What is 4PL?
A new kind of logistics provider recently emerged on the scene – the 4PL. Exactly what the differences are between third-party and fourth-party logistics providers is a subject of hot debate among supply chain experts. And the 4PLs have got the 3PL community nervous. The one certainty, however, is that each successive type of PL is more involved in the supply chain than the previous one is.
Here is the heart of the debate: Fourth-party logistics providers are technically 3PLs because no fourth party is involved. They are said to be merely fellow 3PLs who are setting themselves up to be in a class to themselves just through the use of the 4PL moniker.
Admittedly, the evolution from a 3PL to a 4PL is gradual. When the business becomes reliant on a neutral 3PL’s data and invites the 3PL to the table, the 3PL is evolving into a strategic partner – a 4PL. In time, the 4PL is entrusted to perform all of the white-collar and blue-collar duties in the logistics space.
Aware that they are not a fourth party, yet they are in charge of (gasp) other 3PLs, some 4PLs call themselves lead logistics providers (LLP).
LLPs provide a tremendous amount of services that go beyond what traditional 3PLs do. LLPs analyze, plan, strategize, manage, and coordinate many things. They advise the business leaders. They also use real-time information, their broad knowledge, communications abilities, and their high level of visibility to perform their job.
All of this is done in addition to the traditional 3PL duties of warehousing, picking, packing, freight forwarding, shipping, contract management, customs brokerage, cross-docking, and offering IT solutions.
In a nutshell, an LLP:
- Coordinates suppliers
- Models and manages distribution networks
- Synchronizes inbound and outbound logistics flows
- Integrates supply chain technologies
- Optimizes transportation operations
LLPs benefit businesses who need a high level of help with their logistics operations. The fact that an LLP can take over the entire logistics part of a business and be their single point of contact for all things logistic is huge news to the supply chain world. Deloitte is one example of an LLP.
An LLP collects, stores, and manages data that comes from other supply chain partners. This information management enables the LLP to:
- Remove costs and inefficiencies from the business’s supply chain
- Manage exceptions
- Improve customer service
- Give seamless supply chain services.
These mighty logistics providers do have some drawbacks, however, that traditional 3PLs can take comfort in. Complaints are few, but LLPs:
- Are expensive
- Don’t allow a business to have much control over the fulfillment and logistics processes of its own operation
Yes, once the business has handed over the logistics operations, it is truly out of their hands. There will never be confusion as to who heads up the logistics part of the organization.
Now, let’s revisit the animosity between 3PLs and LLPs because there really shouldn’t be a reason for the tiff. That is because the type of customers an LLP will draw is a different kind of customer than what a 3PL will draw.
Consider the number of e-commerce sole proprietors who use 3PLs to fulfill orders for them. A 3PL such as UPS is commonly used by individuals who need to ship items that they warehouse themselves, sell online, and need to ship out to the customer. eBay sellers fit this description. Amazon Fulfillment is a 3PL that provides warehouse space, fulfills orders, and ships products to customers for businesses of all sizes.
These sole proprietors and other small-time sellers would never be interested in using the extra services of an LLP. Traditional 3PLs are all that this particular market segment will ever need, want or afford.
Conversely, there is an underserved business market that desperately needs a competent logistics provider to take over the entire logistics part of their operations and show them where they need to improve. That market requires the services of an LLP.
Since 5PLs are also emerging, perhaps it would be best if everyone appreciated the role that each level plays in the scheme of things. There is a market for all of them.
What Is 1PL?
Let’s discuss what the other service levels are. A 1PL is an organization that does not outsource its logistics operations. This structure type can be found in some large companies that move a massive amount of goods and have sufficient infrastructure to manage the entire supply chain without outside help.
A 1PL cargo owner can be the shipper, such as a manufacturer who delivers directly to its customers. Or it can be the consignee, such as a retailer who picks up products from suppliers. One example of a 1PL cargo sender is an Australian red meat supplier named Samex, which exports its meat products to wholesalers, distributors and supermarkets all over the world.
These companies benefit from having complete control over the quality, fulfillment, packaging, and the transportation of their products. They don’t have to trust their good name to another party.
Along with all of this control, however, is the responsibility that comes with it. Any problems must be dealt with in-house. Another drawback is the high cost of high-quality fulfillment because all of that additional infrastructure that a 1PL requires is expensive.
What Is 2PL?
Second-party logistics companies handle the transportation of cargo for companies. They also lease/charter transportation by ship, plane, or truck to businesses. An example of a 2PL is a trucking company or rail operator who moves goods from warehouse to the dock for the hiring company.
These logistics providers offer great flexibility. The business chooses what they want moved and by what mode of transportation. Additionally, the hiring companies don’t have to own the planes, ship, or truck that moves their goods. All of the modes of transportation and the transportation-related operational headaches belong to the 2PL.
The main downside to using 2PLs is that they are not full-service logistics providers. That means that the hiring company must fulfill and package what they want shipped. Another downside is that any problem that the 2PL has which affects customers reflects on the company who hired them.
What Is 3PL?
A third-party logistics provider is not tied to a particular company. It is a neutral logistics organization that is used by individuals as well as businesses.
They do more than move cargo from point A to point B. These providers warehouse, pick and pack products for whomever wants to use their services. They do freight forwarding, contract management, customs brokerage, and cross-docking. They even offer IT solutions.
UPS is a well-known example of a 3PL. Amazon fulfillment is a 3PL, but they have more restrictions on products, packaging, and services than you will find in most 3PLs. Neither one of them is connected to any one business.
Fast-growing, small-to-medium sized businesses that sell a high volume of goods would benefit the most from 3PLs. These logistics providers are able to offer competitive shipping rates because of the economies of scale. Customers receive their orders quickly if the company takes advantage of a 3PL’s worldwide storage locations. While using a 3PL, a company can still control the returns and other customer service matters and also retain control over the rest of the supply chain.
This kind of logistics provider does have a downside, though. The 3PLs can be expensive if one does not ship in volume. And most 3PLs won’t handle flammable, hazardous, or perishable goods. Finding the right one for your needs can take some time. Once you do find one you like and you start to use their services, it has control over your inventory. Your 3PL will also control the customer experience. So, how that company treats your customers reflects on your company.