Understanding the difference between a 3PL and a 4PL is key to determining which would be a better choice for a business’s supply chain. In this article, we will discuss the definition of both a 3PL and a 4PL as well as compare the differences between the two by explaining how these solutions can support the unique supply chain strategy of an organization.
A Third-Party Logistics (3PL) model is defined as an outsourcing of all or most of the company’s logistic operations to a specialised company. The term 3PL was initially used to describe intermodal marketing companies (IMCs) in transportation contracts. Up to that point, contracts for transportation had featured only 2 parties, the ‘shipper’ and the ‘carrier’. When IMCs were involved as intermediaries that accepted shipments from the shippers and tendered them to the real carriers, they became the third-party to the contract or the 3PL. Eventually, the definition was broadened to include every company that offers some form of logistics service for hire. Services provided include transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding. In 2008, legislation passed declaring the legal definition of a 3PL as “A person who solely receives, holds or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”
A Fourth-Party Logistics (4PL) organization is defined as a separate entity, established as a joint venture, or long-term contract between a primary client and one or more partners. A 4PL organization acts as a single interface between the client and multiple logistics service providers. All aspects of the client’s supply chain are managed by the 4PL. It is possible for a major third-party logistics provider to form a 4PL organization. A 4PL may also be a non-asset owning service provider. Their role is to provide broader scope managing of the entire supply chain.
Advantages of a 3PL
- Highly specialized with a primary purpose to provide logistics support to various businesses
- Usually have access to better technology than in-house logistics departments
- Can handle many clients at a time
- Reduces cost and strain on a business
Disadvantages of a 3PL
- Lack of communication may lead to devastating consequences for the business
- Increases dependency on the logistics partner
- Less control than internal logistics management
Advantages of a 4PL
- Acts on behalf of the client and implements their strategy
- Single point of contact
- Supports corporate expansion with connections to national and international partners
- Outsources all logistics to third-party professionals, letting manufacturers focus on their product
Disadvantages of a 4PL
- Minimal control over fulfilment and logistics processes
- May be cost-prohibitive for some small businesses and start-ups
3PL vs. 4PL – What’s Best for Your Company?
If your company is dealing with an increasingly complex supply chain and struggling to meet customer expectation for faster response, then an innovative 3PL or 4PL may be the best solution for you. While 3PL and 4PL models offer many distinct advantages, the choice of the logistics model you choose is ultimately determined by your existing business model, company size, budget, infrastructure, and other factors.
There are many tough decisions that account for choosing which is better, and we are here to help! In partnering with an innovative leader like Bricz, your supply chain solutions can be optimized for maximum customer value with a competitive advantage. We at Bricz, have partnerships with service providers and customers alike and are uniquely positioned to understand both sides of the demand-supply divide which truly enables supply chain excellence.
Send us an email at email@example.com for more information on our services.
Contributor: Partha Nayak, Supply Chain Consultant at Bricz