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3PL vs 4PL logistics guide: Know their working and differences

Discover the key differences between 3PL and 4PL logistics in this guide. Learn how each model operates, and which one to choose for your export business.

Globalization is paving the way for businesses to expand their operations across multiple locations, increasing the demand for effective supply chain management solutions. It is crucial for exporters to understand the distinction between third-party logistics (3PL) and fourth-party logistics (4PL), so they can choose the best option for their business. This blog post will discuss the differences between the 3PL and 4PL models and explain how they work.

What is third-party logistics (3PL)?

Third-party logistics (3PL) refers to outsourcing supply chain operations to specialized companies that manage various logistics services, such as transportation, warehousing, inventory control, order fulfillment, and delivery. A 3PL provider serves as an intermediary, coordinating the complex logistics processes required to efficiently move goods from the exporter to their final destination.¹

How does third-party logistics work?

3PL solutions allow exporters to focus on core business functions without worrying about logistical tasks. Some key services offered by 3PL suppliers are as follows:

1. Supply chain management

3PL providers plan and coordinate the transportation of goods from origin to the consumer in an efficient and cost-effective manner.

2. Warehousing and storage

3PL providers manage warehousing, ensuring the right products are available for orders. Besides inventory management, their duties also include documenting goods movements and providing suitable storage.

3. Order processing

The 3PL provider handles the picking, packing, and shipping of a product, ensuring timely and efficient fulfillment. It also undertakes returns and exchanges, involving sorting and re-entering returned products back to the inventory.

4. Technology integration

3PLs employ advanced technologies, including tracking systems and software, to provide real-time visibility into the supply chain.²

What is fourth-party logistics (4PL)?

Fourth-party logistics (4PL) is a more advanced logistics model that offers additional services beyond what 3PLs provide. A 4PL provider becomes a single point of contact for the exporter, acting as a logistics integrator, taking full responsibility for managing the exporter’s entire supply chain. This includes overseeing all 3PL providers, coordinating operations, and optimizing logistics flow for improved performance.³

How does fourth-party logistics work?

In a 4PL model, the service provider acts as a planner with the overall responsibility of managing the supply chain process. The following are some of a 4PL provider's key responsibilities:

Supply chain design and optimization:
4PL providers assess supply chain management systems and implement changes to optimize them. This includes improving transportation channels, reducing delivery times, and lowering costs.

Vendor management:
Acting as a central point of contact, 4PL providers oversee 3PLs that handle specific logistics functions like transportation, warehousing, and distribution, ensuring efficient chain communication.

Technology integration:
4PL companies may use supply chain management software to manage and oversee the supply chain operations in real time. This results in enhanced transparency and accountability over the supply chain.

Risk management:
4PL providers identify risks and vulnerabilities in the supply chain and create plans to minimize disruption. This consists of supply chain management, tracking geopolitical risks, and adhering to regulatory frameworks.

Continuous improvement:
4PLs continually analyze supply chain performance to identify opportunities for optimization, cost reduction, and process enhancement, adapting strategies to reflect changes in the business environment and market conditions.⁴

Key differences between 3PL and 4PL

Here are some key distinctions between 3PL and 4PL providers:

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3PL vs 4PL: Which one to choose for your export business?

When deciding between a 3PL and a 4PL logistics provider, it is essential to consider your business’s specific requirements. Here are some factors to keep in mind:

1. Business size and scale

Companies with simpler logistics needs may prefer 3PL solutions which offer essential logistics services. In contrast, larger organizations with complex supply chains are likely to benefit from 4PL, as it offers comprehensive management that smaller logistics structures can't provide.

2. Level of control

While a 4PL model with full supply chain management allows businesses to take a more hands-off approach, a 3PL provider gives the exporter more direct control and oversight into logistics operations.

3. Budget and resources

Due to its compressive suite of services, a 4PL supplier is more expensive than a 3PL provider. Businesses with a small capital may find outsourcing through 3PL services more cost-effective.

4. Supply chain complexity

In cases where the supply chain incorporates several suppliers, cross-border transport and many linked systems, 4PL may bring the strategic direction required for streamlining the chain. For less complex supply chains, outsourcing to a 3PL may be sufficient.⁶

Conclusion

When deciding between 3PL and 4PL services, exporters must consider the specific needs of their business. Small export businesses may find 3PL a competitive solution that avoids major disruptions, especially if they have limited volumes and variations. In contrast, 4PL is better suited for organizations looking to outsource end-to-end supply chain management and are comfortable giving full decision-making authority to the provider. Both models offer unique advantages, so businesses should assess their needs and goals to find the best fit. E-commerce exporters looking for cost-effective and hassle-free logistics and shipping solutions can also explore the tools and services offered by e-commerce export programs like Amazon Global Selling.

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce export program, Amazon Global Selling provides support and guidance at every step of your export journey, connecting you to Amazon’s Service Provider Network for tailored compliance, payments, and logistics support.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for fulfilment by Amazon (FBA) and outsource order fulfilment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping to the world, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

1. Which one is cheaper — 3PL or 4PL?

The cost difference between 3PL and 4PL depends on the complexity of a business’s logistics needs. While 3PL may be cheaper for basic services, 4PL can offer greater value by managing the entire supply chain, potentially reducing costs in the long run.

2. How do 3PL and 4PL work together?

Apart from being distinct categories, 3PL and 4PL can be complementary through various combinations of their offering. A 4PL provider may manage several 3PL providers and integrate them to achieve the best outcomes in the logistics supply chain. This collaboration allows for efficient logistics management and improved supply chain performance.

Published on November 6, 2024.

Sources:

1. https://www.sekologistics.com/au/about-us/knowledge-hub/3pl-vs-4pl-understanding-the-difference-and-choosing-the-right-solution-for-your-business/#:~:text=A%203PL%27s%20process%20mainly%20focuses,managing%20the%20entire%20supply%20chain
2. https://www.invensis.net/blog/3pl-vs-4pl
3. https://www.invensis.net/blog/3pl-vs-4pl
4. https://www.invensis.net/blog/3pl-vs-4pl
5. https://www.warehouseanywhere.com/resources/3pl-vs-4pl-logistics-definition-and-comparison/
6. https://ware2go.co/articles/3pl-vs-4pl/#:~:text=Understanding%20the%20difference%20between%203PL,when%20you%20require%20holistic%20solutions.

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