21 Sep Knowing the Difference Between 3PL and 4PL
When looking for a quality logistics partner to assist in optimizing your supply chain, it can often be difficult to differentiate between the various services available. One of the most common misunderstandings in the logistics industry is the difference between 3PL and 4PL service providers and the different ways they can benefit your business. This is critically important to know, because choosing the wrong service can be detrimental to your bottom line and could hinder the overall structure of your business operations. To help better understand the distinctions between these two types of services, let’s take a look at the primary functions of each.
3PL
In its most basic sense, a 3PL provider is a third-party company that provides essential supply chain and warehousing services. While some 3PL companies may vary in what they can provide, generally speaking, a 3PL offers inventory management, storage, order fulfillment, cross-docking and transportations services. 3PL providers are typically equipped with a warehouse, a WMS (Warehouse Management System), transportation assets and a team of logistics professionals who are tasked with day-to-day warehousing operations such as completing orders, shipping/receiving and more. For most businesses, a 3PL partner will provide all the fundamental services you need for day-to-day warehousing.
4PL
4PL refers to businesses that provide nearly all 3PL functions such as inventory management, transportation services etc., but do so from a more administrative position. A 4PL provider plays a significant role in entire scope of the supply chain process from start to finish and provides structural support for a business. Some of the more in comprehensive functions a 4PL can provide are expense management, strategic planning, and project coordination. 4PL companies can be viewed as an extension of your management and will provide in depth consulting, analysis and structural guidance for your business.
Key Differences
Control–As you can see, a 4PL is much more intertwined with both the operational and strategic aspects of a business. With this comes less control of things such as resources, inventory management and the order fulfillment process. 4PL service is typically used by larger companies looking for a comprehensive logistics solution and large-scale strategic support. On the other hand, 3PL providers offer less on the strategic and structural side but does handle most warehousing services. A 3PL can be a good starting point if you are looking to begin outsourcing some of your warehousing duties and are need an affordable way to optimize the busywork of running a business.
Price-Naturally, a more comprehensive 4PL service is much more expensive than a 3PL. This is not necessarily a bad thing, especially if your business is looking to outsource your entire logistics process and you have the resources to expand at a rapid rate. With that being said, 4PLs typically partner with companies who are well established and have a large budget to dedicate to logistics. 3PLs, on the other hand, are much more cost effective, and often offer customizable service options. This gives businesses the flexibility to allocate funds elsewhere while continuing to grow your business.
Ultimately, your decision to choose a 3PL or 4PL should be predicated on the needs of your business and the type of support you are looking for. Because there are many factors to consider, it might be a good idea to reach out to providers and schedule a consultation.