3PL stands for third-party logistics provider and 4PL stands for fourth-party logistics provider, but what does this actually mean and how do they differ from one another? If you’re trying to work out what your business needs, it is important to understand the distinction and think carefully about which might be the best one for you.
What is a 3PL?
Let’s start with what a 3PL is. A third-party logistics provider is a solution for a business who wants to outsource the following things:
- Picking and packing/fulfilment
- Logistics and delivery
- Reverse logistics (returns)
- Inventory management
- Shipment tracking
To summarise, a 3PL performs all logistic processes on behalf of a businesses (and under the name of that business) but the business is still very much involved in the process. A 3PL can save a business time and money, increase their scalability, improve their customer service, and expand their reach. There are many ways in which a 3PL can help your business grow and expand, you can read our blog all about 3PLs, if you would like to find out more about a 3PL might be able to help you and your business.
What, then, is a 4PL?
There are many different definitions of a 4PL but essentially, a 4PL does everything that a 3PL does but also manages the overall supply chain. This means that if a business is using a 4PL they are likely to have very little, or no, control over what happens in the supply chain. A 4PL will also offer the following services to a business:
- Business advice
- Project management
- Consultancy services
There are many benefits to using a 4PL:
- They are multi-service providers. This means that they offer multiple services in one, so that you don’t need to look elsewhere for these services. This can help to streamline your business.
- There is a single point of contact. This can be very beneficial because it means that there is no need to go back and forth to multiple people in order to find out what is going on.
- You can save money on your logistics costs. Like with a 3PL, you can save money on your packaging and fulfilment costs.
- There is minimum oversight required. With a 4PL, you can sit back and let somebody else take care of your supply chain. This can be a huge benefit for many businesses.
- They can manage complex supply chains. Usually, 4PLs are used to very complex and global supply chains so they can help you streamline and improve yours.
What is the difference between a 3PL and a 4PL?
The main difference then, between a 3PL and a 4PL is that a 4PL offers an extra layer of business support and takes complete control of the supply chain, often with the help of an external 3PL. A 4PL is often a non-asset based company and are focused on optimising the supply chain rather than the day-to-day tasks.
One big distinction is that a 4PL often works with a 3PL and becomes the go-between for the company and the 3PL so the business has one point of contact for the whole supply chain. When a company works with a 3PL, there is often a few points of contact along the supply chain (meaning, however, that the business still has some control over what goes on).
Is one better than the other?
Essentially, there is no definitive answer to this. For some businesses, a 4PL is a stress-free and straight-forward option. However, the lack of control can be problematic and it can be very, very expensive. Unless you’ve got the budget (and you actually want to give away the control of your supply chain) you’ll probably want to forget about using a 4PL. Using a 3PL can be very beneficial to many businesses. A 3PL takes away the stress and time of packaging and fulfilment and saves you money but the business is still very much involved in the supply chain.
How do you decide between a 3PL or a 4PL?
If you’re reading this blog and thinking about the future of your business, we’ve put together some advice for you to decide what might benefit you. You might find it useful to ask yourself the following questions to establish your requirements.
‘How much control do you want?’
First of all, ask yourself this question. If you’re at the point in your business development that you’re ready to let go of something, think about how much you’re ready to let go off. You might want to start slowly by outsourcing your fulfilment and slowly build up to handing the whole supply chain over to a company you trust.
‘Would you like additional business advice?’
A 4PL is more than just your supply chain. If you’re thinking about investing in some business consultancy anyway, then a 4PL might be the best option for you.
‘How much labour are you willing to invest?’
Sometimes, it all comes down to how much work you want to do yourself. If you’re already at the point of deciding between the two, you obviously want to free up some labour but it depends on how much you’re willing to do still.
‘What is your budget like?’
Whilst both 3PLs and 4PLs save a business time and money, a 4PL can be very expensive and may not be worth the cost or within your budget. It is important to establish your budget before looking into this further.
‘Do you understand how a 3PL or a 4PL can benefit your business?’
If the answer to this is no, we would recommend doing a bit more research.
Or, get in touch with Complete Packaging today to find out more about outsourcing your packaging and fulfilment needs. As an experienced 3PL we can help you understand how our services can help you and your business.