One of the reasons why many businesses are successful in their endeavors is because they are able to maximize the efficiency of their operations. E-commerce is becoming a demanding landscape over the years and will likely continue to be in the future. As demand increases, businesses have to keep up and deliver great results to consumers.
The supply chain is an integral part of a business’s operations and it should be optimized so it becomes a seamless end-to-end process. For starting businesses with a small reach, logistics and transportation may not be a problem just yet. However, as the consumer base and demand steadily grow, you have to ensure that the supply chain will not get disrupted. Businesses that expand their reach and enter into new markets have to outsource a service provider to manage their supply chain.
Logistics companies help businesses move their products efficiently to their customers. It is their responsibility to optimize the supply chain process and use the right resources that fit the goals and needs of a business. There are different types of logistics providers a business owner can choose but for this article, we will be discussing 3pl and 4pl and how each of them can benefit you.
What is 3PL?
A third-party logistics (3PL) company is the most common service provider many businesses get for their supply chain management. In this model, the e-commerce business will delegate the logistics and transportation process of their products to their 3pl partner. Their services include warehousing, inventory management, packaging, and shipping. Some may outsource these services from another third-party provider but there are already companies that offer in-house services. This is a reason why a 3PL is more affordable than building or leasing your own infrastructure and hiring staff to manage inventory since it removes all upfront costs.
A 3PL also serves as the middleman between a manufacturer and a retailer. If you are getting your products from a manufacturer or supplier, you can have them sent to the warehouse for storage. Your 3PL partner’s responsibility is to schedule the pick-up or delivery of the products from the manufacturer and manage inventory based on SKU or stock-keeping unit. If their system or software is integrated with your online store, they can easily pick up the item/s from inventory once an order is placed.
Small to medium-sized businesses will benefit more from partnering up with a 3PL since they usually do not have the resources for infrastructure, inventory staff, and transportation. 3PLs with in-house services can the overhead costs and have an experienced team overseeing the distribution process. Since demand for small businesses fluctuates from time to time, a 3PL provider can scale up or down easily.
Advantages of 3PL:
- Allows a business to focus more on other aspects such as product development, marketing, and promotions
- Cost-efficient solution for storage and shipment needs
- Offers flexibility when scaling operations during demand fluctuations
- Perfect for small to medium-sized businesses that need warehousing and transportation
What is 4PL?
Fourth-party logistics (4PL) is one step further from 3PL. While 3PLs offer limited and basic services such as warehousing and transportation, a 4PL has a wider scope in supply chain management. They oversee the entire supply chain process from planning to execution. Unlike a 3PL, a 4PL is non-asset based meaning it does not own any resources but it controls and coordinates with 3PL providers to create a more optimized logistics process.
4PLs are more suitable for large businesses because they require more complex solutions for the constant high volume of demand. This involves coordinating with multiple 3PLs, and planning how to optimize and maximize the resources to increase the efficiency of the logistics process. A 4PL also serves as a single control point for supply chain management, simplifying overall communication and mobilization.
Large companies and corporations need to have a solid strategy for their supply chain management and a 4PL can provide them with it. It is their responsibility to find the most suitable 3PL providers to handle and transport the products. Their network is also spread across the globe which allows for a seamless shipment of goods especially when dealing with international shipping regulations.
Since 4PLs deal with multiple 3PL providers, they use advanced technology to integrate all systems in a centralized place, resulting in streamlined supply chain management. 4PLs also do analytics to identify further which areas need improvement and modify their strategy in case there are problems throughout the process.
Advantages of a 4PL
- Serves as the central point of the whole supply chain management
- Offers more strategic and comprehensive end-to-end solutions
- Plans and designs an efficient plan to streamline the supply chain
- Suitable for large businesses and companies with complex logistics needs
As a business owner, you want to make a great impression on your consumers by delivering great results without any problems. To ensure that you have a seamless supply chain, you will need to have a reliable partner by your side. Choosing between a 3PL or a 4PL will completely depend on what your business needs at the moment. Each of these providers can offer a streamlined supply chain but differ in their scope.
For businesses with low-volume orders and fluctuating demands, 3PL services are more suitable since they have the flexibility to adjust to unpredictability. But if you are a large business that constantly experiences high demand from consumers, getting a 4PL gives you more advantage since it designs a strategy to maximize the efficiency of your complex supply chain.
Bottomline is it will depend on your business size, structure, and budget. There is no wrong option between a 3PL and a 4PL because they contribute to the streamlining of your supply chain. What is important is that you know what your business needs and communicate with your provider so that they know how they can help improve your logistics process. As long as you choose a reliable and experienced partner, you can be assured that you are in good hands.