In my brief engagement with the logistics industry, I often come across this question- if a 3 party logistics is better than a 4 party logistics? While I understand both the models are popular choices for eCommerce businesses, I am still unsure on what is the best option? Below is my understanding of the differences between 4PL services and 3PL, and I would appreciate it if others contribute with their extensive knowledge.
From what I understand, a 3PL model is best suited for organizations trying to scale their operations, as such it is a good option for small or medium sized organizations with growing order volume. And a 4PL model is best equipped for larger organizations handling larger order volumes. Therefore, a small sized organization can outsource their logistics and transportation operations while retaining the oversight of their supply chain using the 3PL logistics model.
In this regard, 3PL service would include the standard logistical and shipping operations- inventory management and inventory storage, warehousing, freight forward, custom brokerage, picking and packing of goods, last mile delivery and information technology solutions. Therefore, a small or medium business would be able to focus on scaling up their operations while a 3PL would maintain the daily logistics operations and provide customer support to maintain the adequate flow of information to the business.
Therefore, the 3PL model has many advantages such as processing large volumes of shipment, faster shipment in both local and international locations with reduced shipping costs, affordable for a growing business, controlling the returns management, and giving adequate control over to the business to monitor the daily operations of the 3PL. Though it provides adequate control over to the business owner, however, they have less control over the inventory and lesser control over the customer service experiences and modes of order fulfillment.
In contrast to 3PL, a 4PL model gains an overall control of the supply chain system and oversees the operations of 3PL on behalf of an organization (typically the manufacturers or the wholesalers at an enterprise scale). In this case, essential processes such as warehousing, packaging, logistics and delivery are all taken care of by the 4PL provider, along with formulating logistics strategies, analysis of transportation and carrier performances, managing product and planning for the business. In more concrete terms, a 4PL model would manage every element of the supply chain process including logistics (inbound and outbound, and reverse logistics), inventory management, freight sourcing, coordinating with different suppliers in different geographical locations and providing IT solutions at every stage.
In this case the advantages are- 4PL becomes the point of contact of the entire supply chain system and the different parties involved, creates strategies for maximizing profit margin, businesses can focus entirely on their products but organizations lose vital control over the supply chain process. Control is not extended to the logistics and order fulfillment processes leading to a degree of alienation. Also, it’s quite expensive which is somewhat prohibitive for small or medium sized businesses.
So, given the degree of control the 3PL and 4PL offers, and the types of services (somewhat overlapping too) , I suppose one can choose which is best for a business. But, from what I have read organizations tend to stick with a 3PL model to have more control over their supply chain operations even when scaling up their business. Though this is just my opinion, and I would love to hear what others think.
From what I understand, a 3PL model is best suited for organizations trying to scale their operations, as such it is a good option for small or medium sized organizations with growing order volume. And a 4PL model is best equipped for larger organizations handling larger order volumes. Therefore, a small sized organization can outsource their logistics and transportation operations while retaining the oversight of their supply chain using the 3PL logistics model.
In this regard, 3PL service would include the standard logistical and shipping operations- inventory management and inventory storage, warehousing, freight forward, custom brokerage, picking and packing of goods, last mile delivery and information technology solutions. Therefore, a small or medium business would be able to focus on scaling up their operations while a 3PL would maintain the daily logistics operations and provide customer support to maintain the adequate flow of information to the business.
Therefore, the 3PL model has many advantages such as processing large volumes of shipment, faster shipment in both local and international locations with reduced shipping costs, affordable for a growing business, controlling the returns management, and giving adequate control over to the business to monitor the daily operations of the 3PL. Though it provides adequate control over to the business owner, however, they have less control over the inventory and lesser control over the customer service experiences and modes of order fulfillment.
In contrast to 3PL, a 4PL model gains an overall control of the supply chain system and oversees the operations of 3PL on behalf of an organization (typically the manufacturers or the wholesalers at an enterprise scale). In this case, essential processes such as warehousing, packaging, logistics and delivery are all taken care of by the 4PL provider, along with formulating logistics strategies, analysis of transportation and carrier performances, managing product and planning for the business. In more concrete terms, a 4PL model would manage every element of the supply chain process including logistics (inbound and outbound, and reverse logistics), inventory management, freight sourcing, coordinating with different suppliers in different geographical locations and providing IT solutions at every stage.
In this case the advantages are- 4PL becomes the point of contact of the entire supply chain system and the different parties involved, creates strategies for maximizing profit margin, businesses can focus entirely on their products but organizations lose vital control over the supply chain process. Control is not extended to the logistics and order fulfillment processes leading to a degree of alienation. Also, it’s quite expensive which is somewhat prohibitive for small or medium sized businesses.
So, given the degree of control the 3PL and 4PL offers, and the types of services (somewhat overlapping too) , I suppose one can choose which is best for a business. But, from what I have read organizations tend to stick with a 3PL model to have more control over their supply chain operations even when scaling up their business. Though this is just my opinion, and I would love to hear what others think.
