Choosing a Third-Party Logistics Provider: Difference Between 3PL and 4PL
Third-party logistics providers (3PLs) and fourth-party logistics providers (4PLs) are services that can be contracted to assist organizations with logistics planning and execution, including inventory management and order fulfillment. Advantages include greater adaptability compared to in-house fulfillment.
You are probably aware by now that many businesses outsource their supply chain and delivery of goods to a third-party logistics service. Your 3PL can handle all aspects of your business, from warehousing and inventory management to order fulfillment, to the extent that you are comfortable handing over that much authority. They’ll even take care of the return process for you.
How do 3PL and 4PL Operate Differently?
If you’re looking to improve the efficiency of your supply chain, enlisting the help of a fourth-party logistics company can be a great move. While your 3PL will continue to handle the nuts and bolts of order fulfillment, your 4PL will act as the “control tower” for your supply chain.
To ensure that your supply chain runs smoothly, efficiently, and affordably, they will oversee your third-party logistics providers and any other services or suppliers you utilize. A 3PL company is a good choice for firms that need complete insight into their supply chain.
Many 3LP logistics providers are asset-based, meaning they own or lease the equipment and warehouse space they use to deliver their services. Because of this focus on profits, your 4PL may only sometimes have your best interests at heart. A 3PL, on the other hand, will focus solely on your supply chain and how it may be integrated and optimized.
Third-party logistics providers aren’t limited to large corporations; they may help businesses of any size expand. Let’s say you have a flash sale, or one of your goods becomes an internet sensation. Managing that influx of orders in-house isn’t always a viable (or cost-effective) option. In a time when 60% of worldwide consumers demand same-day, next-day, or two-day delivery, failing to meet these expectations may have a devastating effect on your brand’s reputation.
Types of Third-Party Logistics Companies
However, many 3PLs specialize in one or two areas of the supply chain. Depending on the complexity of your supply chain, this could necessitate the use of many 3PLs, in which case a 4PL could be of great assistance to your company.
Similar to the meteoric rise of the e-commerce industry, the third-party logistics business is expected to hit $1.75 trillion by 2026. There is a good reason why third-party logistics providers are in such great demand. Professionals in shipping and fulfillment store your goods in their warehouses and dispatch orders to clients. An overview of the many third-party logistics (3PL) service providers you can encounter follows.
Transportation
Transportation is the core competency of this type of third-party logistics provider. Numerous considerations should be taken into account when selecting a transportation 3PL provider, including the company’s location, the location of your consumers, delivery timelines, shipping methods, service alternatives, price, and discounts.
Warehousing/Distribution
Warehouse and distribution-focused 3PLs dominate the market. Order fulfillment, delivery, and returns are all taken care of by these third-party services. Warehouse rents are expected to increase by 10% over the next year, and a scarcity of 140 million square feet of storage space is expected by 2024, which would surely raise storage facility prices.
There are many factors to think about when choosing a third-party logistics provider for warehousing, including the number of locations and their locations, the pricing model for storage, the negotiated shipping rates, the delivery insurance, the daily cutoffs for order fulfillment, and the management tools.
Financial/Information
When your business hits the eight- or nine-figure sales mark every year, it may be time to bring on a financial 3PL to help you optimize your operations in light of industry standards and evaluate the state of the market.
Third-party logistics providers (3PLs) not only offer shipment services but also reverse logistics for processing returns. In order to return an item to the distribution center, a third-party logistics provider (3PL) might issue a return label to the consumer. You can tailor a 3PL’s offerings to your company’s specific requirements before signing a contract with them. From the time a consumer places an order until the moment it is delivered to their door, an experienced 3PL provider can manage the logistics of the supply chain on your behalf.
Make sure a 3PL has and signs a non-disclosure agreement before discussing sensitive information with them. Inquiring about the 3PL’s track record and reputation in the industry via references is a great way to complement conversations with the company’s representatives. Time will tell if any of the 3PLs on your list are a good fit for your business.
It’s crucial to take your time and find a reliable third-party logistics provider for your company’s best interests.
