3PL vs 4PL Logistics - What are the Differences?

Comparing 3PL and 4PL – All You Need to Know

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In today's fast-paced business world, choosing the right logistics provider can make or break your supply chain. To ensure you make the correct choice, first, you need to understand 3PL and 4PL and their differences. This blog post will take a closer look at the key differences between providers and help you understand which is best suited for your business needs.

Key Points

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• 3PL (Third-Party Logistics) refers to a company that provides outsourced logistics services, such as transportation, warehousing and fulfilment. They manage every process thoroughly, ensuring your company is running as it should.

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• 4PL (Fourth-Party Logistics) refers to a company that acts as a logistics manager and coordinator, bringing together multiple 3PL and other logistics service providers to create a comprehensive logistics solution for a client. Not only that, but the 4PL businesses also provide additional services in addition to logistics management, such as supply chain consulting and strategic planning, and acts as a single point of contact for the client, coordinating the work from every single aspect.

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• It is important to assess your company’s needs to decide whether you should go with a 3PL or 4PL, as both providers vary in functions, pricing, and advantages and disadvantages.

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What is 3PL (Third Party Logistics)?

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3PL (Third-Party logistics) is a company that offers a logistics service outsourced to businesses. A 3PL company is an intermediary between a business and its customers. They offer services such as warehousing, distribution and transportation – various logistic operations handled on behalf of other businesses. Companies opt for 3PL services to target the lack of internal expertise resources, focus on core business operations or cut costs.

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Advantages of using a 3PL

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Like any other service, a 3PL is bound to have pros and cons. It is important for users to consider both the benefits and drawbacks before deciding whether to start using the service. Let's start with the positives:

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• Ability to outsource logistics functions

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Being able to outsource your logistics functions to another company with specialised expertise and resources can lead to a more efficient and cost-effective logistics operation. Not only that, using a 3PL can help your company be more flexible and adaptable to the changes in markets & supply chains.

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• Ability to scale logistics operations

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Scaling logistics is an effective solution for companies that experience a big fluctuation in demand for their specific product. 3PL providers offer the ability to quickly adjust operations to meet the change in demand, helping your company avoid stockouts or overstocking.

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• Established relationships with suppliers and carriers

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Another great thing about 3PL providers is that they have pre-existing relationships with carriers and suppliers, which can reduce your company's costs and improve your logistics massively. In addition, such relationships give access to a wider range of carrier options and favourable shipping rates, resulting in a big reduction in annual spending.

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Disadvantages of using a 3PL

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• Loss of control over logistic processes

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One downside to outsourcing logistics to a 3PL is that companies tend to lose a certain amount of control over the processes and operations within their supply chain.

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• Dependence on the 3PL performance 

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Another drawback is that companies become too dependent on the performance and reliability the 3PL brings, which can lead to bigger problems, such as operational and financial predicaments.

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• Increased costs

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A 3PL can become way more expensive than managing your logistics in-house, as the services provided by the 3PL add an additional cost on top of the company's own logistics costs.

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What is 4PL (Fourth Party Logistics)?

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4PL (Fourth-Party Logistics) providers are an advanced version of 3PL, with a more comprehensive approach to logistics management. 4PL companies offer many more services and act as a single point of contact for all logistic activities. Such activities can be managing relationships with other logistics partners, using technology, data analysis and in-depth research to enhance a supply chain.

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This wide variety of functions leads to a greater optimisation of a company's logistics operations, reduces costs and improves performance.

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Advantages of using a 4PL

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• Access to specialised expertise and resources

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When using a 4PL, in most cases, you will receive a team of logistics experts who will provide you with deep insight and access to a wide variety of resources and technologies. With perks such as these, you are guaranteed a more comprehensive and efficient logistics solution with better results.

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• Better communication and coordination

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By using a 4PL, you are guaranteed to see improved communication and collaboration between different parties involved in the supply chain; hence, a 4PL acts as a single point of contact for coordinating and managing every aspect of logistics.

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• Increased flexibility and scalability

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Like a 3PL, a 4PL provides a customised logistics solution that makes scaling up or down super easy to meet the changes your business needs and adjust to the ever-changing market conditions and helps you capitalise on new opportunities.

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Disadvantages of using a 4PL

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• Dependence on a single provider 

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It is never good to put all of your eggs in one basket, and technically that's what a 4PL is – a single provider for all your logistics needs. This is risky, as it is very difficult to move to a different provider if your current 4PL does not meet your needs, is no longer providing your required services or is disrupting the flow of your business by mishandling the logistics.

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• Loss of control 

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By trusting and outsourcing your logistics to a 4PL, your company might lose a certain amount of control over the logistics process. Such scenarios may cause difficulties ensuring the logistics operations are being executed in your company's style and to your company standards, which your customers could notice.

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• Cost

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Again, managing your logistics out-of-house can prove to be very pricey. Your company must pay for the 4PL's services and invest in new technologies and resources to support such operations, which can quickly rack up your annual costs.

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3PL and 4PL – What are the differences?

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When we talk about logistics and supply chain management, the terms 3PL and 4PL are often used interchangeably. With that in mind, it is important to know the differences between the two. Yes, they both provide incredibly valuable services to businesses. However, there is a major difference in the range of services and the level of involvement in the supply chain.

In this section, we will run through the key differences between 3PL and 4PL and give you a better understanding of how to use them to optimise your supply chain performance.

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Differences in Services

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3PL offers a variety of logistic features and services, such as transportation, warehousing and distribution. They handle the physical transportation of goods and storage of inventory and are in charge of packaging, assembly and reverse logistics processes. They are service providers, handling and monitoring tasks on behalf of their clients. These logistic services are more suitable for smaller companies.

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4PL providers, on the other hand, offer services that go further than traditional logistics – everything you can think of, including supply chain management, consulting and procurement services, plus every service offered by a 3PL. 

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4PL providers are service integrators, coordinating and handling multiple activities to guarantee the smooth flow of your supply chain by optimising it. You are guaranteed great communication as they work closely with clients, creating a strategic partnership to take your business's supply chain performance to the next level.

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Differences in Assets

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The assets required to run a supply chain are owned by 3PL providers (in most cases). Items such as trucks, warehouses and distribution centres are all included. 

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On the flip side, a 4PL's assets are non-physical. 4PLs are the mastermind behind the operations, with IT systems and software to ensure the engine room of your company is running correctly and your supply chains are well managed.

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Differences in Relationship

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Naturally, the relationship between a 3PL provider and a client is transactional. 3PL providers tend to be hired by other companies to carry out specialised logistics tasks paid on a transaction basis. This relationship focuses on finalising each specific logistics activity, such as warehousing, packaging and transport. This long process tends to limit the communication and collaboration between the 3PL provider and the client, making these specific logistics tasks harder.

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4PLs’ relationships with their clients, however, are more strategic. 4PL providers take a more in-depth approach and monitor and work with their clients to understand the overall supply chain objectives and the company's ideology to achieve their goals.

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They are a single point of contact for the client, handling every aspect of the supply chain – from logistics to consulting. Such aspects create a healthier environment and promote communication and collaboration between the 4PL provider and the client, making the optimisation of the entire supply chain much easier.

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Conclusion

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In conclusion, 3PLs and 4PLs are both equally important players in the logistics and supply chain circle. Although both are similar, there are differences in terms of the services they offer, but both can be effective.

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3PL offers the traditional way of handling logistic services – transport, warehousing and more, while 4PLs are the more advanced way of managing supply chains. The deciding factor of which one is more suitable for your company is mainly decided by the needs of your business. Take into consideration every factor and make the decision that feels right.

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FAQ

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What is the difference between 3PL and 4PL? 

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3PL companies focus solely on order fulfilment, such as warehousing, picking, packing and shipping. 4PL platforms, on the other hand, are the engine room of the entire supply chain – fulfilment, transportation, technology and more.

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What are the advantages of 3PL and 4PL providers?

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The advantages of using 3PL and 4PL are endless. From the ability to outsource and scale logistics operations to access of specialised expertise and resources.

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What is a 4PL Logistics example?

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For example, a 4PL provides a tailored logistics solution that makes scaling up or down simple, in order to provide support to your business as it grows.

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