During your search for supply chain logistics companies, you have undoubtedly encountered the terms third-party logistics and fourth-party logistics. Unfortunately, it can be challenging to differentiate between the two services, much less decide which option is ideal for your company’s needs.
In order to remedy this common issue, we have created this head-to-head comparison of 3PL vs 4PL. Below, we identify what each of these service providers does, break down the differences between them, and outline how you can decide which company is the best fit for you.
What Is 3PL?
A third-party logistics company or 3PL provider is an outsourcing partner that will oversee key supply chain management tasks. However, the manufacturer retains control over the supply chain. The 3PL company takes over tedious, day-to-day tasks such as shipping, packing, distributing, and warehousing products.
3PL Services
3PL logistics companies will typically provide services like these:
- Warehousing
- Packaging
- Shipping
- Distributing
- Order Fulfillment
- Returns Processing
By outsourcing these essential tasks, businesses can alleviate much of the burden associated with supply chain management. However, business owners and stakeholders are still highly involved in supply chain management.
3PL Industries Involved
When comparing 3PL vs 4PL, one of the biggest points of confusion is the overlap between the industries that these companies serve. Both entities serve a similar group of industries.
The primary difference is the size of the industries that they serve. Typically, 3PL logistics companies partner with small to medium-sized businesses operating within sectors, such as the following five industries:
- Medical equipment
- Manufacturing
- Retail
- Construction
- Food and beverage
These are just a few of the many industries that 3PL logistics companies may serve.
What Is 4PL?
Whereas 3PL companies focus on key goods delivery procedures like shipping and distribution, 4PL providers manage everything. A 4PL company will oversee relationships with 3PLs, manage infrastructure, engage in logistics planning, and reimagine a company’s entire supply chain.
4PL Services
While the exact services provided by a 4PL company will vary, most of these organizations offer the following:
- Logistics planning and strategy development
- Freight sourcing
- 3PL relationship management
- Network design and analysis
- Business planning
- Inventory planning
As you can see, 4PL companies offer a far more comprehensive suite of services than 3PL logistics teams.
4PL Industries Involved
A 4PL company serves many of the same industries as 3PL providers, such as these four:
- Medical equipment manufacturers
- General manufacturers
- Food and beverage companies
- Retailers
Despite the fact that 3PL and 4PL companies serve similar markets, the latter typically partners with larger businesses that are facing greater supply chain challenges.
What Is the Difference Between 3PL and 4PL?
There are many factors that differentiate 3PL vs 4PL companies, including the following:
Business Size
Due to the cost of their services, 4PL companies are much more suited for medium-to-large businesses with complex supply chain needs. 3PL companies offer simpler, more affordable services, making them a good choice for small-to-medium-sized companies.
Solution Orientation
3PL companies will focus on performing specific daily tasks, such as warehousing your products, fulfilling orders, and shipping items to customers.
Conversely, 4PL providers will design a custom supply chain in order to optimize efficiency and address the unique pain points of your business. This increased scope is by far the biggest distinction when comparing 3PL vs 4PL providers.
Range of Operations
In terms of the range of operations that 3PL partners have, know that they have a limited range. They will assist you by facilitating the delivery of your products from your manufacturing facility to end-users. On the other hand, 4PL companies offer a full spectrum of logistics services, which allows them to optimize your supply chain.
Cost and Fees Involved
When partnering with 3PL logistics companies, it’s helpful to know that they are less expensive to partner with because they offer a more focused group of services. 4PL providers are more costly due to the broad scope of services that they provide. Most 4PL companies may also forge partnerships with 3PL providers in order to enhance your supply chain.
Warehouse and Transportation Assets
Typically, 3PL companies own their own transportation and warehousing assets. Comparatively, 4PL providers rarely have their own logistics assets and instead serve as consultants and facilitators.
Point of Contact
When working with a 3PL, you may have more than one point of contact. For instance, you may interact with a warehousing or fulfillment center manager and a shipping coordinator. If you partner with a 4PL company, you will be assigned a single point of contact.
Technological Advancements
4PL companies generally provide you with access to advanced analytics software and supply chain management tools. These technologies allow the 4PL provider to optimize your supply chain, thereby increasing organizational efficiency and reducing overall costs.
How to Choose Between 3PL vs 4PL Providers
When deciding between 3PL vs 4PL partners, you should consider factors such as the size of your business, cost of services, and the complexity of your supply chain. If you are operating a small-to-medium-sized business and your supply chain is relatively linear, then a 3PL company will likely be the better option for your needs.
However, if your company is on the larger side and is contending with growth-related supply chain inefficiencies, a 4PL provider will offer more value.
FAQ
While 4PL services should be tailored to the needs of your business, they typically include logistics strategy creation, freight sourcing, consulting, inventory planning, supply chain management, and more.
While 4PL providers offer a more dynamic suite of services, a third-party logistics company is the far more affordable option. This affordability makes them appealing to small-to-medium-sized companies that do not require comprehensive supply chain management.
The major role of 4PL companies is to offer end-to-end management and supply chain design services. As such, these entities may manage relationships with 3PL logistics providers, as well as other mission-critical partnerships on behalf of their clients.
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