Though potentially confusing and muddled under industry jargon, understanding the functions and distinctions between Third and Fourth-Party Logistics supply chain services can enable your eCommerce business to take the next step. 3PL vs 4PL, which is best?
Today, we aim to unpack the spiel and lay down the main differences between third-party logistics and fourth-party logistics to determine which service is better suited for your business and its growth.
First, we need some definitions!
What is 3PL?
Simply put, Third-Party Logistics (3PL for short) is a framework used by eCommerce companies to outsource their product supply chain.
In short, the goods they stock and sell will be sent from the manufacturer to a third-party warehouse to be held and readied for sale. This warehouse will be under the banner of the 3PL, who will handle all supply chain functions from this point, including:
- Storage
- Real-time inventory reporting and management
- Freight forwarding/customer delivery
- Picking of goods
- Packing of goods
- Handling of international customs
- Rebranding of packaging and delivery material (where the service is offered and agreed by the 3PL)
The expansion of services that a typical 3PL offers have grown as internet shopping and eCommerce has grown in marketplace relevance. As businesses arenโt always required to physically hold their inventory – particularly in FMCG and fast fashion, for example – the labour-intensive order fulfilment and supply chain processes can be handed off to specialist 3PL companies, allowing businesses to allocate the saved resources to business development.
What is 4PL?
If 3PL handles the vast majority of outsourced supply chain and order fulfilment services, what can a Fourth-Party Logistics company do to differentiate and innovate?
Effectively, as a 4PL (sometimes referred to as Lead Logistics Providers (LLP)) will oversee the entire organisation and act as logistical consultants. Though they may not own the physical real-estate and vehicular assets to mobilise products, they manage the logistics for clients from the point a product leaves the manufacturing facility.
As a singular point of contact, a 4PL will oversee and secure all outsourced supply chain functions and companies, seamlessly linking them: the ultimate middle man.
Some of the services performed by a 4PL logistics company include:
- Consultancy and concierge
- Project management
- One-point correspondence
- Logistical strategy
- Freight sourcing (often arranging 3PL services for the client – sometimes referred to as โdouble brokeringโ)
- Complete management of inward, outward and reverse logistics
- Inventory planning and management
- Dispute resolution within the supply chain
- Real-time communication to align networks of 3PLs
So, What is the Difference?!
The main distinction between a 3PL and 4PL is ideological in practice: though compared often (as we are doing here), they operate as different but equally important facets of the supply chain.
3PLs typically handle the hard-and-fast of outsourced logistics: the physical shipping and handling of goods and items. 4PLs, on the other hand, concern and excel themselves in the overall management of global logistics, providing uniformed and holistic services to their clients: interlinking completely separated components of the product journey under one banner.
Pros and Cons of 3PL Services
As with all business frameworks, there are inherent advantages and disadvantages to 3PL.
Pros of 3PL
- Costs reduced: as 3PLs often own their fleet of vehicles – or extensive partnerships with existing haulage companies – companies can save time and money through the use of a 3PL
- Real-time cost savings: savings on individual factors of order fulfilment – warehouse, labour, postage – can be measured as and when required
- Inherent decentralisation: the stock is stored remotely and insured under the 3PLโs commercial umbrella
- Expert field knowledge: as a 3PLโs bread and butter is supply and order fulfilment, your company will not be required to train staff or hire external expert consultants on the topic of supply chain management and process
- International expansion opportunities: 3PLs will have extensive knowledge and access to foreign markets through industry experience, enabling the growth of your brand across borders with lower risk
Cons of 3PL
- Distance between you and your goods: inventory agility and transparency can be affected by supply chain or technological errors that occur within the 3PL, meaning you and your customers may be left in the dark and without products
- Initial costs: as a significant investment, partnering with a 3PL may be prohibitive for companies that have rush patches followed by periods of low orders
- One-sided communication: as 3PLs only take charge of your affairs once they receive your goods from the manufacturerโs choice of logistics provider, they can only provide detailed service and reports from their point of receipt, whereas a 4PL oversees the entire supply chain
Pros and Cons of 4PL
Much like the 3PL model, 4PL also has its share of pros and cons.
Pros of 4PL
- The ultimate middle man: a 4PLโs main service to clients is as a unifying force between completely separate logistical elements of the product supply chain
- The face of the process: as the overseer of the supply chain, the 4PL is a singular point of contact
- Expert management of process: delivering expert strategy and effectively designing logistical services around the particular needs of a business
- Lean supply chain: all-encompassing supply chain management creates cost-effective procedures, ideally leading to improved profitability for clients
Cons of 4PL
- Expensive: as 4PLs offer more than just warehousing and logistics, they are highly expensive – often prohibitive to startups and small-to-medium sized companies
- Minimal control: 4PLs oversee the entire supply chain, so you have less autonomy over the eventual order fulfilment process
3PL Vs. 4PL: Who Wins?
Realistically, there is no winner in this comparison.
The choice of which outsourced logistics service is more suitable to the needs of your business and which aspects of the process you wish to pass along.
The main things to consider when determining which service to turn to are the following:
- How large is your inventory?
- Is your order book significantly large and consistent?
- Do you have the labour to meet demand?
- Are you willing to invest labour into further order fulfilment?
- What is your budget?
- How much control of the supply chain would you like?
- Will you require additional business consultancy and advice?
- Are you aware of the benefits to your business the services of a 3PL/4PL can provide?
Should the answer to any of these questions be โnoโ, ADP Distribution are happy to assist you, so get in touch with us today.
3PL Services With ADP Distribution
If you have plans to expand your eCommerce business but donโt have the space or labour capacity to fulfil order demands, ADP Distribution can help!
Located in the Heart of the UK, we have over 50 years of combined industry experience in logistics and distribution. Offering convenient order fulfilment solutions and an 18,000 square foot storage warehouse, with next-generation inventory management and stock level reports as well as expert pick and pack services.
ADP also provides expert project management services, including (but not limited to) modern inventory management and reporting, delivering a truly holistic approach to logistics, order fulfilment and point of sale direction.
