Building Your Ideal Supply Chain, 3PL or 4PL

The popularity of supply chain management has added layers of service to traditional warehousing and distribution by creating terms such as third-party logistics (3PL) and fourth-party logistics (4PL). These terms, used loosely, have many clients asking, “How can these services benefit my product/business?” After consulting thebusinessdictionary.com, the definitions of these terms do not provide a full understanding:

“3PL: Arrangement in which a firm with long and varied supply chains outsources its logistical operations to one or more specialist firms, the third party logistics providers.”

“4PL: Arrangement in which a firm contracts out (outsources) its logistical operations to two or more specialist firms (the third party logistics) and hires another specialist firm (the fourth party) to coordinate the activities of the third parties.”

Can a 4PL provide the same services as a 3PL? According to these definitions: not quite. However, many case studies show 4PL companies providing storage and operating services to their customers. The most notable example of a 4PL model is Amazon.com. Amazon will store products in their warehouse, provide a website for commerce, pick and ship the orders to the consumer, and provide software assistance for the transaction

Traditional days of warehousing and distribution required each client to keep track of their products at a third party location, as the warehouse did not support records of goods movements. The necessity for providing internal warehouse processes for managing inventory, shipments, purchase orders, and stock created the 3PL market.

Companies providing 3PL services offer material procurement, storage, distribution, shipping, and processes for each. The processing includes a software (often on a cloud-based storage system) that manages ordering and stock situations. Using a 3PL company leverages the benefits of a multi-million dollar facility and tracking software, with none of the up-front costs. In turn, this allows you to scale the volume required to market demands. Non-core business operations such as part storage, pick and pack, and simple procedures are great ways to use 3PL services to improve your profitability.

The 4PL market is a broad expansion of 3PL services. Companies offering 4PL services include functions of 3PL firms, but provide their customers with end to end solutions from production to commerce. The offerings of 4PL organizations include business processes outside of what 3PL companies are comfortable with providing.

Processes that differentiate 4PL from 3PL firms are customer service, Enterprise Resource Planning (ERP) Software, product repair, maintenance, and custom built programs that develop existing processes. Additional programs include activities such as expanding a traditional pick and pack model to include online ordering. Other 4PL companies will assist with product roll outs, find markets for adding customers, and track sales.

There are many ways to expand a 4PL, and the logistics industry will continue to grow with new technology and applications; leverage these services to develop your business.

H/T Global Logistics Media

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