Blog

3PL vs. 4PL Logistics: Definitions, Differences, and Deciding Between the Two

Ever-growing supply chain complexity is pushing more and more companies in the industrial sector to outsource. Even small disruptions can create continuity issues on your supply chain, which is why the market for both 3PL and 4PL is growing so quickly.

But deciding to work with a 3PL or 4PL partner is only half the battle. Then, you have to do your due diligence to find a partner that’s capable of addressing your most complicated supply chain challenges.

Don’t jump blindly into a relationship with a supply chain services provider. Take the time to understand the key differences between 3PL and 4PL providers and make an informed decision about which is best for your supply chain needs.

WHAT YOU NEED TO KNOW ABOUT 3PL PROVIDERS

A third-party logistics (3PL) model is when you outsource the distribution, warehousing, and fulfilment of your products. These service providers act as a middleman between your business and the carriers that deliver your products to customers.

Using a 3PL provider will help you scale logistics capabilities so that you can move, store, and meet fulfilment demands as your business grows.

By partnering with a 3PL, you gain access to supply chain services like transportation, cross-docking, inventory management, freight forwarding, and more. And as a result, you can capitalize on advantages such as:

  • Logistics Expertise: Rather than having to implement logistics best practices on your own, 3PLs keep you on the cutting edge of technology, manufacturing processes, and logistics operations. They do this work day in and day out, giving you a level of expertise that’s necessary for scaling an industrial business.
  • Deeper Resource Network: Outsourcing to a 3PL isn’t just cost-effective because it frees up resources within your business. You also get the advantage of the 3PLs deep network of supply chain partners, which helps them optimise your logistics processes for lower costs.
  • Service Scalability: Scalability is usually discussed in terms of growth. But the reality is that industrial demand will fluctuate across quarters, seasons, and years. You need to be able to scale logistics up and down without worrying that inventory and warehouse costs will hurt your bottom line.
  • Market Expansion Support: As your product line and market presence grows, you need access to distribution centres in different regions. And more importantly, you need to manage inventory across distribution centres. Those tasks can be challenging as you expand into new markets, but a 3PL can ensure you’re strategically positioned to scale.

At first glance, these 3PL advantages may make it seem like outsourcing to one of these providers is an easy win for your business. However, it’s important to understand the disadvantages of 3PL providers as well.

First and foremost, if you’re accustomed to the control of first-party logistics (1PL) or second-party logistics (2PL), the shift to a 3PL provider can be jarring. You lose direct supervision over logistics activities, which are crucial to the success of your business.

Another key concern for 3PL providers is whether or not they truly understand your business. For example, if you deal with chemical materials, you have to know whether a 3PL has a track record of success transporting hazardous materials. Many 3PLs have such niche expertise that they may not be prepared to handle your logistics needs.

While 3PL providers have served industrial sectors for decades, they may not be the right fit for your business. In many cases, it makes more sense to work with a 4PL provider instead.

WHAT YOU NEED TO KNOW ABOUT 4PL PROVIDERS

Fourth-party logistics (4PL) providers deliver a higher level of service to their customers than 3PLs. Rather than focusing solely on logistics, 4PLs partner with industrial clients to oversee the end-to-end supply chain.

For industrial businesses, 4PL services should include procurement, materials planning, inventory management, inventory financing, warehousing, order management, order fulfilment, returns management, supply chain design, and more.

There was a time when the logistics portion of the industrial supply chain was the most challenging to scale. However, as supply chain complexity increases, outsourcing other components is becoming just as valuable. Working with a 4PL provider to manage your supply chain delivers benefits such as:

  • Supply Chain Design Expertise: Because 4PL providers take an end-to-end approach, you’ll benefit from a solution-oriented supply chain design. This means that your supply chain will be perfectly tailored to your specific needs and with attention to industry requirements. As a result, you’ll be able to consolidate vendors and optimise lead time management.
  • Non-Asset Based Service: Many 3PL providers rely on their owned assets, such as transportation and warehousing. But with 4PLs, service is more strategic, which means your partner can focus more on finding the best possible suppliers and vendors for your needs.
  • Single Point of Contact: One of the main benefits of outsourcing any business operation is simplification. Working with a 4PL provider gives you a single point of contact for all things supply chain management. That way, you don’t have to waste valuable resources maintaining visibility into the many vendors involved in your traditional supply chain.
  • Distributor Bypass Model: Partnering with a 4PL provider helps you migrate from distribution to fulfilment supply models. As a result, you bypass inbound distributors and get materials directly from suppliers. This helps you maintain control over your supply chain while lowering prices and cutting costs.

Much like with 3PL providers, working with a 4PL inherently reduces the amount of control you have over supply chain management. And while 4PLs increase efficiency across your supply chain, it’s important to monitor costs closely. Your supply chain costs become a function of the contracts your 4PL writes with suppliers, which means you could have costlier operations if the 4PL doesn’t have your best interests in mind.

If you’re struggling against supply chain complexities, outsourcing to either a 3PL or 4PL can mitigate your biggest challenges. However, there’s still one problem—how do you decide whether to partner with a 3PL or 4PL?

3PL VS. 4PL: WHY A 4PL COULD BE YOUR BEST OPTION

Natural disasters, global conflicts, and resource shortages will continue to put pressure on industrial supply chains for the foreseeable future. While a 3PL may have sufficed in years past, 4PLs offer a more valuable service that includes 3PL capabilities as well as procurement, sourcing, financing, and other value-add services.

Companies like Schneider Electric have already started capitalizing on 4PL services:

“For 30 or 40 years, from a standard supply chain management perspective, we were good to best practice. The new business is very reactive, so we need to be efficient and fast-moving with deadlines of days or hours. We realised that we needed to be nearer to this market. The Exertis SCS fourth party logistics (4PL) capabilities were an exciting prospect for Schneider to investigate.”—Vincent Nestor, EMEA Supply Chain at Schneider Electric

If you think outsourcing to a 4PL provider might be right for your own industrial business, contact us today and find out how Exertis SCS can help.

Leave a Reply

Your email address will not be published. Required fields are marked *