The ecommerce industry is full of jargon and acronyms that often need explaining. One such abbreviation is 4PL, which stands for 4th party logistics. If you are an online retailer and aren’t familiar with what a 4PL is and what it does, then keep reading.
You’ve likely heard of 3PL (third-party logistics) while running your online business, perhaps you even use one. But, what is a 4PL? We’ve outlined everything you need to know about a 4PL. We cover what a 4PL is, what it does, how it’s different from a 3PL, and how to decide if your business needs one.
To better understand 4PLs, you first need to understand what 3PLs do.
How does a 3PL work?
Typically, a 3PL covers receiving, handling, storing, and shipping your products. They usually do all this under your business name, not theirs. While a 3PL may provide warehousing, picking, packing, and even some inventory management, you and your business are still somewhat in the managerial role.
Related: Beginner’s Guide to 3PL Providers
What is a 4PL and how does it work?
A 4PL is responsible for the management of your whole supply chain, including the legal aspects and decision-making. What does that mean? It means that you sign a contract with your 4PL provider and pass the management of your complete supply chain over to them. In other words, your 4PL provider uses its own resources to make sure the needs of your supply chain are met, and your business has no control over how it happens. Additionally, a 4PL may manage your 3PL providers, or they may be a branch of your 3PL.
The differences between 3PL and 4PL providers
While the differences may seem apparent, there is frequently some confusion (or debate) about what makes 3PLs and 4PLs different. Many 3PL providers identify themselves as 4PLs and vice versa, despite having different levels of logistical services. This confuses ecommerce retailers and makes it difficult to decide which provider to use.
To put it simply, the main difference between the two is that a 3PL will handle your stock and shipping while a 4PL handles your 3PLs and entire supply chain, including purchasing more stock.
Which level of logistics is right for you?
When it comes to outsourcing, many ecommerce retailers find it a cost-effective and efficient way to run their businesses. Not only are many of the operational requirements of running an ecommerce business handed off, but business owners can rest assured because logistics providers are experts in their fields – they know the most efficient and effective ways to get products to your customers. Once you’ve chosen to use a logistics provider, your next step is to decide if using a 3PL will provide enough support.
One of the most important questions to ask yourself during the decision-making process is, “how much managerial control do I want?” followed by “how much labor am I able and willing to put in?” Answer these questions, and you should be headed toward the right decision. It may seem like a simple approach to making a complicated decision, but it’s a starting point.
Remember these key things about using a 3PL provider:
- The provider will handle the storing and the moving of your inventory, but you have managerial control
- You will be responsible for all the legal and insurance aspects of your operations
- You will have managerial control, which means you need the manpower to handle the data analytics and decision-making.
With a 4PL provider:
- The provider will handle everything – including your relationships with 3PL providers and all aspects of your supply chain management (as specified in your contract)
- You will not have a say in how things are done to achieve your common goals
Using a logistics provider can greatly improve and grow your business but deciding which to use can be daunting. As with any business decision, big or small, this one will take some careful consideration. Determine what your business needs are, the extent of your resources (financial and manpower), and what your main priorities are for your company, to ensure that you make the right decision for you.