Understanding the Fundamentals of 4PL and 3PL Logistics

There are several reasons why a manufacturer or business might decide to outsource their warehousing and logistical operations. For some firms, it is a way to get more value for money by eliminating heavy capital investments. For others, outsourcing is a part of their long-term sales intensification strategy. And for some others, outsourcing is a means to gain an edge over the competition by adding more value to their services. Till a few years ago, a 3PL logistics firm would have been the first choice of firms for this purpose.

However, with the emergence of the 4PL concept, there is a paradigm shift in the logistical outsourcing scenario. So, what exactly is a 4PL firm and how is it different from a 3PL firm? To understand this, we would first need to understand what 3PL firms are and what services they offer.

Third party logistics (3PL)
This is a service provider that handles the outsourced part of the warehousing and distribution aspects of their client. There are several different supply chain management processes such as packaging, transporting, warehousing, and forwarding that one can expect a 3PL firm to handle. However, in the recent years, businesses began to expect more value-additions from a 3PL logistics firm. Sadly 3PL firms were unable to provide services beyond their core capabilities. This led to the emergence of the fourth party logistics firms.

Fourth party logistics (4PL)
A 4PL firm will combine latest software support services, and other specialized services in order to add more value to their clients’ logistical operations. In fact, many firms hire 4PL firms in order to manage their 3PL logistics firms. For instance, a 4PL firm is expected to handle the contract warehousing, shipping, and transportation firms hired by the core manufacturer. While doing so, a 4PL firm is expected to customize its service for each client based on their unique goals.

Thus, it is clear that the shortcomings of the third party logistics firms led to the emergence of the 4PL model. Here are some advantages presented by the fourth party logistics firms:

They help you to unlock value within the existing supply chain management and warehousing and distribution system.
They help you to choose the right kind of suppliers and service providers, such as contract warehousing firms, that can offer you maximum value for your money, as well as offer you bespoke services.
A 4PL firm is sometimes required to move out of its core business areas and provide certain ancillary services.
A 4PL firm also offers more competitive pricing, thus adding more to the expected margins of the client.

Most of these factors that we have seen above could not be expected from a 3PL logistics firm. Hence, it is evident that the services offered by a fourth party logistics firm are certainly more valuable.