3PL vs 4PL: What is the Difference & Which is Best For You?

Logistics is more than a convenience; it's a strategic necessity for business success. 

When it comes to understanding supply chain management, deciding between 3PL and 4PL providers is a critical choice with far-reaching effects on operational efficiency. 

To choose the right fulfillment provider, keep reading to find out the main differences between the two.

Before we can get into the differences between 3PL and 4PL, you must have a basic understanding of what they are.

So let's understand 3PL and 4PL.

What is 3PL?

A Third-party logistics company (3PL) is an outsourced logistics solution that involves a third party providing the services required to fulfill orders.

This includes order processing, storage, inventory management, transportation, and customer service.

It’s a cost-effective way to outsource transportation and logistics processes, as the 3PL provides an efficient system that is ready to use. With 3PL services, businesses can save time and money on setting up their transportation and distribution systems. That is the main reason why major companies use 3PL services. 

Here are the key features of a 3PL company:

Core Competencies and Functions (Transportation, Warehousing, Fulfillment)

At its basics, 3PL fulfillment process revolves around core logistics operations. It takes charge of transporting your goods, providing warehousing solutions for storage, and managing the fulfillment process – all critical elements in ensuring your products reach their intended destination efficiently and on time.

Technology Integration

Modern logistics relies heavily on technology for precision and efficiency. 3PL providers use advanced tools and 3PL software systems to monitor, optimize, and coordinate the different parts of supply management.

These technology-enabled 3PLs ensure real-time tracking, minimizing disruptions, and enhancing overall logistical effectiveness.

Network and Infrastructure

A distinct advantage of 3PL is the extensive network and infrastructure it brings to the table. The international 3PL providers operate across diverse locations, offering your business the advantage of a well-established logistics network. 

This interconnected setup facilitates broader market reach and timely deliveries, akin to having a 3PL fulfillment center in the best location according to your business needs. 

What is 4PL?

Fourth-party logistics, or 4PL, acts as an even more advanced form of outsourcing than 3PL.

Also called Lead Logistics Provider (LLP), these act as an integrated service provider and offer end-to-end supply chain management solutions. It integrates all elements of the supply chain, including freight management, inventory control, warehousing, and transportation.

The 4PL provider also serves as a strategic partner for the organization and helps it develop cost-effective strategies to optimize its supply chain operations.

With 4PL services, businesses can access a single point of contact for all their logistics needs. This streamlines operations and eliminates the need to maintain relationships with multiple vendors. 

While 3PL companies focus on specific logistics functions, 4PL can take on similar roles but with a broader scope. In fact, a 4PL may manage multiple 3PL providers, coordinating their efforts to ensure a cohesive and efficient supply chain.

In essence, 4PL provides a higher level of logistics services.

How Does a 4PL Work?

4PLs work by creating a comprehensive, end-to-end network of logistics services and processes to ensure the efficient movement of goods.

They start by understanding the needs of a business and then create a customized plan for how to achieve them. They will then build the necessary infrastructure and processes, such as selecting shippers, carriers, and warehouse management.

Moreover, 4PLs work and coordinate with various 3PLs to provide services such as warehousing, managing inventory, packing, shipping, etc.

Once everything is in place, the 4PL provider monitors all activities within the supply chain to ensure that all processes are running smoothly and efficiently.

3PL vs 4PL: Key Differences

Now that you know the basic definitions of 3PL and 4PL, we can move ahead to understand the key differences between them.

There are several major differences between the two types of logistics services. So, let's get into it!

Order Fulfillment vs. Comprehensive Supply Chain Management

The biggest difference between a 3PL and a 4PL is their primary function. The main job of a 3PL is order fulfillment.

The 3PL fulfillment process includes warehousing the products, receiving an order, picking, packing, and shipping.

A 4PL company, on the other hand, offers a comprehensive, end-to-end service that covers all aspects of the supply chain.

It covers everything a 3PL does, plus everything that comes before and after order fulfillment. The management of the entire supply chain, from planning to distribution.

Scope of Involvement: Specific Services vs. End-to-End Management

A 3PL provider works directly with the businesses and only provides specific services that are explicitly required by the business.

3PLs provide access to data and analytics tools that can help merchants make better decisions. This includes demand forecasting, shipping data, real-time inventory levels, and more.

While working with a 3PL, the merchant is ultimately responsible for deciding how to optimize the supply chain. Meanwhile, the 3PL provides complete order fulfillment assistance according to the merchant's demands.

A 4PL provider, on the other hand, is responsible for managing the entire supply chain of a business. This includes strategic planning, sourcing and procurement management, inventory optimization, freight management, and much more.

While working with a 4PL, the merchant is not directly involved in any step of the supply chain. Since communication is filtered through 4PL to various 3PLs, it acts as a middleman in the process which can delay any possible issue resolution.

Service-Specific vs. Integrated Supply Chain Solution

A 3PL provider will typically be responsible for providing specific services demanded by a business.

In comparison, a 4PL provider takes on more general responsibility to ensure an integrated supply chain solution. It is responsible for ensuring the optimization of a business’s supply chain operations.

In conclusion,

While 3PL and 4PL both focus on logistics solutions, they are quite different in terms of scope and responsibility. 

A 3PL mainly focuses on order fulfillment services and day-to-day operations. While a 4PL is responsible for the full supply chain management services.

Understanding these differences helps you make a more informed decision about which logistics provider is best for your business.

Have a quick glance at the basic difference in the supply process of a 3PL vs. a 4PL:

3PL or 4PL? Which Service is Right For You

3PLs are the most common choice for many businesses, especially small ones with limited resources.

The choice between 3PL and 4PL depends on the specific needs of your business. Here are some factors to consider when deciding which type of logistics provider is right for you:

• Your Budget

3PLs typically cost less than 4PLs, making them more suitable for businesses with a limited budget.

• Your Supply Chain Complexity

3PLs are ideal for businesses with simple supply chains, while 4PLs can handle more complex operations. 

• The Services You Need

If you only need basic fulfillment services, then a 3PL is suitable for your business. However, if you require additional services that go beyond order fulfillment, then a 4PL may be the better choice.

• Your Goals For the Future.

If you plan to grow your business long term, it might be worth investing in a 4PL provider who can offer scalable solutions as your business expands.

After considering these factors, you should be well-equipped to make a decision between a 3PL and a 4PL.

You might have heard about other fulfillment options such as FBA (Fulfillment by Amazon) and CFA (Customer Fulfillment Automation) - these are different solutions for efficiently managing and executing order fulfillment processes.

To sum it up for you,

Ultimately, a 3PL is an excellent choice when you need help fulfilling orders quickly and efficiently, while a 4PL is best suited for businesses with a more complex supply chain. 

It’s important that you consider your budget, supply chain complexity, and goals when making this decision to choose the right option.

We hope this blog has helped you understand the differences between 3PL and 4PL services so that you can make the best choice for your business.

If you decide to hire a 3PL, consider 3PL Fulfillment and Prep. We are a 3PL provider with state-of-the-art fulfillment services and offer competitive pricing.

Get in touch today to learn more about how we can help you succeed!