10 parties based on the product and destination level.

How Can Supply Chain Management Minimize Cost?

Minimizing cost is a technique and is a simple task for experienced or professional players in the market.  A seller can earn profit only if he has control over his expenses.  This is the basic fundamental fact to be followed by the businessman. A business person can be successful only if they can balance the demand and supply of their product and minimize costs.  Creation of demand is the primary task while meeting the demand of the product and supplying it appropriately to the customer is an equivalent task that requires consideration. Supply chain management involves the management of all the parties involved in logistics, i.e., from production to destination. Minimizing cost can be practiced by any seller to earn a good profit by following some tips.

Tips to Minimize Cost

Understand the customer’s requirement: The customer is a king.  This is the basic fundamental fact followed by all sellers. The seller should always check the requirement status whenever an order is placed- urgent/1 day/ 2days/I week- 10 days.  Whenever the seller promotes his products, he tries to update the availability status on the e-commerce website. As the customer order a product only after all terms and conditions, there is no problem with the supply of the product. If the customer wants the product urgently, the seller has to plan his supply chain strategy accordingly.  Only if the product is delivered to the customer as promised to him will they be happy.

Supply Chain Strategy

A seller must understand the five different models applicable to a supply chain to design or plan an appropriate supply chain strategy. A brief explanation about each model will help to analyze the situation and choose the best model.  The primary models are as follows:

1PL – It is a model which deals with a direct relationship between the seller and the buyer. This is best applicable when both buyer and seller belong to the same locality.

2PL- It refers to 2pl logistics.  Sometimes, the buyer-seller may not be located in the same locality. In such a case, the seller must depend on the transport service provider to deliver the products to the destination. In this model, the transport service provider comes between the seller and the buyer.

3 PL – It refers to 3rd party logistics.  This model is an improvement of 2pl logistics.  In simple words, apart from transportation services, 3rd party logistics service providers deal with everything from inventory management, product packaging, labeling, taxations as per relevant government policies, etc.  By outsourcing to 3rd party logistics,  the seller can concentrate on developing the business instead of breaking head-on product distribution activities.

4PL- The above three models are the basic models used frequently. What is 4pl? 4pl refers to 4pl logistics which is an improvement of 3pl logistics. What is the difference between 3pl and 4pl when both deal with the same services? In the case of analysis done between 3pl vs. 4pl, one can experience a lot of differences.


What Is The Difference Between 3pl And 4pl?

Scope: In 3pl, the supply and distribution activities are outsourced to a 3rd party. When the task is outsourced, the seller can rest in peace as 3rd party logistics provider must take care of all activities involved like inventory management, packaging of the product, labeling, and ensuring that the product is delivered promptly. A 3rd party logistics provider deals with a particular customer. On the other hand, 4pl logistics deals with two or more outsourcing service providers or 3pl service providers.

Control: 4pl service provider typically designs the framework, while 3pl service providers are supposed to follow that framework. 


5PL- This model can also be named “Solution optimization services” as the requirements created by 3pl and other models are summed up. Accordingly, action is taken regarding the means of transport to be used.  The supply is done on bulk volumes—the seller benefits from negotiating with shipping companies that best suits high-volume stores.  The seller can demand a reduction of delivery charges.

Learn more about the pros and cons of 3PL and 4PL here.


3PL Warehouse

 Inventory management or warehousing is an important activity. The supply of products can be done successfully only when the stocks are maintained or stored correctly. A track of the inflow and outflow of products will help to analyze the availability of supplies. The costs incurred on warehousing are very high.  When this service is outsourced to a 3rd party,  it becomes the responsibility of the 3PL to handle the warehousing activities.  The seller has to analyze both situations – self-management of inventory or outsourcing of the task.  This way, the seller can estimate the benefits earned in each case.

The 3pl warehouse proves to be profitable to some extent as the seller cannot rely on the 3pl warehouse entirely.  The seller has to regularly inspect their stocks, which develops control over the 3 PL warehouse to maintain fair practices in implementing tasks. Outsourcing the functions of warehousing to a 3pl warehouse will decrease the stock maintenance cost as it is the responsibility of the 3pl warehouse to take care of the management of inventory.


Conclusion

Running an eCommerce business means you have to handle a lot of logistics. You need to worry about the products themselves, how they’re stored and shipped, where your warehouse is located, etc. With so many moving parts it can be hard not to get overwhelmed by all these details - which is why Simpl offers 3PL services for businesses like yours! Allow us to take care of your pick-and-pack needs with our third party logistics service that will keep your inventory safe while also making sure everything moves smoothly from one location to another without any hiccups along the way.