Choosing between a 3PL and 4PL is challenging for most people, and with good reason. Both look like they are effective business strategies, but it’s hard to know which one is right for a specific brand or eCommerce setup, and the wrong choice can have serious consequences.
This post provides an in-depth comparison of 3rd and 4th party logistics to help you decide which is better for your enterprise.
Table of Contents
- Third-party logistics
- Fourth-party logistics
- Differences between a 3PL and 4PL
- Advantages of a 4PL company
- Benefits of 3pl
- Disadvantages of working with a 3pl
Third-party logistics
Third-party logistics is a supply chain management strategy in which a brand relies on an external agent to handle elements of its warehousing, distribution, and fulfilment operations. Third-party logistics companies usually focus on offering integrated transportation and warehousing services that can be customized and scaled to warehousing meet clients’ requirements, depending on the conditions in the market. 3PL benefits may also extend beyond logistics to incorporate value-added services related to the production and delivery of products.
Fourth-party logistics
With 4PL, the brand doesn’t outsource just the execution/implementation of its logistics operations to a third party, but the management as well. Fourth party logistics service companies manage the clients’ entire supply chain.
The fourth-party role requires the service provider to deeply involve themselves in the clients’ business activities since the latter manages both the execution and evaluation of the logistics process. Collaboration agreements between 4pls and their clients are primarily based on long term goals instead of cost-driven short-term objectives and involve mutual risks and benefits.
Differences between a 3PL and 4PL
The most notable difference between a 3PL and 4PL is that a 3PL handles shipments while a 4PL handles entire supply chains.
Advantages of a 4PL company
Supply chain optimization
4pl providers strive to enhance their clients’ supply chain processes. The partnership between fourth-party logistics providers and their clients is long-term, and it extends beyond short term transactions.
4pls keep their client’s interests that the helm of their focus because they have a valued relationship. This harmony arises because both sides are committed to achieving the same objectives.
Operational clarity
4PLs operate as a singular point of contact between their clients and their clients’ supply chain partners. They manage and evaluate all aspects of their clients’ operations. Having one focal point for logistics coordination provides a unique perspective into a company’s overall operations. 4PL partners take that perspective and use it to identify weaknesses within the client’s structure where efficiency can be improved
Disadvantages of using a 4pl
Limited operational control
Since the implementation and oversight of your logistics processes are transferred to a third-party, there won’t be much room for you to decide how they choose to run that part of your business.
Potential biases
Some fourth-party logistics providers might have biases towards other companies not related to their performance or efficiency. As a result, you might be forced into working arrangements that aren’t entirely beneficial to your objectives.
Limited internal capacity
If you choose to work with a fourth-party logistics provider, it can be challenging to switch back to inhouse logistics. Since your partner manages all aspects of your logistics operation, you likely won’t have the experience, expertise, and capacity to run your own logistics.
Cost
Hiring a 4PL can be expensive. Because your partner will take on your entire supply chain in a manner similar to an in-house team, the costs will be higher than other logistics management options.
Benefits of 3pl
Infrastructure
Third-party logistics providers have extensive resource networks that confer several advantages over in-house supply chains. With a Third-party logistics partner, you can execute each step of the logistics process efficiently and cost-effectively. Also, like 4PLs, 3PLs can leverage their contacts to secure benefits like volume discounts, which results in reduced costs and fast service.
Time and resource savings
A 3pl won’t take complete control of your logistics and still save you significant amounts of time and resources. Third-party logistics removes the need to acquire warehouse space, transportation, technology, and workers to implement the logistics process. Your 3pl partner can help you avoid costly mistakes and connect your business to a global market with low risks and high returns. Furthermore, 3pl companies handle billing, paperwork, audits, staffing, training, and optimization to get your merchandise to where it needs to be
Industry expertise
3PL providers know industry best practices and follow the latest trends in manufacturing, technology, and logistics
Furthermore, tech-enabled 3pls like Nextsmartship run robust software systems capable of inventory management, advanced reporting, and real-time monitoring. The companies use Just in Time management practices to ensure the correct amounts of inventory are shipped at the right time.
Scalability
Using third-party logistics allows you to scale labour, space, and transportation following your brand’s needs. Businesses with seasonal demand can quickly transition between high and low seasons, and expand into new regions with few barriers. As your company grows, third party logistics will offer the resources needed to support your growth.
Disadvantages of working with a 3pl
Limited control
The most apparent drawback to working with a 3pl that it limits your control over your supply chain. When logistics is handled internally, the company’s leadership makes the final decisions on all operations and can choose custom routes to accomplish their goals. Third-party logistics limits you to partners’ capabilities. Even if the third-party provider has all your current needs, as your brand evolves, they may not have the capacity to meet new demands
If you want to choose between a 3pl and 4pl provider, the most pertinent questions to ask yourself are how much control you want to have, and how much you are willing to invest.
A third-party logistics provider will handle fulfilment and most of the tasks involved in moving and storing your inventory, but leave evaluation and management in your care. On the other hand, a fourth-party logistics provider will take control of the entire process, including most of the responsibility that goes with it. From a managerial perspective, your business won’t have any control over how things get done. Your partner will take complete control of your logistical operations as long as they fulfil the requirements of your contract.
It’s better to have oversight over your logistical operations, and third-party logistics providers like Nextsmartship work best for that purpose. Your 3PL partners will handle the most repetitive and challenging tasks, leaving you the freedom to evaluate and optimize your strategy whenever it’s necessary.
Nextsmartship offers unlimited storage, robust inventory management software, and free warehousing. There’s also a variety of custom solutions guaranteed to grow your brand. Get in touch for more details.
