The business environment grows more complex as the days go by, and supply chains are not far behind. Nowadays, there is a higher expectation for speed, efficiency, and flexibility. In a fast-paced world like this, effective logistics is crucial if you want your business to grow and thrive.
In order to navigate these challenges successfully, many online businesses have turned to logistics solutions such as 3PL logistics and 4PL logistics.
This article will delve deeper into the definitions of both types of logistics, understand the operational distinctions between the two models, and provide insights into how these order fulfilment providers can affect your business’ logistics strategy.
What is a 3PL?
Third-party logistics (3PL) are service providers that take charge of specific aspects of your business’ logistics function. Their services usually include warehousing, transportation, inventory management, and order fulfilment.
- Warehousing means providing storage solutions to hold products before distribution.
- Shipping and transportation involves the coordination of the movement of goods from one location to another.
- Inventory management means tracking stock levels to ensure efficient replenishment.
- Order fulfilment process is picking, packing, and shipping orders to customers.
Plenty of businesses opt for 3PL because they want to streamline their logistics operations while maintaining some control over their supply chain. It’s advantageous for small to medium-sized businesses that want to focus on their core competencies without the burden of managing logistics in-house.
What is a 4PL?
Fourth-party logistics (4PL) takes the concept of logistics outsourcing a step further. Think of a 4PL provider as an integrator. They oversee and manage all aspects of the supply chain. This often involves coordinating multiple 3PLs, technology providers, and other logistics partners to create a broader logistics solution.
Here’s a brief overview of the role of 4PLs:
- Single point of contact: The 4PL serves as the main liaison for the client. They simplify communication and coordination across various logistics services.
- Supply chain management: Unlike 3PL that mostly focuses on specific logistics functions, 4PL manages the entire supply chain process. From procurement to distribution, they take care of it.
- Strategic partnerships: A 4PL utilises technology and relationships with various service providers to optimise the whole logistics operations.
4PL is more advantageous for larger organisations that need complete supply chain management solutions — especially when working with complex logistics scenarios that involve multiple stakeholders.
The Difference Between Third Party Logistics and Fourth Party Logistics
Understanding the difference between a 3PL and 4PL is the key to making the right logistics choice for your business. Have a look at these side-by-side comparisons:
| Factor | 3PL | 4PL |
| Scope of Service | Focuses mainly on shipping, warehousing, and order fulfilment. | Does end-to-end supply chain management and oversees all logistics partners and activities. |
| Level of Control | Businesses have more control over logistics strategies, and it allows for flexibility in specific operations. | The 4PL has more control as a strategic partner and integrates all aspects of the supply chain. |
| Technology Integration | Mostly limited to inventory tracking, warehouse management software, and order processing systems. | Works with more advanced technology that tracks real-time data, order processing analytics, and full supply chain visibility. |
| Cost Structure | Pay-as-you-go pricing based on services used (e.g., warehousing, shipping). | A comprehensive service contract with higher initial costs but long-term scalability. |
| Operational Complexity | Less complex and focused on individual service. Better for businesses with straightforward logistics needs. | Manages multiple service providers and vendors. Ideal for complex and more global supply chains. |
| Ideal Business Size | Perfect for small to mid-sized businesses with defined logistics needs. | Good for larger companies with extensive or complex supply chains. |
How 3PLs and 4PLs Operate in the Supply Chain
Think of 3PL companies as your outsourced partner for specific logistics tasks — warehousing, transportation, and distribution.
For instance, an e-commerce business might partner with a 3PL to store and ship inventory. The main role of a 3PL is to execute logistics operations rather than oversee the entire supply chain. While a 3PL manages the “last mile” delivery of products to customers, it operates as a single element within a broader supply chain managed by the business itself.
3PLs work directly with companies to improve day-to-day logistics efficiency, but they don’t handle strategic decision-making.
Small businesses usually rely on a 3PL to simplify shipping while keeping internal control over procurement and inventory. This type of support lets businesses scale logistics without building their own infrastructure. In the end, businesses can focus instead on faster deliveries, improved customer satisfaction, and reduced shipping complexities.
In contrast, a 4PL acts as a logistics orchestrator. They manage the entire supply chain from a strategic viewpoint. Rather than handling physical logistics tasks themselves, 4PLs oversee and coordinate multiple service providers, which might include one or more 3PLs, suppliers, and tech providers.
This makes the 4PL a good choice for companies that want to streamline and optimise their logistics across all supply chain stages.
For instance, a 4PL might coordinate a global supply chain for a manufacturing company. They take charge of managing relationships with various 3PLs across regions to make sure that the product flows smoothly from production to the customer.
The 4PL also integrates advanced technology platforms that provide real-time data on inventory levels, transportation routes, and fulfilment progress. Because of its capacity for holistic oversight, 4PLs can make strategic adjustments that let businesses minimise costs, streamline processes, and adapt quickly to changes in demand.
Picture this — your business is launching a new product line.
With a 3PL, your business can expand its warehouse footprint and increase shipping capacity in specific regions.
However, if your business is working with a 4PL, the provider could optimise the entire supply chain — coordinating the movement of raw materials to manufacturing centres, organising warehousing in key markets, and managing last-mile deliveries through multiple 3PLs.
4PLs’ level of integration lessens the need for business involvement in daily logistics.
The Advantages of 3PLs and 4PLs
Both 3PLs and 4PLs offer significant advantages; it just depends on what your business goals are and what you need.
| Advantages | 3PL Services | 4PL Services |
| Scalability | Easily scales logistics services up or down based on demand. | Adapts end-to-end solutions as businesses grow globally. |
| Operational Relief | Eases the operational load for small to mid-sized businesses as they focus on specific logistics tasks. | Takes care of the entire logistics function and enables companies to focus fully on core activities. |
| Control | Businesses retain some control over certain logistics processes. | Businesses are hands-off. Control of the entire supply chain is left to the fourth party logistics. |
| Cost Efficiency | Optimises business costs by allowing businesses to outsource only what they need. | Integrates services and logistics providers for higher efficiency, though often at a premium cost. |
| Technology Integration | Provides technology for tracking and inventory management to enhance the order fulfilment process. | Leverages advanced tech for data-driven decisions and streamlined processes. |
Should You Choose a 3PL or a 4PL?
When selecting between a 3PL and a 4PL, there are certain factors that can help guide your choice. Here’s an overview:
Situations Favouring 3PL
If you’re a smaller or medium-sized business, a 3PL service is great for handling specific logistics tasks like warehousing or shipping.
If you’re looking for flexibility with minimal outsourcing, a 3PL offers a cost-effective way to scale without committing to full supply chain management.
When 4PL May Be the Right Fit
If you’re a larger organisation that deals with international markets and complex supply chains, a 4PL might suit your business more.
The comprehensive management from a 4PL can handle intricate logistics processes. They can offer strategic insights and technology to make data-driven decisions. This solution works well if you want an entire seamless operation that you won’t have to oversee.
What are factors to consider when you’re choosing between the two?
- Company Size and Business Complexity: Assess the scale and intricacy of your logistics needs. If you’re expanding or working globally, 4PL may be the better fit.
- Budget: Think about the long-term costs versus the benefits. While 4PL might come with a premium, the value could outweigh the investment if logistics are an essential aspect of your operations. But if you want to be in charge of your entire logistics process, it’s wiser to go for a 3PL service provider.
- Goals: Are you looking for flexibility and partial control, or a fully managed, hassle-free solution? Your objectives can help you decide which model aligns best with your vision.
Real-world Examples of 3PLs and 4PLs
Let’s look at real-world applications of 3PL and 4PL to see how businesses have leveraged these models in different scenarios.
Kudd.ly Blankets and Their Need for a 3PL
Kudd.ly blankets are popular for their luxurious comfort, and they found themselves in a position where demand for their cosy blankets was growing. While advantageous, Kudd.ly faced a challenge — their order fulfilment process couldn’t keep up with demand, and it resulted in unreliable inventory as pre-orders piled up.
So Kudd.ly partnered with a 3PL that could handle their rapid growth — Green Fulfilment.
Green Fulfilment’s task involved receiving multiple container loads of Kudd.ly stock, efficiently booking them within 24 hours, and prioritising fulfilling pre-orders with same-day dispatch by 4PM.
In a gist, Kudd.ly handled product sourcing, and Green Fulfilment took charge of Kudd.ly’s inventory management and order fulfilment process.
Baycrew and DHL’s 4PL Operations
To preface, there are multiple 4PL providers in the UK. One of the most popular ones are DHL Group, FedEx, and UPS. These providers are responsible for end-to-end transportation and the rest of the logistics package.
DHL took charge of warehouse consolidation for Baycrew to increase Baycrew’s capacity.
Baycrew operated more than 70 brands and sold their products via their retail stores and online channels. They operated from four warehouses-each one operated by a different 3PL vendor. This setup lacked transparency, flexibility, and efficiency. Baycrew was in a situation where their e-commerce sector was growing but the warehouse was struggling to scale up.
DHL came in and consolidated Baycrew’s existing operations, implemented a warehouse management system (WMS) to bring retail and e-commerce inventories together, and provided additional resource management.
In the end, Baycrew reached their original goal of number of orders shipped, doubled their inbound and outbound capacity, and benefited from the way WMS captured and allocated both retail and e-commerce orders.
So what did a 4PL solution do for Baycrew?
- Managed multiple logistics partners and streamlined processes across the supply chain.
- Integrated technology to facilitate real-time data flow across the supply chain and seamless order fulfilment across channels in spite of different business models.
- Designed a broader supply chain solution that supported the brand’s long-term growth.
- Provided a supply chain transformation strategy that consolidated physical locations, implemented advanced systems, resource management, and process improvements.
The Evolution of Logistics: From 3PL to 4PL
The rise of 3PL and 4PL models reflect the ongoing evolution in logistics.
From Traditional to 3PL
Back in the day, businesses took care of logistics in-house. Needless to say, it required substantial investments in warehouses, transport fleets, and staffing.
And as supply chains expanded globally, however, plenty of business owners realised the need for external partners with more specialised skills.
Following the massive consequences of the global pandemic, the e-commerce industry grew, and 3PL providers emerged as a natural solution for businesses who needed fast, efficient order fulfilment and delivery without the high cost of setting up their own infrastructure.
3PLs offered flexibility and it let businesses keep up with demand while retaining control over broader supply chain strategies.
From 3PLs to 4PLs
As supply chains grew more complex, the entire logistics process needed coordination across regions and multiple 3PLs.
Thus, the 4PL model became essential. Instead of managing multiple providers and technology systems, businesses could delegate the entire logistics coordination to a single 4PL.
This move enabled higher-level oversight, and it made it easier to address supply chain challenges proactively.
Looking Ahead to 5PL and Beyond
As technology continues to advance, the logistics industry is seeing discussions around 5PL (Fifth Party Logistics). It’s a logistics model that focuses on integrating e-commerce, big data, and automation to create hyper-efficient supply networks.
This evolution points to a future where logistics becomes even more data-driven and adaptable to market changes.
Final Thoughts
Navigating the logistics landscape can be challenging, but choosing the right support model can transform how your business meets today’s demands.
3PL service providers, like Green Fulfilment, give you the flexibility and targeted services that can help businesses of all sizes keep operations nimble and cost-effective.
Meanwhile, 4PL partners are ideal for complex supply chains — managing logistics from end to end and integrating the latest in technology and data.
In the end, understanding your company’s goals, scale, and logistics needs will guide you to the best fit. Whether you choose a 3PL or 4PL, the right logistics partner will help your business thrive and grow in a fast-paced, ever-evolving market.