In this industry, we are all familiar with the logistics terms 3PL and 4PL. But did you know that initially, the number before the abbreviation PL – which stands for Party Logistics – reflected the number of parties involved in the logistics process? In recent years, however, this number refers more frequently to the number of processes, rather than parties, that a company outsources.
So, as an example, 1PL (or First-Party Logistics) means that the company does almost everything in house, but outsources the transport, i.e. one process. Second-Party Logistics – 2PL – involves outsourcing both the transport and another process, usually warehouse or inventory management.
Third-Party Logistics, or 3PL, is the most popular logistics service model in ecommerce. Working with a third-party logistics provider is about outsourcing the entire order fulfilment process, which may include reception of the goods in the warehouse, storage, preparation and dispatch of orders and monitoring of the entire process.
4PL (Fourth-Party Logistics) offers the same services as 3PL, but includes both implementation and management of the supply chain. This can include picking, warehouse management and transport, like the 3PL model, but also legal paperwork and even some supply chain management decisions.
So, now that we know what the different models include, how do we choose which logistics model is best for our company? Which processes should we outsource? In this article, we are going to look closely at 3PL and 4PL logistics, and compare the two to make it easier to know which one is right for your business.
At first glance, outsourcing order fulfilment is an attractive proposal. Both 3PL and 4PL providers have the tools, storage, processes and infrastructure to automate retail order fulfilment and allow companies to focus on other aspects, such as strategy and marketing.
Put simply, hiring a 3PL or 4PL logistics provider offers:
- Being able to focus on branding and growth, instead of preparing packages.
- A trusted partner that knows your business and grows with you.
- Advanced technology that streamlines your order fulfilment.
What is 3PL?
If your company is growing rapidly, a 3PL can offer several advantages. Their services are affordable for small businesses and can be tailored to your business needs. The more efficient the order fulfilment process, the happier your customers will be, and the technology a 3PL works with offers customers fast delivery times and order tracking systems that will only enhance the customer experience. In addition, a 3PL can also adapt its services to periods of high and low market demand, making it more cost-effective, and hiring a 3PL can save companies both time and money.
In the long run, contracting a 3PL provider will result in savings, as logistics operators get better rates due to a higher volume of activity. In addition, by outsourcing their internal activities, companies can save on resources such as staff, time and space.
Admittedly, hiring a 3PL is an initial investment that can be costly. Moreover, if we have been handling order fulfilment in-house until now, we must be prepared to take a step back and therefore lose some control over this process and perhaps even take longer to respond to customers, due to the fact that there are more parties involved in the process. However, if we choose well, the right 3PL partner will ensure that you save money in the long run and that both you and your customers are satisfied with the way orders are fulfilled.
What is 4PL?
Hiring a 4PL means going a step further than 3PL, and outsourcing both the management and implementation of order fulfilment. They provide a single contact point for all the parties involved in the supply chain, which saves on coordination. A 4PL provider will also manage all of your order fulfilment, regardless of the number of platforms you sell on, which simplifies things for you.
4PL operators aim to offer the best solutions and ensure customer and consumer satisfaction, and employ experienced supply chain management professionals who will optimise and streamline the entire process. However, it is worth bearing in mind that you will not have much control over how that happens. This will generate significant savings at the higher levels of development, but may mean that they are expensive and difficult for small and medium-sized businesses to access.
Therefore, the 4PL model is aimed at larger companies that have already grown rapidly and need to outsource more of the logistics process. The major difference between a 3PL and 4PL is that a 3PL handles shipments while a 4PL handles entire supply chains.
Choosing the right logistics model for your business involves taking into account your current business model, the size and predicted growth of your company, your budget, how much your goods are worth, how specialised your products are, your geographic location and several other factors which are unique to you. Deciding to outsource order fulfilment is an important and exciting moment for any business, and the more you know about the options available, the more informed and accurate your decision will be.