If you are trying to decide if a 3PL or a 4PL model is right for your logistics operations and supply chain, it is very important to understand the difference. Without this knowledge, you may not know which one is best for your company.
To begin with, a third party logistics provider (3PL) is a firm that provides specialized services in warehousing, transportation, and integrated operations. Many 3PLs provide value added services related to the manufacturing of a customer’s product as well as integrating other areas of the supply chain.
So, what is a 4PL? How is it different from a 3PL, and how can it benefit your supply chain? Here are a four things you should know about a 4PL and its benefits.
1. The term “4PL” used to be an Accenture trademark.
While the trademark is no longer registered, and any company can call itself a 4PL, it was a specific term to describe "a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution." That strict definition no longer belongs exclusively to Accenture, but is still very accurate when it comes to defining a 4PL.
2. A 4PL logistics company should manage ALL of your supply chain partners, ideally.
You may work with multiple 3PLs or logistics companies to connect all the links in your supply chain. Even with those providers, there may be some aspects of your supply chain you still have to manage. With a 4PL however, that should not be the case. 4PLs act as a single point of contact between you and all of the logistics providers required in operating your logistics network. This is why they are also commonly referred to as Lead Logistics Providers (LLPs). 4PLs can simplify the process, because they reduce supply chain functions being controlled by many providers in a myriad of ways. While the multiple 3PL model can be very successful for some companies, they can become confusing and frustrating when too many partners and philosophies come into play.
3. A 4PL partner is a separate entity, but relationships are often structured with a long-term contract or joint venture arrangement.
While a 3PL may work with countless companies, a 4PL will generally focus on a much smaller group of clients. They often work as close partners and have long-term contracts or form joint ventures with customers. They become more than just service providers, and this integration allows them to better understand their customer’s long-term vision and goals.
4. So, is a 4PL right for you?
With a single interface, you are not required to work directly with a large number of companies that provide your services. That keeps the time and money spent on your logistics lower, and can make it easier for you to keep everything running smoothly. Some of the most common reasons companies utilize 4PLs include:
- Supply chain partners lack uniformity and consistency
- Lack of end-to-end visibility across supply chain
- Acquisitions or rapid growth have created an inefficient and fragmented logistics network
- Cultural alignment and success with the right logistics provider
Kenco has experience in 3PL and 4PL relationships, so if you have questions, please post a comment.