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3PL vs 4PL: Understanding the Key Differences and Benefits

15 Oct, 2024 11 mins min read

Since the rise of e-commerce, businesses have become incredibly diverse—varying in team size...

In this article:: Order Fulfilment Process

Since the rise of e-commerce, businesses have become incredibly diverse—varying in team sizes, annual goals, and revenue targets. This means logistics solutions need to be tailored to fit, as a small startup will likely operate very differently from a medium-sized company. Understanding these differences is key to selecting the right logistics service.

Outsourcing logistics has gained attention in recent years, especially as social media can cause products to go viral and demand to skyrocket.

Deciding between Third-Party Logistics (3PL) and Fourth-Party Logistics (4PL) can be challenging, with each option catering to different needs. Identifying your business's requirements will help you make the best decision to streamline your order fulfilment and boost customer satisfaction.

In this blog, we’ll break down the differences between 3PL and 4PL, highlighting their advantages and drawbacks so you can choose the best solution for your business. Whether you're a small startup or a growing medium-sized company, we’re here to guide you to the right fit!

What is a 3PL?

If you’ve read any of our other guides, you’ll know that third-party logistics companies have many capabilities and can provide immense support to fulfil your e-commerce orders. If you haven’t—or need a refresher—don’t worry. We’ll run through the main components of a 3PL below.

A 3PL is an external provider that handles key aspects of your supply chain, such as 3PL fulfilment, warehousing, and transportation. In fact, more than 90% of Fortune 500 companies rely on 3PL services to manage their logistics needs. The 3PL market is expected to grow at a compound annual growth rate (CAGR) of 7.6% from 2022 to 2032, highlighting the increasing importance of these services for businesses of all sizes.

When comparing a 3PL vs 4PL, the most logical place to start is with the main functions of a 3PL. A 3PL focuses on specific elements of the supply chain, such as warehousing or shipping, while a 4PL takes a more comprehensive approach, managing the entire logistics process from start to finish.

Working with a 3PL

When you partner with a 3PL, they take over specific logistics operations, but you still remain involved in overseeing the overall process. Typically, you’ll collaborate with the 3PL on tasks such as:

Defining logistics requirements like timelines and order accuracy
Providing access to inventory levels through their 3PL systems
Reviewing performance to ensure the service meets customer expectations
Managing customer relationships and addressing issues related to logistics challenges

Example: When a Company Experiences Rapid Growth

A company recently experienced a rapid increase in online sales, far beyond what its current logistics setup could handle. It had previously managed order fulfilment in-house, but now it needed extra support without the overhead costs of hiring a large logistics team or leasing warehouse space.

Here’s where a 3PL comes in:

Warehousing: The 3PL stores all the company’s inventory in their facilities, eliminating the need for the business to rent a warehouse or store stock at their own premises. The 3PL warehouse management system ensures inventory is well-organised and easily accessible, allowing the company to scale up or down based on demand.
Order Fulfilment: When customers place orders online, the 3PL handles 3PL fulfilment by picking, packing, and shipping products directly from their warehouse to the customer.
Shipping Logistics: The 3PL negotiates competitive shipping rates with various carriers, ensuring timely deliveries and providing customers a smooth experience.
Returns Handling: The 3PL processes any product returns, inspects the items, and restocks them if necessary, making the returns process seamless for the company.

The services offered by a 3PL typically fall into these main categories:

Transportation: Freight forwarding, TL/LTL, intermodal.
Warehousing: Storage, 3PL warehousing, order fulfilment, inventory management.
Customs: Brokerage, compliance, duty drawback.
Supply Chain Management: Network optimisation, demand planning, risk management.
Technology: TMS, WMS, YMS, supply chain visibility.
Value-Added Services: Kitting, labelling, assembly

One major advantage of partnering with a 3PL is their ability to integrate seamlessly with your existing systems. Many 3PL services offer plug-ins for popular e-commerce platforms, allowing for real-time inventory levels, order status, and shipment tracking updates. This integration streamlines the fulfilment process, ensuring your team always has accurate data.

In addition to plug-ins, 3PLs also provide multi-channel fulfilment capabilities, meaning they can manage orders from multiple sales channels, such as your website, Amazon, eBay, or brick-and-mortar stores. This centralised approach enables efficient order processing across all platforms, ensuring consistency in fulfilment and a smooth customer experience regardless of where the sale originated.

By partnering with a 3PL, the company can scale efficiently, handling surges in demand without investing heavily in logistics infrastructure or staffing.

What is 4PL?

Think of a Fourth-Party Logistics provider as the general contractor for your supply chain. They focus on the bigger picture, managing everything from sourcing packaging to ensuring your products arrive at your customers' doors. By 2030, it's projected that around 20,000 companies will utilise 4PL services, highlighting their growing importance in the logistics sector.

When you partner with a 4PL, you’re essentially outsourcing your entire supply chain management to a single provider.

This approach is particularly beneficial for larger companies looking for the simplicity of having one point of contact for all their logistics needs. 4PLs are designed for businesses that require extensive management across various regions and want to concentrate on strategy rather than day-to-day logistics.

Collaborating with a Fourth-Party Logistics provider shifts your role toward higher-level planning and data management. Instead of handling logistics operations directly, you focus on shaping the logistics strategy while your 4PL manages the operational details.

Example: Simplifying Complexity

Consider a company that is experiencing rapid growth, with production spread across different countries and customers worldwide. Rather than managing all these moving parts alone, they decide to partner with a 4PL:

Comprehensive Supply Chain Management: The Fourth-Party Logistics provider coordinates everything—suppliers, third-party logistics, and shipping partners—across different regions.
Single Point of Contact: You won’t have to manage multiple logistics providers. The 4PL handles everything, from sourcing raw materials to delivering finished products.
Optimisation: They monitor your logistics operations closely, using data and technology to streamline processes and address unexpected disruptions.
End-to-End Solution: The 4PL manages everything, including supplier negotiations, customs clearance, and last-mile delivery, allowing you to focus on product development and enhancing customer satisfaction.

Key Components of a 4PL

A Fourth-Party Logistics provider encompasses several key areas that help streamline your supply chain:

Strategic Planning: Designing the supply chain and planning the network while managing risks.
Technology: Implementing solutions that enhance logistics operations.
Performance: Tracking key performance indicators (KPIs) and identifying areas for improvement.
Vendor Management: Overseeing relationships with 3PLs and other suppliers for seamless operations.
Financial Management: Managing budgets, costs, and overall performance.
Customer Integration: Aligning the supply chain with customer service goals.

In addition to these core components, Fourth-Party Logistics providers offer various services that can further enhance your logistics process:

Multi-Channel Fulfilment: Managing distribution across different sales channels, whether online, in stores, or both.
Inventory Management: Monitoring stock levels based on demand to minimise costs and avoid overstocking.
Plug-In Solutions: Integrating with your existing 3PL warehouse management systems to create a smoother operation.
Supply Chain Visibility: Providing real-time tracking and insights into your supply chain, enabling quick adjustments as needed.

By utilising a 4PL, businesses can effectively manage complex logistics needs while allowing them to concentrate on core activities. Whether you’re considering a 3PL vs 4PL approach, it's important to recognise that each has its unique strengths tailored to different operational needs.

Comparing and Contrasting: 3PL vs 4PL

When exploring logistics options, understanding the differences between 3PL and 4PL services can help you make the best choice for your business. Both provide valuable support in managing logistics, but they do so in different ways.

Both 3PL and 4PL services offer significant benefits:

Outsourcing Logistics: Regardless of which you choose, outsourcing tasks like shipping, warehousing, and inventory management frees up your time and resources.
Cost Efficiency: Both options can lead to cost savings by allowing you to tap into external expertise rather than managing logistics internally.
Technology Use: Most providers leverage technology to track shipments, manage inventory, and ensure smooth operations.
Scalability: Whether you opt for a 3PL or a 4PL, these services can grow alongside your business, adapting to your logistics needs.

Now, let’s look at how the main differences between 3PL and 4PL services shape their offerings:

Control: With a 3PL, you maintain more hands-on involvement in managing your logistics strategy while they handle specific tasks. In contrast, a 4PL takes complete control of the logistics process, overseeing everything from start to finish, which means you’re less involved in day-to-day operations.
Complexity: 3PL services are often better suited for more straightforward logistics needs, like order fulfilment for a limited range of products. On the other hand, 4PLs shine when managing more complicated supply chains, especially those with multiple suppliers.
Cost: Generally, 3PL services are less expensive because you’re outsourcing specific functions. In contrast, 4PLs usually come with higher costs, given they manage the entire logistics process and provide strategic improvements.
Flexibility: A 3PL offers you more flexibility to change providers or adjust services as your needs evolve. With a 4PL, changes can be trickier since they handle everything, leading to less flexibility in operations.
Strategy: While a 3PL focuses on executing tasks, a 4PL provides a broader view of your logistics strategy and aims to enhance the efficiency of your entire supply chain.

When it comes to choosing between services, businesses with straightforward logistics needs often prefer 3PLs. These might include small to mid-sized e-commerce companies or startups. In contrast, 4PL services tend to appeal to larger enterprises or those with complex global supply chains, as they provide a more comprehensive management of logistics processes. It's important to remember that companies of all sizes can utilise either service, depending on their logistics goals and operational needs.

By understanding the distinctions between 3PL and 4PL services, you can better assess which option aligns with your business goals and logistics demands.

Which to Choose for Your Order Fulfilment?

Choosing between a 3PL and a 4PL depends on several factors, including your business's needs, size, budget, and how much control you want over the order fulfilment process. Let's break it down:

1. How Much Involvement Do You Want in the Order Fulfilment Process?

If you want to stay involved in your order fulfilment while needing help with specific tasks like warehousing, shipping, or inventory management, a 3PL is a solid option. You’ll work directly with the provider, allowing you to oversee logistics while they handle the details.

A 4PL is the way to go if you prefer to delegate everything. With a 4PL, the provider manages your entire supply chain, including coordination with multiple 3PLs. This option allows you to focus entirely on your core business.

2. How Complex is Your Supply Chain?

For businesses with a limited product range or straightforward logistics needs, a 3PL can effectively manage your fulfilment process. They specialise in specific tasks, allowing you to tap into their expertise while you handle other business functions. This is especially advantageous for small to mid-sized companies that may not have the resources or need for comprehensive logistics management.

In contrast, if your supply chain involves multiple suppliers, various warehouses, or intricate distribution channels, a 4PL can offer significant advantages. They oversee all logistics operations, ensuring seamless integration of different elements in your supply chain. By managing these complexities, a 4PL allows businesses to focus on growth and strategy while knowing their logistics are in capable hands.

3. Are Keeping Costs at a Minimum Important to You?

If managing costs is a top priority, 3PL services generally provide a cost-effective solution. You only pay for the logistics tasks you need assistance with, making this approach ideal for smaller businesses or those experiencing steady growth. This flexibility enables businesses to scale their logistics operations as required without significant upfront investment.

On the other hand, 4PL services often come with a higher price tag but offer comprehensive management of your logistics processes. This added expense can yield substantial benefits for businesses looking to optimise their supply chain, especially those that need to scale operations quickly or require coordination across various regions. The investment can improve efficiencies and reduce overall logistics costs in the long run.

4. How Much Flexibility Do You Need?

For companies with straightforward supply chains, such as those that manage orders for a limited product range, a 3PL typically meets those needs well. They focus on specific aspects of your logistics, providing the flexibility to adjust services as your business evolves.

For businesses with more complex logistics operations—think multiple suppliers, different distribution channels, or intricate supply chains—a 4PL is often the best fit. They manage all logistics functions, offering integrated solutions that ensure everything runs smoothly. This can lead to more strategic oversight and improved efficiency across the entire supply chain.

A 3PL is ideal for businesses that want to outsource specific logistical functions but still retain some control over the broader supply chain. A 4PL is more suitable for companies that want to fully delegate supply chain management and benefit from strategic oversight and optimisation.

Final Thoughts on 3PL vs 4PL: Which Is Right for You?

Choosing between 3PL vs 4PL is a significant decision that hinges on your business's specific needs. If you want to keep some control while outsourcing tasks like shipping and warehousing, a 3PL can be your go-to partner for managing those essential logistics functions. On the other hand, if you're ready to relinquish control and let someone else oversee your entire supply chain, a 4PL can simplify the complexities and free up your time.

Ultimately, the right choice will empower your business to run efficiently, adapt to market shifts, and enhance customer satisfaction. Take the time to assess your unique requirements, and remember that whether you choose 3PL or 4PL, the objective remains the same: streamlining operations and providing an exceptional customer experience!

Is It Time to Partner with a 3PL Provider?

At Core Fulfilment, we’ve led the way in third-party order fulfilment for ambitious eCommerce brands since 2014. Our multi-channel fulfilment and outsourcing solutions cater to top eCommerce companies across fashion, fitness, health, beauty, and more. If you’ve decided that a 3PL is right for you in the 3PL vs 4PL debate, or if you’re still exploring which logistics service best fits your needs, get in touch with us today.