You have a growing business manufacturing fantastic consumer goods. However, you’ve been having trouble fulfilling orders lately. As you do some research, you learn about 3rd party logistics and how it can help you. But you also come across 4th party logistics, and you decide you need one or the other.
Now, you need to determine which is the better option for your company.
What Is 3rd Party Logistics?
A company that manages 3rd party logistics (3PLs) works with the manufacturer and distributor of a product. The logistics company serves as the third party, which is the reason for the term 3PLs.
Companies that operate as 3PLs offer different logistics services to other companies. Services include:
- Inventory management
- Courier services
Most 3PLs specialize in offering these services to other companies. They rarely manage logistics for their own business. 3PL providers typically work as subcontractors, and they don’t control other aspects of business besides logistics.
Companies that want to outsource their logistics but maintain control over other areas should consider 3PLs. However, it’s also important to consider the pros and cons.
Pros and Cons
3PLs have a few benefits, but there are some compromises you may need to make. If you’re a manufacturer or shipper, you get to control your supply chain operations.
The 3PL you work with will help you with inventory, packing, and transportation. A 3PL provider can help you manage this part of your business, so you won’t have to worry about shipping.
However, working with one won’t affect the other parts of your supply chain.
3PLs are also relatively affordable, which makes them a good choice for newer and smaller businesses. If you need to outsource but don’t have a huge budget, a 3PL is the right choice for you.
Unfortunately, some 3PLs can be too expensive for new and small businesses. If you don’t have a ton of regular orders, it may not be worth the cost.
Also, because many 3PLs manage inventory, your business won’t have complete control over that. For some companies, inventory control is crucial.
Overall, you should consider whether a 3PL provider is right for you. In most cases, a 3PL is just what you need to manage your logistics.
What Is 4th Party Logistics?
While 3rd party logistics companies work in one area of the supply chain, 4th party logistics companies are broader. They are the middleman between clients and other logistics service providers.
4PLs also tend to control more of the supply chain for their clients. They sometimes have a more complex relationship with their client organizations.
Some 3PLs can create a separate division that acts as a 4PL. Doing that can be a great way for a 3PL to increase business and revenue.
In this case, the 4PL can manage its own 3PL services as well as work with other 3PLs. Fourth party logistics companies can come in handy for growing 3PLs that need extra help.
It can also be helpful for manufacturers and distributors who need more support on their supply chain logistics.
Pros and Cons
For companies that need more assistance in logistics, a 4PL can be useful. 4PLs manage everything in the supply chain, from product packaging to delivery.
They offer many of the same services as 3PLs, but they also offer strategy and analysis services. Strategy and analysis can help companies who need to make their supply chain more efficient.
4PLs are usually more expensive than 3PLs. Some smaller businesses may not be able to afford a 4PL provider.
Also, businesses that want more control over their logistics might find 4PLs to be too much. While the extra services can be nice, they’re not always necessary for clients who have their own team of analysts.
Key Differences Between 3PL and 4PL
When deciding between 3PL and 4PL for your company, you should consider the major differences. Of course, some companies will benefit from both options.
However, you should determine which is better for your company. Then, you will get the services you need without paying too much or making other sacrifices.
Who Manages Logistics
The first difference between 3PLs and 4PLs is who manages the logistics and the supply chain. In both cases, there’s a manufacturer and a distributor, which act as the first and second parties.
A logistics service provider acts as the third party and provides 3rd party logistics. The logistics provider helps manage the packing and shipping of goods.
Both the manufacturer and distributor can rely on the 3PL to manage that part of their supply chain.
If you factor in a fourth party, the 4PL will oversee the 3PL that manages the logistics. A 4PL also works with multiple 3PLs, so the same logistics provider might not always work with the same manufacturer or distributor.
Since a 3PL is a subcontractor, they focus on logistics and only logistics. They won’t analyze or change other areas of the supply chain.
On the other hand, a 4PL is more hands-on throughout the supply chain. They’ll work with the manufacturer and distributor to determine if changes are necessary.
Depending on the needs of a client, both options can work well. However, the differences are important to consider when choosing between 3PL and 4PL.
A 3PL provider offers basic logistics services. If you need help with inventory and transportation, 3PLs will have you covered.
However, some companies may want extra help from 4PLs. A 4PL can analyze how well the supply chain is going. If something isn’t perfect, the 4PL provider can come up with a strategy to improve the entire process.
Because of those services, the cost of each option is quite different. Before you select a 4PL provider, make sure you’ll use those extra services. Otherwise, you will be paying more for the same thing.
Should You Choose 3PLs or 4PLs?
If you want to outsource logistics, you can choose between 3rd party logistics and 4th party logistics. Both have pros and cons, and they’re very different.
While 34PLs provide more services, 3PLs specialize in managing logistics. If you want the best of the best for managing your logistics, a 3PL is the way to go.
Do you need help with your business’s logistics? Contact us to find out how we can help.