3PL Vs 4PL: Know The Differences to Elevate Your Supply Chain

For businesses navigating through the ever-evolving supply chain landscape, choosing the right partners can be a daunting scenario. One of them is definitely choosing between a 3PL or a 4PL. To this day, they can still be confusing to many supply chain professionals and could cause financial mistakes, delays, and eventually customer dissatisfaction as well. If this sounds like a familiar situation, then this guide is for you.

In this article, we’ll reveal more about the differences between a 3PL and 4PL, how they can work for your company, as well as which of them is more suitable for you, so that you will be able to use them to your advantage and be at the top of your logistics game!

What is a 3PL?

A 3PL or Third Party Logistics Provider is an outsourced service provider offering a variety of logistics services, mainly revolving around the physical movement of goods.

According to Supply & Demand Chain Executive, the rise of the internet of things is starting to push 3PLs to adopt technology and analytics to improve their services and provide more value to their customers at a lower rate than 4PLs. They are also starting to adopt a more collaborative approach with their customers to secure a long term business relationship.

Order fulfilment: 3PLs are capable of providing a variety of storage spaces and expertise to safely manage your inventory. Some of them even provide warehouse management systems with advanced analytics to better monitor the movements of the goods.

Transportation and freight management: 3PLs can offer a vast network of routes and modes of transportation to deliver products on-time with the most cost effective manner possible. No matter if you need your goods to be delivered via trucks, sea or air freight, a 3PL can help figure the best solution for you.

Freight forwarding: Got a shipment that requires complying with complex customs regulations, negotiating with international carriers, or handling import/export documentations? 3PLs can handle them for you to ensure your goods cross over the borders smoothly and efficiently.

What are the benefits 3PL can provide for companies?

3PLs can provide companies with benefits such as:

Cost reduction: 3PLs are great at leveraging economies of scale and optimized transportation networks, which can help many companies reduce logistics overheads on storage and transportation.

Improved efficiency: More 3PLs are also adopting modern technology and streamlined processes to help improve your supply chain efficiency. In this way, companies can provide more resources and time to concentrate on the more important aspects of their businesses.

Greater expertise: For many companies, they might not have enough time and resources to train up or even hire a logistics specialist yet. This is also where 3PLs can provide value to support as they already possess the experience and knowledge to ensure your supply chain stays competitive.

What is a 4PL?

A 4PL or a Fourth Party Logistics Provider acts more like an overseer that will manage all aspects of a company’s supply chain.

Today, 4PLs are also starting to provide tactical logistics solutions such as transportation or warehouse management while continuing to upgrade their services as industrial technology sees an update.

Overall, they mainly position themselves as strategic partners and will have a broader scope of responsibilities including but not limited to:

Supply chain advisory: 4PLs will provide business analysis, assess your goals, design a recommended supply chain architecture tailormade to a company’s needs.

Logistics partner management: 4PLs act as your central point of contact to manage relationships and negotiations between the company and your partners including manufacturers, distributors, carriers, etc to ensure an optimal performance across your supply chain.

Data analytics: 4PLs are data driven and can leverage technology tools to help to identify bottlenecks or potential disruptions to navigate through challenges and also suggest alternative solutions to improve overall supply chain flow.

What are the benefits 4PL can provide for companies?

By leveraging a 4PL’s holistic capabilities, companies can reap these benefits for their logistics operations:

Visibility: Companies will be able to gain transparency into their entire supply chain network, which will provide valuable insights on how the supply chain can be improved.

Cost optimization: Through a 4PL’s advisory, partner management and data analytics capabilities, companies will also be able to identify potential wastage of resources, attain better freight rates, and avenues worthy of further investment.

Carbon emission reduction: Depending on the 4PL, it may be able to provide a streamlined view of your upstream supply chain emissions, companies can determine how and where they can reduce their corporate carbon emissions to help make the world a greener place.

Do 3PLs and 4PLs work together?

Yes. As a 4PL serves mainly as an orchestrator of a company’s supply chain and a 3PL coordinates the physical logistics functions, there are scenarios where a 4PL will work together with a 3PL.

A 4PL could provide data-driven ways to help improve a 3PL’s logistics performance. In this way, the synergy of both logistics partners will be an incredibly powerful driver that can enhance the strength and resilience of a supply chain.

Is a 3PL or a 4PL better for my company?

There are many business factors to consider when deciding between using a 3PL or a 4PL for your company and we have laid down the key factors that are worth thinking about.

Choose a 3PL if:

Your logistics needs are mainly tactical: The need for efficient warehousing, transportation management and freight forwarding supersedes the requirement to manage your logistics partners or strategic planning.

Your company is a growing business: A supply chain network required for a small business also tends to be less complex to warrant a more in-depth solution provided by a 4PL.

Cost is a big concern: 3PLs generally offer a lower cost than a 4PL and if what you require revolves around the physical aspect of the supply chain then a 3PL should do the job.

Logistics operational efficiency is key: If you are looking to streamline routine logistics tasks, outsourcing them to a 3PL is an excellent way to save you time and effort.

Choose a 4PL if:

Prioritize supply chain optimization: A 4PL will be an ideal logistics partner that can help to analyze, design and manage your entire supply chain for long term growth and performance.

Your supply chain requirements are complex: Such supply chains tend to have a diverse network of carriers, LSPs, and customers to coordinate in between. Managing them would require expertise and a 4PL partner is a great option to consider.

Visibility is a must: If you require reliable visibility over your supply chain network, a 4PL will be able to provide a foundation that will enable you to achieve those attributes.

You are willing to invest for the long run: 4PLs tend to operate with their partners for the long run and would require a larger upfront investment. However, they do provide a holistic coverage on supply chain strategy which is worth the returns, especially for companies with a complex supply chain.

As you can see, a 3PL and a 4PL can provide advantages based on how it operates and the ideal logistics partner will ultimately be determined upon the business needs of your company.

The Transportation Management System Solution

If you are looking to have full visibility of your freight management processes without compromising control over it, investing in a transportation management system (TMS) could be the best choice. TMS users are able to be in the cockpit seat and implement their freight management strategies through the help of technology and an expanded carrier network.

At the same time, transportation management systems today are also capable of allowing users to monitor their shipments and communicate with their carriers to get quick updates on the statuses to ensure they are delivered successfully. If preferred, some of them are even capable of integrating with your preferred 3PL or 4PL to facilitate a more effective freight operation through technology.

Essentially, you get to take advantage of the best of both worlds and get offered even more technological solutions at your disposal. Cargobase as a TMS provider also provides rate card management solutions, invoice auditing, and data analytics to monitor the performance of your freight strategy aside from its core offerings.

To find out more, be sure to contact us and understand how Cargobase can help elevate your company’s supply chain to the next level.