Like many professional industries, the logistics industry has its own vocabulary. Often, 3PLs and 4PLs are not unfamiliar terms to companies involved in the logistics business.
For companies, choosing 3PL or 4PL logistics to optimize their supply chain management can be a difficult decision. By understanding the differences between them and their respective advantages and disadvantages, you can do your best to improve the efficiency and cost effectiveness of your supply chain and give your business a higher overall competitive advantage.
1. What is the difference between 3PL vs. 4PL?
The main difference between a 3PL and a 4PL is that a 4PL handling the entire supply chain, while a 3PL focuses on logistics process. Each can offer its own advantages depending on your business individual situation, so knowing what you get from each provider will help you make the right decision for your company.
These are some of the main differences between the 3PL and 4PL:
- A 3PL provider is more suitable for small and medium sized businesses, while a 4PL provider is more suitable for medium to large businesses.
- A 3PL provider focuses more on day-to-day operations, while 4PL provider works at the optimization and integration level.
- A 4PL provider may own assets such as trucks and warehouses, while a 3PL provider typically does not own these assets.
- The 4PL company is able to effectively coordinate the activities of the 3PL provider.
- 4PL providers can provide the highest level of value-for-money logistics services, while 3PL providers are more focused on one-time transactions.
- 4PL providers maintain a single point of contact for each company’s supply chain, while companies using 3PLs often need to manage some aspects of the supply process internally.
2. What is 4PL?
The 4PL (Fourth-party logistics) means a model in which a manufacturer outsources the organization and management of its supply chain to an external supplier. 4PL offers customers a higher level of effective supply chain management where manufacturers can fully outsource the logistics process to external professionals for a better management model.
In other words, the 4PL acts as the sole interface between the customer and multiple logistics providers, so the entire supply chain is managed by the 4PL.This includes legal paperwork and management decisions.
So in a 4PL scenario, the manufacturer wants to scale up its operations and no longer wants to deal with any logistics issues. So the manufacturer contracts with a 4 PL provider and then the 4PL provider takes over all logistics throughout the supply chain so that the manufacturer or retailer can focus on other aspects of their business.
These services include：
- Freight procurement strategy
- Transportation cost analysis
- Carrier performance analysis
- Effective 3PL Management
- Business Planning
- Project Management
- Management of inbound, outbound and reverse logistics
- Coordination of a broad supplier base
- Network analysis and design
- Capacity utilization analysis
- Inventory planning and management
3. Advantages of 4PL
- With unique and specialized operational support, manufacturers can focus on what they do best and expand their business
- The 4PL will have integrated technology products that provide a high level of supply chain visibility for tactical and strategic analysis.
- The ability to effectively outsource all logistics requirements for a given business
- Single point of contact for all parties involved in the supply chain, with more efficient information exchange
- Build a lean and cost effective supply chain to increase profitability
- Gives you more control over your business
- Expertise in end-to-end operations related to warehousing, distribution, freight and information technology and providing the best solution for the customer
4. Disadvantages of 4PL
- For small businesses and startups, 4PLs may suppress costs.
- Significantly reduces customer control over their own fulfillment and logistics processes
- If a 4PL does not have sufficient input from the manufacturer, it may not deliver as promised. Therefore, careful selection of a 4PL is critical.
5. 4PLs for Medical Devices
4PLs for medical devices service advantages are reflected in :
- Manage complex chain- of-custody requirements and delivery schedules
- Maintain inventory in place of the fields reps
- Eliminate write-off costs while improving service to the medical facilities
When it comes to medical care, 4PL excels as well. For example, surgeons may order several sizes of medical devices because they don’t know exactly which one they will need at the start of the procedure. This is where a 4PL can manage complex chain-of-custody requirements and delivery schedules to meet the surgeon’s requirements and minimize inventory costs.
For a medical device manufacturer, the 4pl provider can maintain their inventory, reducing the burden on the field representative and eliminating the cost of consignment.
And in many cases, physicians typically order over $3 million worth of equipment in a year, but only use about $300,000 worth of equipment. The additional cost of shipping these items to and from the hospital and DC is excessive and consumed by the medical device company. So using a 4pl provider was able to eliminate inventory write-off costs while improving service to the medical facility.
6. 4PLs for Field Service
4PLs for field service advantages are reflected in:
- Optimize inventory placement to meet or exceed SLA and reduce trunk stock
- Maintain inventory in place of field techs
- Track inventory in real-time to support a full chain of custody
To serve field service and repair organizations, 4PLs need to control the supply chain, including warehousing, fulfillment, transportation, and technology.
Some 4PL providers will also begin with a detailed analysis of part usage based on historical data and installed customer base to determine the individual parts, quantities and locations needed to meet expected demand.
Field technicians also no longer have to act as warehouse operators. The freed-up personnel can go to other tasks, and all technicians in the area can see the location and inventory of parts, reducing the need for backbone inventory.
7. 4PLs for Retail/E-Commerce
4PLs for retail/E-commerce service advantages are reflected in:
- Allocate and place inventory to reduce missed opportunities
- Achieve same-day delivery of online purchases regardless of location
- Achieve same-day inventory replenishment
Globally, the largest e-commerce companies, such as Amazon, act as their own 4PLs by owning and managing the entire supply chain, though few others have the resources and capabilities to match, so they turn to 4PLs for strategic support.
Many retailers have long used 3PLs for transportation, warehousing and fulfillment. with the boom in e-commerce, retailers are often choosing to apply these capabilities to their existing systems, creating balanced supply chains to meet both in-store and online demand. As eCommerce logistics grows more sophisticated and mature, it is clear that an omnichannel approach is a sustainable direction.
The strategic goal that 4PL wants to achieve is to create an updated supply chain network that effectively manages the flow of products across all platforms. A single view of inventory gives retailers the ability to clearly allocate inventory and meet customer demand, regardless of the status or location of the inventory.
8. What is 3PL?
The 3PL model involves a manufacturer maintaining oversight of its supply chain, but outsourcing its transportation and logistics operations to a 3PL provider. In other words, in most cases, the 3PL will receive, handle, store and deliver your goods. And it will usually do so under your company name.
Of course, the model is similar to a 4PL in many ways, but the 3PL provides programs focused on logistics such as inventory storage, inventory management, customs brokerage, freight forwarding, contract management, pick and pack, cross-docking and IT solutions, and other such services. Unlike 4PLs, 3PL providers do not oversee the entire supply chain and organization.
For example, a 3PL provider working for a farm can pack and store products in addition to transporting them to the grocery store. But will not oversee the entire supply chain management and organization. This is different from a 4PL.
And a 3PL may offer warehousing services, packaging, and even some inventory management for your products and inventory, depending on your business needs and what you offer.
Some of the services offered by 3PL include:
- Inventory storage
- Proper inventory management
- Customs brokerage
- Freight forwarding
- Contract management
- Cargo picking and packing
- IT solutions
9. Advantages of 3PL
- Save time and money, 3PL offers a program that allows you to perform without investing in warehouse space, technology, transportation and technicians. They also offer management billing, auditing, staffing and other services to optimize
- Ideal for local and international distribution, 3PLs have a large network of resources that provide advantages for internal supply chains. Through their relationships and discounts, they can save you money on overhead and provide you with faster service.
- Highly decentralized to reduce risk, scalable and flexible with space, transportation and labor to expand based on inventory needs
- Responsive logistics model
- Ability to control returns
- Ideal for small businesses with rapidly growing order volumes
10. Disadvantages of 3PL
- With 3PL’s shipping customers lose some control over their inventory
- The cost of using a 3PL provider can be prohibitively expensive if the order volume is low
- Suitable for small and medium-sized businesses, but not for large enterprises
- Limited control over customer experience and fulfillment
11. 3PLs for Medical Devices
3PLs for medical devices service advantages are reflected in :
- develop systems to optimize delivery from a distribution hub to individual locations.
- Expedite shipments to fulfill just-in-time deliveries
- Support greater visibility into inventories to ease auditing and reverse logistics
For transportation in the medical device industry, visibility into the transportation process and value-added delivery is critical. To meet regulatory requirements, devices must be tracked at every step of the process and be able to provide a verifiable chain of custody. This capability requires sophisticated technology solutions and the ability to track inventory across multiple locations and carriers to ensure that individual devices can be tracked and traced in a timely manner.
Medical device shippers require much more from their 3PLs than just dropping boxes off on the dock or at the delivery location. They also require a 3PL that can do the delicate but equally important steps of delivery to the end-user department, on-site inventory, returns and repairs, and other services to customers.
3PLs should also be able to help medical device companies develop systems to optimize transportation and delivery from the distribution center to each location. 3PLs can manage expedited shipments to meet just-in-time deliveries of high-value items.
12. 3PLs for Field Services
3PLs for field service advantages are reflected in :
- Forward deploy commonly used items to smaller distribution hubs for rapid, low-cost response
- Increase availability of repair parts in market to techs or a flexible workforce
- Expedite delivery of parts to a job site
Companies with extensive field service operations, whether they serve internally or provide services to customers, can benefit from a 3PL partnership. The field service environment, unlike the manufacturing environment, requires unique solutions, and a well-managed forward plan can ensure that standard goals are met or even exceeded.
For these goals, 3PLs can plan forward deployment of commonly ordered items in smaller distribution centers for fast and cost-effective response. The 3PLs can also develop a database of the most frequently ordered items and ensure inventory management to meet ongoing demand. Service technicians can pick up items at a central station or place orders directly for quick delivery to a given location.
13. 3PLs for Retail
3PLs for retail service advantages are reflected in :
- decrease the cost and risk of warehouse inventory
- Provide same-day delivery service in markets where the retailer dose not currently exist
With the growth of e-commerce, customers have come to expect items to be readily available to purchase things online or in-store. So 3PLs can develop strategies to improve and optimize their supply chain processes to better compete in terms of transit time and fulfillment accuracy.
14. 3PL vs. 4PL – What’s Best for Your Company?
If you have a startup or small to medium-sized business that is looking to scale your company’s business and respond to the needs of a rapidly growing supply chain, the services offered by a 3PL provider will be a better choice for you. They will help you manage warehousing and distribution, so you can focus on marketing and sales as your business grows. 3PL providers are more flexible and cost effective for small and medium-sized businesses.
If you need to better manage your existing supply chain for a medium to large enterprise, then a 4PL may be the way to go. However, a 4PL can increase the isolation between you and your supply chain so that your business has less control over the supply chain. Because of this lack of control, many rapidly growing e-businesses should continue to use 3PLs with which they can grow. in some cases, 3PL supplier relationships will mature into 4PL contracts as the logistics company and its customers grow and evolve together. So for large companies such as Fortune 500 companies, a 4PL may be more appropriate.
So, if you need to work with a logistics company, the most important thing is to look at it from all angles. Know exactly what your business needs, what resources your company has, and which of those factors are most important. This way the choice of which logistics method to choose becomes clear and fluid and can reduce the chances of problems arising.