3PL vs. 4PL: What’s the difference & why you should care
Fast-growing businesses often feel overwhelmed by the increasing complexity of their logistics. Are 3PL or 4PL services the answer? Here we explain what these terms mean and how they differ, explore the benefits of each, and identify the factors for selecting which one is right for you.
3PL vs. 4PL: the right logistics for each phase of growth
Dwight D. Eisenhower – Supreme Commander of Allied Forces in Europe during the Second World War and later US President – famously dismissed the value of a vision without the underlying infrastructure: “I have always found that plans are useless, but planning is indispensable.”
Entrepreneurial success begins with a business that makes a great product (the first party) and customers who want it (the second party). But too much success leads to logistical challenges that can undermine that success. Enter third-party logistics (3PL). What is 3PL? The short answer is outsourced logistics services, such as warehouse management and freight transportation services. 3PLs with the right expertise can even handle procurement, freight consolidation, packaging, and customs brokerage for cross-border sales. 3PL takes the pressure off your business, freeing you up to focus on what you do best.
But if your business continues to thrive, you may find yourself working with many different 3PLs. Most global companies understand this. They manage multiple business units, partners, and service providers to ensure success. This is where fourth-party logistics (4PL) comes in. What is 4PL? Also known as a lead logistics provider (LLP), a 4PL provider coordinates all the moving parts. 4PL providers act as top-level supply chain strategists, managing everything from resources to technology to infrastructure. Critically, 4PLs are the single point of contact for both the customers they ultimately serve and the 3PL providers they directly manage.
* Source: White House, Public domain, via Wikimedia Commons
Benefits of 3PL for SMB logistics
3PL providers typically focus on order fulfillment – storing inventory, picking and packing orders, and shipping packages – and cater to small and medium-sized businesses (SMBs) seeking rapid, seamless, sustainable growth. SMBs often lack the necessary economies of scale to justify acquiring their own fulfillment infrastructure. A good 3PL comes to the rescue with not only “hard” infrastructure, such as warehouses and transport vehicles, but also “soft” infrastructure, such as expertise and technology.
3PL technology can include warehouse management systems, data analytics and demand forecasting tools, and digital dashboards and control tower solutions that let customers track the location of their goods in real time. It’s the kind of smart tech increasingly common among logistics specialists but simply not accessible or scalable for SMBs whose core mission and expertise lie elsewhere. Such solutions are critical to real-time visibility and eliminating time-consuming WISMO (where is my order?) inquiries.
3PL by the numbers
Share of Fortune 500 companies that rely on 3PL services for their success
Latest valuation of global 3PL market (2021)
Projected value of global 3PL market in 2031 – a CAGR of 8.8% throughout the 2020s
Up to 65%
Share of abandoned online shopping carts due to slow or expensive delivery
Benefits of 4PL for enterprise logistics
As a business grows and thrives, the number of 3PL players critical to its success also rises. This makes communication and coordination increasingly burdensome and can even lead to inconsistent customer outcomes depending on which 3PL provider fulfills a given order. This is when medium-sized and larger enterprises typically turn to a 4PL provider.
If you think of 3PL as the logistics arm of an SMB, then 4PL is the logistics brain of a large enterprise. 4PL providers are end-to-end strategists managing and controlling the myriad activities within a supply chain network. A good 4PL offers a single interface for data consolidated from multiple 3PLs and a single point of contact for communications throughout the supply chain. Industry leaders use a sophisticated control tower solution offering the appropriate visibility to each supply chain player, from suppliers and manufacturers to shippers and end customers. This can give larger enterprises the competitive advantage to meet challenging customer needs, such as repeatedly delivering on-time and in-full.
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Think 3PL and 4PL, not 3PL vs. 4PL
Most people ask us what the difference is between 3PL and 4PL, as if the two services compete with each other, but a 3PL versus 4PL mindset is misguided. Both 3PL and 4PL can be the right solution for a business in different phases of its growth trajectory from plucky startup to market giant. And a 4PL model incorporates 3PLs, of course.
Both 3PLs and 4PLs are businesses that live and breathe logistics – experts in an increasingly complex and vital domain. This gives them the savvy to anticipate potentially catastrophic disruptions and the capacity to navigate around them.
Factors to consider in selecting a 3PL and 4PL provider
Hiring 3PL and 4PL providers means handing over control of your product logistics to other parties. That’s why it’s so important to choose 3PL and 4PL partners carefully: After all, customers don’t care how your product reaches them, they only care about getting their order on time, and any missteps will impact your reputation alone.
- Integration: Modern fulfillment centers are complex, high-tech places. State-of-the-art 3PL facilities have everything you need for successful customer logistics in one place for greater efficiency and a smaller environmental footprint.
- Customization: Today’s customers are no longer satisfied with a one-size-fits-all approach. 3PLs are set up to incorporate last-minute changes, reconfigurations, and personalization just before transport.
- Scalability: 3PLs have the agility to deal with seasonal fluctuations, sudden growth, and unexpected disruptions so that your customers don’t feel the impact.
- End-to-end packaging concepts: Your product never gets a second chance to make a first impression. So packaging counts – whether you’re shipping shelf-ready displays to retailers or memorable unboxing experiences to end customers.
- Sustainability: Today’s customers are increasingly unwilling to accept wasteful, excessive, unsustainable packaging. They’re even willing to pay more for sustainability! Leverage 3PL capabilities to give customers what they want and do right by the planet.
4PL solutions like DHL Lead Logistics Partner can transform your business, leveraging expertise and digital tools to design, manage, operate, and continually improve your supply chain. The benefits include:
- Design: Using expertise and digital tools, a 4PL can re-engineer processes and systems to improve material flow and optimize your supply chain.
- Management: An LLP sources and manages all your logistics providers, coordinating all the stakeholders in your supply chain. A 4PL provider can also offer customized, value-adding services such as customs and freight bill auditing.
- Operation: A 4PL provider doesn’t just design the best solution, they also make it happen. That means day-to-day management and end-to-end visibility of your supply chain. Leading control tower solutions sync material flows, minimize mistakes, and improve data quality.
- Optimization: 4PL providers using a “total logistics cost management” approach can give you complete visibility of all supply chain costs. While this level of transparency can improve budget planning, monitoring key performance indicators can provide actionable insights to minimize costs and continuously adapt to changing markets, fluctuating volumes, and evolving supply chain trends.
3PL/4PL control tower
Everyone deserves world-class fulfillment
Are you ready to scale up your fulfillment? Then let’s get to business. At DHL, we make it easy: easy to start with free onboarding and full technical support, easy to integrate with world-class IT and interconnectivity, easy to operate with full track-and-trace visibility, and easy to grow with in-house experts around the globe.
Published: May 2023