In the world of logistics outsourcing for businesses is a cost-effective and efficient way to get desired delivery results. There are however decisions to be made! Do you need a 3rd Party Logistics (3PL) operator or 4th Party (4PL) Logistics? And what is the difference between 3PL and 4PL logistics operators? Read on to find out more…
Logistics is the detailed organisation and implementation of an operation – meaning it’s the overall process of managing resources, arranging storage, and getting transportation of goods to their final destination.
The management of logistics involves identifying potential suppliers and distributors and determining their accessibility and effectiveness. The types of logistics include inbound, outbound, and reverse, with basic elements covering storage, warehousing and handling of materials, packing, inventory, transportation, information, and control.
In basic terms, a 3PL logistics operator will handle your shipments including receiving, handling, storing, and delivering your goods. Warehousing may be provided alongside packing and inventory management if required. And the managerial side of business itself remains mainly in your hands.
A 3PL will offer its own logistics services directly to you, meaning that all of the contracted services will be provided from their own resources. Third-party logistics are more suitable for small to medium-size businesses, focusing on daily operations and one-off transactions.
Look at some services delivered by 3PL:
- Inventory storage and management
- IT solutions
- Picking and packing of the merchandise
- Customs brokerage and cross-docking
- Contract management
- Freight forwarding
Pros of 3PL
A third-party logistics provider would give you:
- An affordable solution for your small business with rapidly expanding orders
- The ability to save time and money
- Responsive logistics models
- The decentralisation that highly reduces the potential risk
- Possibilities for both local and international shipping and distributions
- Control over returns
- Packing and warehousing
- Increase the speed of distribution
- Provide multiple storage locations
Cons of 3PL
The disadvantages of 3PL include:
- The service provider not taking ownership of the goods being shipped
- Works out expensive if orders are low
- Limited suitability as best for small to medium size businesses
- Control over inventory, customer experience and fulfilment is restricted
A logistics operator 4PLwill be a single partner, responsible for sourcing the best supply chain solutions for you. This involves assessing, designing, measuring and running the operation. 3PL, 4PL logistics offer all the same things with the logistics provider 4PL also providing management and control of the supply chain as well as making managerial decisions.
Fourth party logistics are better suited for medium to large businesses, functioning at optimisation and integration levels. And they can effectively coordinate the activities of a third-party logistics provider.
The 4PL acts as a liaison between the multiple service providers and you, overseeing the organisation of the entire supply chain for manufacturers and wholesalers. See a range of services provided by 4PL logistics here:
- Freight sourcing and logistics strategies
- Consultancy, business planning, and project management
- Analysis of transportation expenses, capacity utilisation, and carrier performance
- Co-ordination of supplier bases in different geographical locations
- Network analysis and designs
- Inventory planning and management
- Assembly and combination of resources and technology with complementary service providers
Advantages of 4PL
Some of the advantages of 4PL include:
- Outsourcing all logistics to third-party professionals so that you can focus on your business
- Offering unique operational support
- Creating the most cost-effective supply chain so that you can improve your profit margin
- Providing a single point of contact for everyone involved in the supply chain
Disadvantages of 4PL
As with all business models services also have disadvantages. The cons of 4PL are:
- You have minimal control over logistics processes and their fulfilment
- For small businesses and start-ups, the cost may be too prohibitive
Now you understand the difference between logistic operator 3PL and 4PL you can make an informed choice as to which service best suits you. This may ultimately be determined by how much control you want to have and how much time you’re willing to invest.
You need to bear in mind that a 3PL provider will take care of stock movement and storage, but will leave the management up to you. If a 3PL doesn’t offer a particular service it will be more than likely to refer you to another service provider who they have a pre-established arrangement with.
Depending on your resources and your knowledge of legal paperwork and insurances this may be a positive way to go.
A 4PL provider will handle the entire process and will take full control of all logistical operations without you having a say, apart from meeting the terms of your contract. When a 4PL manages your supply chain and believes a service to be beneficial, that service will be secured, regardless of whether that service is offered by themselves or has to be outsourced. If you’re happy with this then the decision is easily made.