Choosing the right fulfilment provider requires lots of research. There’s a lot to consider, such as pricing, location, and capacity. While looking into fulfilment providers, it’s likely that you’ll come across two types of fulfilment services: 3PL and 4PL.
Third party logistics (3PL’s) and fourth party logistics (4PL’s) are at the same time similar and different. While both provide eCommerce logistics services, 3PL providers are far more affordable and accessible for most eCommerce businesses. 4PLs are rarer, offering a service better suited to enterprise businesses.
Today, we’ll break down the key differences between 3PL and 4PL providers, helping you to get a better understanding of which kind of logistics service is best for your requirements.
In this article
What is a 3PL?
A 3PL, or third-party logistics provider, is a logistics company that specialises in providing fulfilment solutions to eCommerce businesses, or retailers who do a portion of their business online. Most 3PLs have a variety of services to offer their clients, and will work with them before the onboarding process begins to help them decide which services they’ll get the most out of.
Typically, a 3PL will handle all aspects of the order fulfilment process. This includes inventory tracking, warehousing and storage, picking and packing, shipping and returns management. 3PLs have highly optimised operations that allow them to process orders more efficiently than if you were to do it in-house.
Additionally, tech-enabled 3PLs (like J&J) also provide inventory management software to make managing your inventory easy. This, along with advice from in-house fulfilment experts, will help you ensure you’re getting the most value out of your 3PL, and can help you to make smart business decisions that will affect the growth and profitability of your eCommerce business.
What is a 4PL?
A 4PL, or fourth-party logistics provider, not only manages a 3PL on behalf of your business, but also manages areas of the supply chain outside of the fulfilment process. A 4PL takes a holistic approach to supply chain management, working to improve and optimise all aspects of your supply chain from suppliers to first-mile delivery, inventory and warehouse management (Note: 3PLs give you the tools and support to manage inventory, but won’t do it for you), logistic strategies, procurement and more.
A 4PL provider offers an affordable, efficient logistics solution to small, medium, and large businesses. If you’re moving significant volumes of goods, it can be difficult to find the time and resources to fulfil orders in-house.
Without an optimised fulfilment process, eCommerce businesses struggle to keep up with volume and provide fantastic customer service experiences. Using a 4PL can help you keep up with the pace of growth whilst continuing to offer outstanding customer service.
Similarly, a 4PL allows eCommerce businesses to spend the time and energy previously used on order fulfilment into other areas of the business. A successful eCommerce business not only needs to fulfil orders; they need to acquire new customers, source new products, develop new partnerships, engage with their customers and so much more. Outsourcing to a 4PL provider can help you give other areas of your business more love.
Main Benefits: 4PL vs 3PL
Many of the benefits of a 3PLs can also apply to a 4PL, so we won’t repeat them here. A 4PL will act as the middleman between your eCommerce business and your 3PL, while also looking after various other components of the eCommerce supply chain.
4PL Benefits
Working with a 4PL offers a truly hands-off approach. A 4PL essentially acts as an outsourced department of your business, with a one-hundred-percent focus on increasing the efficiency of your entire supply chain, top to bottom.
If you’re looking to expand your operations to every single corner of the world, a 4PL can help you get there. A good 4PL has the resources, knowledge, and contacts to help you solidify a solid global supply chain and market presence.
Another key advantage of outsourcing to fourth-party logistics providers is data management. Data can be difficult to manage, especially if you’re selling across multiple channels. A tech-enabled 4PL can help with your omnichannel fulfilment strategy, presenting you with all the necessary information to make informed decisions through one, user-friendly platform.
3PL Benefits
There are a lot of advantages that a 3PL can add to your logistics operations, including the following:
- Allow you to focus on core supply chain operations – As you outsource logistics to a 3PL, it allows you to spend more time and effort on marketing, customer service and product development.
- Streamlining the management of supply chains – With advanced technology and integrated supply chain services, 3PL providers can provide your business with real-time visibility into your supply chain.
- Compliance and mitigating risk – 3PLs offer stay up to date with the latest industry standards and regulations, including in pivotal areas such as customs, trade and safety.
- Enabling businesses to scale – One of the best benefits of 3PLs is through outsourcing your logistics processes to them, you gain quicker access to international markets and a wide network of suppliers.
3PL vs 4PL: 4 key differences
Perhaps the biggest difference between 3PL and 4PL services is that when you outsource to a 3PL, you will be working with the 3PL directly. When you outsource to a 4PL, an employee from the 4PL will communicate directly with the 3PL on your behalf.
Under a 4PL, you’ll have less control over the fulfilment process, as 4PLs will make most decisions on your behalf. Here are some other key differences between a 4PL and a 3PL:
Communication
With a 3PL, you’ll have direct contact with their customer service team, so you can be assured that you’re in the loop with everything that’s going on in the fulfilment process. With a 4PL, you’ll usually need to contact a 4PL representative for them to make contact with the 3PL on your behalf, which can be inconvenient at times. This is especially true during times of urgency, or if you need to communicate messages to your customers.
The fulfilment process
3PLs are highly optimised services that are solely focused on providing quick and reliable fulfilment services to both your business and your customers. They have specialised facilities, equipment, workers, and technology, to ensure that customers orders can be picked, packed, and delivered accurately and on time.
A 4PL will work with a 3PL on your behalf to achieve the above, but order fulfilment won’t be their sole focus. Other areas of the supply chain are just as important to them, and as such, time and resources will be split between multiple areas.
Control
By using a tech enabled 3PL, you will have full control over inventory management, the carriers you use, the locations you send your stock to (within your chosen 3PLs network), campaign planning, and much more. Nobody understands your business as well as you, so having ultimate control over your operations can give you peace of mind.
When outsourcing to a 4PL, you relinquish much of that control. While a 4PL, of course, has its benefits, you may find yourself distanced from the decision making process, as you won’t be working with your 3PL day-to-day.
Contact point
With a 3PL, it might be one of many points of contact across your supply chain. In comparison, a 4PL aims to be the single point of contact for the entire supply chain and multiple logistics services.
Should I Use a 3PL or a 4PL?
It’s always best to consider your current circumstances when deciding whether to use a 3PL or a 4PL. If you’re a start-up business or you run a small business alongside your full-time job, neither a 3PL or a 4PL will probably be appropriate.
Only outsource fulfilment when you’re genuinely committed to growing your business, and when you’re already fulfilling over one-hundred orders per month. This will make sure you’re getting the most value out of a fulfilment partner, and not spending cash when it could be better spent elsewhere.
If you’re a medium-sized or large eCommerce business, a 3PL could be a great choice for you. Many of our clients have come to us when they’ve begun to experience rapid growth, or they’re in the pursuit of growing their business. A 3PL offers a good balance between creating a reliable service for your customers, affordability, and giving you autonomy to do what’s best for your business.
4PLs are best suited for large business approaching or already at enterprise level. That’s because they can take much of the supply chain management work away from you, and they’ll be able to continuously optimise the various links within your chain. Even at this level, a 3PL can be beneficial to those enterprises that prefer to retain an element of control in their operations.
How a 4PL Works: Pros & Cons
In the logistics landscape, 4PL providers have revolutionised supply chain management. Let’s get into the inner workings of this logistics model, examining its processes and weighing the advantages and drawbacks.
Transportation
At its core, a 4PL orchestrates transportation logistics, seamlessly coordinating the movement of goods from point A to point B. Leveraging advanced technology and industry expertise, they optimise routes, streamline carrier selection, and ensure timely deliveries.
Warehousing
Central to the 4PL model is efficient warehousing. These logistics experts manage storage facilities, strategically positioning inventory to minimise transit times and reduce costs. By utilising data analytics, they optimise warehouse layouts and inventory levels for peak performance.
Inventory Management
A cornerstone of effective supply chain management, inventory control is where 4PLs excel. Through sophisticated forecasting algorithms and real-time monitoring, they maintain optimal stock levels, reducing excess inventory costs while preventing stockouts.
Shipping
Navigating the complexities of shipping, 4PLs coordinate the entire process, from order fulfilment to last-mile delivery. By tapping into vast networks of carriers and employing innovative tracking systems, they ensure smooth sailing for your shipments.
4 Pros of 4PL
- Cost Reduction: Through economies of scale and meticulous optimization, 4PLs drive down logistics costs, enhancing your bottom line.
- More Efficient Processes: With their expertise and focus on efficiency, 4PLs streamline operations, eliminating bottlenecks and enhancing productivity.
- Sourcing the Most Cost-Effective Services: By leveraging their extensive network of partners, 4PLs procure the most cost-effective transportation, warehousing, and other services.
- Strategic Improvements to Your Supply Chain: Acting as strategic partners, 4PLs provide invaluable insights and recommendations for optimising your supply chain, enabling you to stay ahead of the competition.
2 Cons of 4PL
- Expense: Engaging a 4PL comes at a cost, which may be prohibitive for some businesses, especially smaller ones.
- Control Shared with 4PL Partner: Entrusting critical aspects of your logistics to a 4PL means relinquishing some degree of control, which can be unsettling for businesses accustomed to in-house management.
Frequently asked questions
What other party logistics are there?
3PLs and 4PLs aren’t the only party logistics providers for outsourcing. In fact, there are first-party logistics (1PL), second-party logistics (2PL), and even fifth-party logistics (5PL). The difference between these supply chain solutions include:
- 1PL – A 1PL is where the company or person stores their goods himself and transports them to the end user. This is usually applied to startups and small production companies.
- 2PL – A 2PL is often the first outsourcing partner businesses work with. They provide both transportation and storage services and operate on a broader scale than 1PLs.
- 5PL – A 5PL is relatively new in the logistics industry. It provides the transport and logistics services of a 3PL with the supply chain optimisation of a 4PL. It prioritises the usage of the latest technology and often runs a network of supply chains for its clients.
What is an example of 4PL logistics?
The most conventional example of 4PL companies is Amazon. This is because it offers warehousing, transportation and inventory management services in one bundle. Some other examples are DHL and UPS, which offer end-to-end supply chain management.
Why choose a 4PL?
Outsourcing to a 4PL lets your business focus on improving customer service, streamlining your supply chain and amplifying your product design. Using 4PLs let you work on areas that need optimising.
Considering outsourcing to a 3PL? Get in touch with J&J Global Fulfilment
J&J are an award-winning 3PL provider with an international network of fulfilment centres. We combine fast, accurate fulfilment with industry-leading eCommerce software to provide our clients with an unbeatable 3PL service.
As one of the Sunday Times’ fastest growing UK businesses, we’ve helped hundreds of clients grow and Scale Up with us, including highly popular brands such as Cards Against Humanity.
For more information about our fulfilment process, award-winning technology, and outstanding client support, please do not hesitate to get in touch.
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