To choose between 3PL and 4PL providers, learn how each one can help your logistics operations
Many shippers hire logistics companies to help them get products from Point A to Point B. But what kind of logistics service providers are there to choose from? The two most popular options are third-party logistics (3PL) companies and fourth-party logistics (4PL) companies.
3PL companies are specialized service providers that handle the logistics processes and transportation management between a manufacturer or a warehousing specialist and a supplier. They commonly subcontract outside companies to provide supply chain services for their clients.
3PL providers include couriers, freight forwarders, and other organizations that integrate transportation and logistics services.
4PL companies are often called “lead logistics providers”. While they provide the same basic services as 3PL companies, there’s one significant difference: 4PL companies also handle comprehensive supply chain solutions on behalf of their clients.
Now that you understand what 3PL and 4PL companies do, let’s take a closer look at key differences between the two.
Key Differences Between 3PL & 4PL
3PL companies typically only handle one aspect of supply chain management. They act as intermediaries and outsource transportation or logistical services to subcontracted companies. Companies hired by a 3PL service provider are responsible for ensuring shipments reach their destination on time and under budget.
In contrast, 4PL companies manage their client’s supply chain. While 4PLs also subcontract logistical and transportation services, they take it a step further by helping to make their customer’s supply chains more efficient. They can also manage 3PL companies for their clients.
Sometimes, 3PL companies that offer diverse services band together to form a 4PL company. Merging into a joint venture allows them to provide a comprehensive solution to suppliers.
Should I use a 3PL or a 4PL?
The best way to decide between a 3PL and a 4PL company is to determine the percentage of work you want to outsource and the amount of money you want to spend. Since 4PL companies do more, they also cost more.
Two other factors that may influence your decision:
- Your budget
- The level of expertise your employees provide when it comes to supply chain management.
If you have a great on-site team that can handle supply chain details for your company and just needs help finding ideal transportation and logistics solutions, a third-party logistics provider may be the right fit. 3PL services are also more cost-effective than 4PL services. But, if you also need management services for your entire supply chain and can afford the investment, a fourth-party logistics provider may be a better solution for you.
Now that you understand the difference between 3PL and 4PL service providers, you can make an informed decision on the right option for your company.