3PL vs 4PL – Third Party Logistics and Fourth Party Logistics
As supply chain management is an integral part of an eCommerce business, it is important to have an idea of the tools and mediums that are utilized when it comes to delivering the products to the end customer. It is not always possible for a sole eCommerce company to manage all the business processes starting from order process, shipping, to the end delivery. This is where supply chain mediums like Party Logistics or PLs come into play. They are the various workforce and divisions that are required to smoothly manage the flow of the items from the seller to the customer.
What is 3PL (Third Party Logistics) and 4PL (Fourth Party Logistics)?
To put it simply, a 3PL or a third party logistics company is an outside agency that carries out the shipping and distribution processes in an eCommerce business. The main company outsources the shipping work to this 3PL agency and they do it for a fee. On the other hand, a 4PL or a fourth party logistics company is defined in a broader context that not only manages the distribution but also looks into the management of these services, ranging from resource allocation, technical expertise and so on.
In order to know better about how an eCommerce business and logistics works, it is important that we get to understand these terms and their differences.
The Council of Supply Chain Management Professionals (CSCMP) has very well put out the differences between 3PL and 4PL. According to them, a 3PL agency is “a person who solely receives holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product”. On the other hand, a 4PL organization is a “supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution”. In most cases, it is a separate entity that can be formed along with the parent company.
These are the functions and operations performed by 3PL and 4PL agencies:
3PL and 4PL agencies function in the same way but their methods are different. While the former looks after the shipping and distribution like arranging freight, carriers or warehousing, the latter manages the end to end processes of these. It may be that the 4PL company can employ a 3PL agency to carry out the distribution and shipping.
Typically, a third party logistics (3PL) provider specializes in the following functions:
- Warehousing services
- Transport services
- Cross docking services
- Packaging and distribution services
- Freight services
- Inventory services
On the other hand, a fourth party logistics (4PL) agency would mainly provide expertise on:
- Procurement Services
- Distribution management
- Storage management
- Resource management
The success factor is based on utilizing both the 3PL and 4PL services according to the requirement. While a sound 4PL is needed to manage end to end supply and distribution process, a 3PL is needed to carry out these processes in real time.