Is it time to outsource your organization’s supply chain needs? Let’s break down the differences between 3PL and 4PL providers so you can pick the best option for your business.
In this blog:
- 3PL service providers
- The benefits of 3PL services
- When to choose a 3PL
- 4PL service providers
- The benefits of a 4PL
- When to choose a 4PL
Businesses in the United States spend over $1.6 trillion every year on logistics alone. When you need to move products from point A to point B, you have many options. Instead of trying to handle logistics in-house, many e-commerce businesses outsource this work to either a third-party logistics provider (3PL) or a fourth-party logistics provider (4PL).
Read on to understand the differences between 3PLs and 4PLs, plus how to choose the right logistics provider for your business.
What to expect from a 3PL vs. a 4PL
The biggest difference between a 3PL and a 4PL is the level of accountability and control you get from your provider. While 3PLs help you save time and shipping costs, 4PLs act more like trusted advisors who can help you meet your goals. Let’s break down how 3PLs and 4PLs work — as well as their benefits — so you can understand the differences.
3PL service providers
Think of a 3PL as a middleman between you (the shipper or retailer) and all of the carriers that deliver your products. 3PLs often own warehouses, distribution centers, and other assets required to move your products.
3PLs sometimes partner with second-party logistics providers (2PLs) and other 3rd parties to handle transportation services. That means you can rely on 3PL companies for things like freight service, order fulfillment, and warehousing. The good news is that a 3PL warehouse can help you realize more cost savings without the expense of managing an in-house warehouse.
Keep in mind that 3PLs don’t handle supply chain management. They focus primarily on:
- Inventory management
- Freight forwarding
- Fulfillment services
When you work with a 3PL, you’re outsourcing transportation and logistics operations, which means you still need to handle manufacturing processes and your supply chain.
The benefits of 3PL services
Not sure if a 3PL partner is right for you? While the biggest downside to hiring a 3PL is the cost, it’s usually cheaper and easier than trying to handle logistics in-house. When you partner with a 3PL, you enjoy benefits like:
- International reach: Cross-border shipping can be a nightmare. 3PLs specialize in international logistics services and have knowledge of international regulations. That’s why 52% of companies outsource international logistics to a 3PL.
- Improved customer satisfaction: In a study by Infosys Consulting, Penn State’s Smeal College of Business, and Penske Logistics, 83% of shippers said 3PLs can improve customer experience. 3PLs provide a level of service that keeps customers happy by minimizing delivery times and helping prevent issues like damage and loss.
- Scalability: It takes a lot for your business to secure labor, storage space, and transportation options in-house. Instead of worrying about these in-house expenses (which hurt your bottom line), work with a 3PL that can help you grow at scale. A 3PL’s connections can enable your business to reduce shipping costs and optimize for growth.
- Saved time and money: There’s no need to invest in warehouse space, technology, transportation, or extra staff with a 3PL. Focus on serving your customers, while the 3PL handles the finicky details of logistics.
When to choose a 3PL
3PLs are ideal when you want to outsource your logistics, but still maintain control. If order fulfillment is slowing you down and you still have in-house logistics expertise, a 3PL might be a good fit.
Since they offer fewer services, 3PLs are more cost-effective than 4PLs. Because of that, 3PLs are usually better for small businesses that need some guidance with logistics.
Keep in mind that working with a 3PL still requires some effort on your end. You’ll still need internal expertise to get the most out of your 3PL provider.
4PL service providers
Unlike 3PLs, 4PLs organize and manage entire supply chains. So, instead of focusing solely on logistics, a 4PL acts as an integrator that oversees the supply chain from start to finish. A 4PL is a more hands-off option because it has the power to manage 2PL and 3PL vendors without your input.
A 4PL does everything a 3PL does, plus:
- Business strategy
- Performance analysis
- Project management
- IT, procurement, and finance assistance
If you need more than execution and want to focus on long-term strategy, a 4PL is a great option. A 4PL can take over your operation and act as the sole point of contact for your supply chain.
The benefits of a 4PL
If you need to work with a vendor that requires less hand-holding than a 3PL, you’ll see plenty of benefits from a 4PL. Brands that partner with 4PL providers score perks like:
- Vendor management: A 4PL acts as your single point of contact. Let a 4PL manage the work between you and all of your logistics providers. Instead of dealing with a collection of different vendors, you deal only with one.
- Efficient e-commerce fulfillment: Because they offer a higher degree of service, 4PLs are great if your business has high order volumes. 4PLs specialize in reducing the complexity of e-commerce, optimization best practices, and specialized management software.
- Single view of your supply chain: A 4PL aggregates information from multiple 3PLs, giving you a high-level view of your supply chain. See all of your metrics in one place so you can make better, faster decisions.
- Hands-on management: 4PLs manage more than just your logistics. They handle shipping, distribution, warehousing, and more. Working with a 4PL is a great option if you don’t have a large in-house logistics team.
- Advanced solutions: 4PLs design your supply chain based on the unique needs of your business. Over time, a 4PL will tweak your supply chain to reduce costs and speed up your delivery times.
When to choose a 4PL
Has managing your supply chain become a hassle? Let a 4PL take full control. This type of vendor offers comprehensive management, while overseeing multiple logistics providers. If you want someone to take care of every aspect of your logistics, a 4PL is the best option.
4PLs offer a higher level of service, which means they have higher pricing than 3PLs. But if you want a logistics partner instead of just a transportation management vendor, a 4PL is the way to go.
Improve your end customer experience
So, should you opt for a third-party logistics company or a 4PL provider? The right answer depends on your business. If you have a solid internal team, you might be able to get by with a 3PL, which is more cost-effective. But if it’s time for more hands-on, expert help, a 4PL will get you across the finish line. At any rate, either option will free up your team’s time to focus on your products, customers, and business growth for long-term success.