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What is fourth party logistics? Meaning, benefits, and services

Learn about the fourth-party logistics (4PL) model and discover its functions, working, and benefits to optimize supply chain management.

In today’s global trade landscape, managing the complexities of an export supply chain can feel like juggling too many pieces at once. That's where fourth-party logistics (4PL) providers come in. 4PL providers take full control of the supply chain and function as a central control tower for logistics management, allowing businesses to focus on manufacturing and sales. In this blog post, we will discuss what 4PL logistics is, how it works, and the advantages it offers to exporters.

What is fourth-party logistics (4PL)?

Fourth-party logistics (4PL) is a supply chain model where one service provider manages and coordinates all logistics operations for an organization, acting as a single point of contact. 4PL providers oversee everything, from transportation to inventory, storage, warehouses, shipping, and more., to improve supply chain efficiency and reduce costs.

Importance of fourth-party logistics (4PL) in exports

4PL suppliers provide complete logistics solutions and streamline operations by coordinating multiple logistics partners, optimizing costs, and ensuring smooth cross-border movements. This strategic oversight allows exporters to focus on business growth while leaving supply chain complexities to the experts. For instance, an Indian D2C brand selling sustainable fashion can use 4PL to manage logistics providers, select optimal shipping methods, and ensure timely deliveries. This reduces costs and enhances customer satisfaction.²

Services and functions of 4PL companies

Some services offered by most 4PL providers are as follows:

● Supply chain management

A 4PL provider designs or enhances supply chain strategy by assessing current logistics operations and recommending improvements. They also analyze market trends to forecast customer demand, helping exporters plan for capacity and inventory needs.

● Logistics network and transportation

4PLs negotiate contracts and choose carriers for cost-effective, reliable, and trackable transportation, coordinating the international movement of goods across various transport modes.

● Vendor management

4PLs manage supplier relationships to ensure quality and contract compliance, while selecting and coordinating logistics partners like carriers, 3PLs, and freight forwarders to meet performance standards.

● Inventory optimization

4PLs focus on inventory optimization by implementing strategies to maintain ideal levels, reducing carrying costs while ensuring product availability. They also manage warehouse operations to enhance efficiency and maximize space.

● Risk management

Supply chains are susceptible to various risks, making effective risk assessment and mitigation crucial. 4PL continuously monitors both internal activities and external market conditions to identify potential risks and develop strategies to mitigate them. They also ensure compliance with local, national, and international regulations.³

Advantages of fourth-party logistics (4PL)

The following are some of the main benefits of utilizing 4PL services:

Complete supply chain visibility:
4PL gives companies enhanced supply chain visibility, enabling them to monitor shipments, control inventory, and anticipate delays.

Cost reduction:
4PL providers can help businesses save more money on transportation, warehousing, and inventory management by outsourcing all tasks to a single point of contact.

Scalability and flexibility:
4PL logistics services are also inherently flexible, which means that if a business wishes to enter a new region or adapt to changing market needs, they do not need to reinvent their logistics system.

Centralized management:
Outsourcing logistics management allows companies to focus on core business functions like product development and client satisfaction rather than worrying about logistical issues.

Improved customer satisfaction:
Organizations that implement 4PL logistics operations see an improvement in customer satisfaction and loyalty as a result of faster and more dependable service delivery.

Disadvantages of fourth-party logistics (4PL)

Although 4PL offers numerous advantages, there are several drawbacks that companies should be aware of. Some of these are as follows:

● Loss of control

Relying entirely on a 4PL provider can lead to diminished control, which may not suit businesses that prefer a more hands-on approach to managing their supply chain.

● Dependency on the provider

Dependence on a single provider for all logistics solutions can make businesses vulnerable to disruptions, as any issues faced by the 4PL provider can directly impact operations.

● Complex implementation

The process of migrating to a 4PL structure can involve substantial changes in existing systems and processes, often making the transition slow and complicated.⁴

How does fourth-party logistics (4PL) work?

Here is an overview of how 4PL service providers generally work with export businesses:

● Assessment and strategy development

A 4PL provider will analyze your current operations, challenges, and goals to identify areas for improvement. Based on this assessment, they will create a customized roadmap with objectives, initiatives, and milestones.

● Design logistics framework

The 4PL will design or restructure your logistics network, covering warehouses, partnerships, workflows, and technology to make improvements.

● Implementation and performance monitoring

After implementing the changes, the 4PL oversees the process by coordinating with vendors and integrating systems. They continuously monitor supply chain performance, gather stakeholder feedback, and provide insights to adapt strategies based on market conditions and customer needs.⁵

When to choose 4PL for your business?

Here are some key situations where opting for a 4PL provider may be a good option for your business:

If your supply network involves multiple service providers and intricate logistics processes, 4PL can streamline coordination and management.

If your business needs a strategic partner to oversee product sourcing, and supply chain optimization, a 4PL can deliver comprehensive, strategic solutions.

If you’re expanding into new international markets that require specific logistics capabilities, a 4PL can ensure seamless operations.

If your current logistics setup has issues with visibility, scalability, or high costs, 4PLs can help drive efficiency and cost savings.⁶

Difference between 3PL and 4PL

Although both 3PL and 4PL logistics are essential to logistics management, exporters should be aware of the following important distinctions between 3PL and 4PL logistics:

Difference

3PL (Third-party logistics)

4PL (Fourth-party logistics)

Scope of services

Focuses on individual logistics processes such as warehousing and shipping.

Manages the entire supply chain from end to end.

Control and accountability

Exporter has more direct control over specific logistics functions.

Full supply chain management is handled by the 4PL provider, reducing direct control but increasing overall efficiency.

Technology and integration

Often uses conventional methods for logistics activities.

Utilizes advanced technology for better transparency and flexibility across the supply chain.

Cost and complexity

Typically more affordable with simpler operations.

More expensive and complex, but highly optimized and efficient for large-scale supply chain management.⁷

Conclusion

Fourth-party logistics (4PL) offers a valuable solution for exporters in an increasingly globalized trading environment. By comprehensively managing logistics functions, 4PL providers help reduce costs and enhance service quality across international markets. As supply chains grow more intricate, 4PL solutions can help businesses to scale more effectively, boosting their global presence and competitive edge. E-commerce exporters who are looking for cost-effective and hassle-free logistics and shipping solutions can also explore the tools and services offered by e-commerce exports 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. What is a fourth-party logistics example?

An example of a fourth-party logistics supplier could be any company that manages the entire supply chain for a large retailer, including procurement, transportation, warehousing, and distribution, by coordinating with multiple 3PL providers.

2. What are the components of 4PL?

The components of 4PL include supply chain strategy and design, procurement and supplier management, inventory management, transportation management, warehousing and distribution, and technology integration.

3. What is an example of 4PL?

An example of 4PL is a logistics provider that manages the entire supply chain for a multinational corporation, coordinating all logistics activities across multiple regions and suppliers.

4. Is 4PL costly?

4PL can be more costly than traditional 3PL services due to the comprehensive nature of the solutions provided. However, the cost is often offset by the benefits of improved efficiency, cost savings, and end-to-end supply chain visibility.

Published on November 6, 2024.

Sources:

1. https://www.shiprocket.in/blog/what-is-4pl/

2. https://www.shiprocket.in/blog/what-is-4pl/#Definition_of_Fourth_Party_Logistics_4PL

3. https://www.altexsoft.com/blog/4pl-explained/

4. https://www.warehouzez.com/blogs/fourth-party-logistics-(4PL)-advantages-and-disadvantages

5. https://www.altexsoft.com/blog/4pl-explained/

6. https://www.altexsoft.com/blog/4pl-explained/

7. https://www.penskelogistics.com/solutions/supply-chain-management/4pl-vs-3pl-differences/

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