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What are the important differences between 3PL and 4PL?

If you're wondering what makes a third-party logistics vendor different from a fourth-party logistics vendor, you'll want to read this explanation of how they compare.

Most logistics professionals are familiar with third-party logistics (3PL) as the outsourcing of one or more aspects...

of procurement or fulfillment to an outside organization that specializes in that area.

Many companies use FedEx or UPS for package delivery and freight companies such as J.B. Hunt for larger shipments. These are 3PL suppliers that provide transportation and delivery. Other 3PLs might handle the details of warehousing, import/export logistics or the entire distribution process. 3PLs can deliver efficiencies and superior performance due to their specialization and economies of scale.

A comparison between the terms 3PL and 4PL

So what is the difference between a 3PL provider and a 4PL provider? A 3PL is expected to provide all of the contracted services through their own resources. When the 3PL outsources any part of their duties to yet another party, they become a 4PL.

If supplier x contracts with another company for warehousing the goods, supplier x is now a 4PL.

Your company might contract with logistics supplier x to handle shipping and remote storage of your products across the southern United States, for example. If supplier x contracts with another company for warehousing the goods, supplier x is now a 4PL.

Note that there is some controversy over these definitions, and some observers even define the cargo owner as a 1PL, the carrier as a 2PL and the 4PL as more of an agent or general contractor that supervises multiple service providers. Some specify that the 4PL must be non-asset-based or mode and vendor neutral.

Both 3PL and 4PL services enable core focus

The labels themselves don't really matter much in light of a 4PL's ability to offer more options for manufacturers to address the logistical needs of the business. Many manufacturers, in fact, recognize that logistics -- including transportation, warehousing, distribution, and even sales and customer service -- might not be core competencies.

Contracting with a specialist to carry out these tasks not only saves money and provides a higher level of service, but it also frees up internal resources to focus on those aspects of the business that are core competencies, whether that's production, design, engineering, marketing or another competitive strength.

One caveat: Both 3PL and 4PL services are critical to customer service and play a key role in the customer experience. So be sure to select and use reputable, reliable logistics suppliers that will deliver great service to customers to help build your own company's brand and reputation.

This was last published in November 2017

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What experiences have you had using either 3PL services or 4PL services?