R2 Logistics

What are the Differences between 3PL and 4PL?

3PL vs 4PL: What are the Differences?

r2 logistics supply chain management 3pl vs 4pl

Let’s start with the basics of 3PL vs 4PL: what do they mean? Third Party Logistics (3PL) and Fourth Party Logistics (4PL).

Logistics is the method of controlling the flow, warehousing, and supply of goods in a market or business. It is a part of supply chain management where all information and operations are managed regarding how the goods will get from point of production or origin to the point of consumption.

Third Party Logistics is the process of outsourcing business supply chain logistics to a third-party or another firm. 3PL can be a system of services that manage the supply and transport of goods from one firm to several market destination points around the world.

Usually this is done because the 3PL firm has the capacity, networking ability, and resources to engage with new markets, negotiate supply chains, and facilitate large-scale supply transport and warehousing.

Fourth Party Logistics  typically directs every moving part within the customer’s supply chain and serves as a single point of contact for all parties involved.

3PLs can be one of several points in the supply chain process for the customer and can be one of many managers of the supply chain. 4PLs are the main points of the supply chain and are solely tasked with the control and management of supply chain operations.

 

3PL vs 4PL: How are they Different?

The essential difference between the two is that 3PLs oversee outsourced services while 4PLs look after supply chains.

The degree of complexity in the supply chain and the greater control in 4PLs separates the two. If you want to surrender all control and have a specialist firm manage your supply chain, 4PL might be the better option.

3PLs are seen as transactional, as collaborative measures with the client and can be good options for firms who can still handle their customer base and have simpler supply chains.  

Another crucial difference is that 3PLs are more popular in the supply chain market. Let’s consider the market for each of them. The market value for 3PL exceeded 1 trillion dollars in 2019.

86% of shippers have declared that the 3PL method helps businesses by creating better customer service relations.

Conversely, the world 4PL market value was recorded as 56,472.1 million dollars in 2019 and is predicted to rise to 78,981.5 million dollars in the coming decade. This means that the 3PL market is booming while the 4PL market is still in its initial stages.

 

3PL vs 4PL: Which is Right for Your Business?

We are comparing 3PL vs 4PL, and both are excellent options. However that doesn’t mean that either one will always work well for you.

 This is why you need to figure out which one is the right fit for your business. The following questions can help you figure that out.

What can you afford?

While 4PLs might be attractive to business owners who want to expand their market and relinquish strategic control, 4PLs cost far more. This is why most mid-sized and smaller companies often go for 3PL firms because they are more affordable. When selecting a Logistics Provider, you need to consider their costs and whether they fit into your budget.

What are your strategic goals?

3PLs tend to work better for businesses that have the capacity to handle and control their logistics and strategic goals in the short term and long term. 4PLs are often recommended for those firms that require outside intervention in their strategic goal alignment, logistics and supply chain management. If your business is not meeting set strategic goals, you could consider outsourcing the task to an external resource.

How complex is your supply chain?

One final thing you need to consider is the complexity of your supply chain. 3PLs tend to be better fits for businesses which have simpler supply chains while 4PLs handle more complex supply chains.

The Advantages of 3PL

Reduce Overhead Costs

Third-Party Logistics companies are the best at what they do, plain and simple. They are the experts in their field and thus have more knowledge than their supply chain function. They will often have already established relationships in the industry, which positions them ahead of the game. They will be better at negotiations and better at securing discounts for their particular clients. The short of it – they will save you money. A 3PL can do it all.

Open the Door to More Know-How

The current global market is both complicated and complex. It’s hard to get a handle on everything occurring and anticipate what will happen next. However, with a 3PL provider, you can do those things plus more. They are familiar with transport documentation, import and export, international compliance and economic regulations, and beyond. Businesses looking to expand into global markets can benefit from the logistics support and know-how their 3PL partner can provide, thereby reducing costly delays, cutting down the cycle time, and making entry into a new region or delivery area trouble-free.

Streamline Your Skills

Looking externally for a logistics provider will leave your company with more time on its hands to focus on getting the job done. Outsourcing is the way to go – your business has one non-core but essential element taken off their plate and has the reassurance that their logistics operations are taken care of by a professional. It’s a win-win and will enhance both your company and your partnering logistics company.

Acquire Increased Scalability and Flexibility

Third-party logistics in supply chain management offers enterprises the flexibility and scalability to utilize supply and distribution resources based on current business needs. Redistributed resources prevent redundant investments and under-utilized resources when sales are down. Enterprises can quickly upscale when demand surges.

Enable Business Growth and Market Expansion

The primary purpose of third-party logistics in supply chain management is to enable business growth by allowing companies access to new markets. Managing inventory in a new market without spending money on warehousing, equipment, and labor can save dollars. Most small businesses cannot invest in large-scale shipping operations because they lack the resources required to fuel, maintain and operate a fleet. Outsourcing transport needs to a third party enables the business to grow but stay within budget.

Increase Client Contentment

Combining all advantages above makes it easy to see why outsourcing logistics to a 3PL provider will increase overall client satisfaction. Response times within your company will be both better and more reliable leading to more satisfied clients – the ultimate goal of all businesses.

 

The Advantages of 4PL

Trusted Advocacy

4PLs, also referred to as Lead Logistics Providers, direct every moving part within the customer’s supply chain and serve as a single point of contact for all parties involved. 4PL providers take logistics services up a notch as they naturally have a much larger degree of involvement in business operations. They strive to improve their client’s supply chain procedures at all times. Commitment between 4PL providers and their client is long-term, and it goes beyond transaction provisions.

Customer Connectivity

There are many ways these days that consumers and retailers are connecting (new outlets materializing daily), and the supply chain management process is likewise evolving. Online options have spurred brand new consumer habits. People spend less time in-person with retailers and rely more heavily on online interfaces and chats for their customer service connections.

While this idea is circulating that digital communications harm the customer-company dynamic, 4PL providers can improve customer relations for their B2C clients by keeping consumers in close contact with their purchases. When 4PL’s take on a client’s logistics needs, they also take on the needs of their customers and, as a result, increase brand trustworthiness and loyalty.

Improved Core Competencies

Operational improvements designed to streamline work and eliminate inefficiency allow 4PL logistics clients to reduce their spending habits. These improvements can leave company resources accessible and available for redistribution.

4PL service adoption aids companies hoping to redistribute much-needed resources away from wasteful logistic practices and directly into the company’s core competency efforts. By focusing on a company’s core foundations while allowing 4PL experts to handle the distribution of products, clients find they can keep everyone focused on their primary tasks. When you properly direct your logistics, productivity can only increase.

Just like a business knows their product and clients, so, too, do 4PL providers. Trusting 4PL providers to oversee an area they are experts in improves company efficiency.

Corporate Expansion

If growth and buildout is a sole goal of a particular company, then 4PL providers can quickly spirit that vision into reality with minimal disturbance to the company’s day-to-day. 4PLs have access and relationships within the supply chain industry to assist businesses.

Think of 4PLs as supply chain architects. They build and bolster reliable networks to support a growing company’s logistical needs. They are often already in good standing with both national and international partners. Developing systems for the efficient execution of the flow of goods can be seamlessly accomplished with the right 4PL provider.

Corporate Clarity

4PL providers are the only contact point between their client and their supply chain process, streamlining the entire process. Fourth-party logistics providers oversee and manage the complexities of a company’s logistical operations from start to finish.

Having a singular contact point to coordinate each logistics step throughout every link of a company’s supply chain, from material sourcing, manufacturing considerations, and last-mile solutions provides a unique look into a company’s overall operations.

 

Contact us today to learn more about the difference R2 Logistics can make for your supply chain.

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