Fourth party logistics (4PL) often remains a misunderstood concept, while third party logistics (3PL) is known to every logistics company. This article explains the difference between 3PL and 4PL and what the right choice for your organization is.
The difference between 3PL and 4PL is mainly the level of outsourcing. For the deployment of 3 or 4PL, you don’t need to use a 1 or 2PL first. It can be a logical step to move from 3 to 4PL and take your logistics to the next level.
Third party logistics
Back in the days, when many companies still had their own vehicle fleet, everything was directly shipped to the customer. Through the advent of the Internet it is easier to buy products everywhere at any time. By the increasing market of the products the competition has become more intens. Competing on price, quality and service has become more and more important. By focusing on the product there is no time for the transport planning.
Logistics companies have responded to this by offering a complete logistic concept. Through service level agreements (SLA) and standard operating procedures (SOP), the 3PL acts like his customer. In order to continuously provide the customer with the desired service, concerning warehousing and transport, new ways are being sought out to increase reliability and flexibility. Saving logistics costs is less of a priority here.
Lead logistics provider
In addition to companies that offer transportation and warehouse services, there are also 3PL service providers who do not own any transportation or storage material. These companies are called lead logistics providers (LLP), also called 3PL+. These companies specialize in a certain type of goods. Thanks to this specialism, they are able to build up large transportation volumes. By a larger flow of goods the additional costs remain low. The disadvantage of a lead logistics provider is that they depend on their network of carriers.
Fourth party logistics
Organizations have started operating worldwide by expanding their market. Obtaining insights into processes and disruptions has become an daily struggle. Due to the lack of one central system within an organization, which is a common issue, the logistic services are arranged locally. The costs for not optimizing logistics streams can be considerable.
In order to support companies with complex logistic flows, the first 4PL organizations where founded around the year 2000.These companies, like the LLP, do not have their own equipment. The 4PL focuses on providing tools and systems to make complex flow transparent. One of the most important characteristics is that they are not dependent on and connected to specific type of product or country. Due to the large knowledge of logistics, the 4PL is able to organize, evaluate and optimize all kinds of transport. The consistent implementation of these steps and an up-to-date IT infrastructure ensure that logistics costs are structurally reduced and logistics targets are achieved.
The overview that the 4PL creates over a supply chain enables the opportunity to select for every order the most suitable 2PL or 3PL.
The difference between 3PL and 4PL
There is a clear difference between 3PL and 4PL. The 3Pl is an organization that is focused on carrying out logistics. The 4PL has no direct contact with the logistics in this comparison and has a more advisory and steering role. Due to the difference between execution and control, the 3PL is also seen more as an operational extension. The 4PL delivers more tactical and strategic information through analyzes, reports and proposals. Providing this information enables the optimization of the supply chain.
What is 1PL.2PL,3PL and 4PL?
- 1PL; A carrier with a specialism in a specific area or mode of transport. Can also be part of a shipping organization.
- 2PL; Is also a carrier, but with a specialism in a larger area. The 2PL is not part of a shipper and is often purchased on contract.
- 3PL; Logistics service provider who also takes care of warehousing as well as transport. By integrating with the client’s method, the customer is specifically working on a longer contract.
- 4PL; Does not have its own transport and warehouse equipment. The 4PL is purchased in the long term to improve the efficiency of the total logistics.
When to use a 3PL or 4PL?
If you are looking for a short-term logistic solution we recommend the use of a 3PL. By outsourcing your logistics activities you can save a lot of time and money. In addition, you no longer have to spend money on warehouse or transport equipment. The use of a 3PL also has the advantage that your logistics operations are carried out by staff with a logistic background.
The use of a 3PL has the disadvantage that you no longer have control over your logistics. This makes you dependent on the performance of your service provider. Innovating will therefore also be more complicated. Your 3PL service provider is not dependent on you and will not start investing if immediate benefits are available for your own organization.
If you no longer have insight into your logistics and are heavily dependent on 2 or 3PL, then deploying a 4PL is the solution. By centralizing all information, suitable carriers can be selected. By making your logistic information available also has the advantage that the 4PL will assist and advise you in developing your logistics supply chain.
When using a 4PL, you may feel that your grip on logistics will be reduced. Your service provider takes care of the logistics on your behalf. During the use of a 4PL you will maintain overview through real-time KPI dashboards. The feeling of losing grip is therefore not correct because you have more insight in your logistics than ever before.
And what is next?
In order to determine whether a 3PL or 4PL is suitable, we prepared multiple questions.
- Am I able to change my carriers?
- What are the logistic costs per route, product and costumer?
- Is the use of multiple modalities an option for the short term?
- Do I have the possibility to bundle my shipment from multiple plants?
- How much time is spend on selecting carriers?
- Are my logistic contracts in line with the customer’s wishes?
- Do I always have the correct status information on time?
Are you having trouble with answering the questions or is the answer often no? Then we will gladly help you. Please feel free to contact us to let us explain our 4PL services.