3PL vs. 4PL: Key Differences, Benefits, and Which One to Partner With

The right logistics partner can help reduce costs, elevate customer experience, and boost serviceability and strategic expansion. But then again, how can you decide which logistics provider is the ‘right’ partner? Or, rather, how to decide whether to partner with 4PL or 3PL? We can help.

Strategic logistics partnerships pave the way for efficient operations, higher SLA adherence, and rapid expansion. They enable businesses to leverage seamless integrations for delivering delightful customer experiences and exercising greater control over asset and shipment movements. However, businesses often struggle with identifying the logistics operations to outsource and finding the logistics partners (3PL or 4PL) that align well with their business requirements. 

Here is a quick walk-through of the key capabilities of both 3PL and 4PL service providers, the benefits they offer, and expert tips for managing your logistics partners.

#1 – 4PLs (Fourth-Party Logistics Providers)

Fourth-party logistics (4PLs) providers help businesses in end-to-end management of supply chain operations. Fourth-party logistics providers take on the entire responsibility of managing, accessing, building, planning, executing, and measuring supply chain operations for a manufacturer or a retailer. 

As businesses outsource their supply chain transportation and logistics functions completely, granular operational visibility and robust management become critical. Thus, having intelligent technology-powered logistics management solutions becomes a business imperative.

Key Benefits of a Strategic 4PL Partner

1. Data-Driven Operations

4PLs leverage advanced analytics tools to provide retailers with a single version of the truth of the performance of their logistics operating models via data aggregation.

2. Simplified Logistics Management

A 4PL is the single interface between the retailer’s suppliers and logistics service providers. Thus, businesses can have a bird’s eye view of different field operations, shipment movements, etc.

3. Vendor Due Diligence 

Before onboarding other logistics providers and suppliers, a 4PL will gauge their historical performance and ensure they can meet the retailer’s business needs. A retailer does not need to invest time, resources, and money in selecting vendors.

#2 – 3PL (Third-Party Logistics Providers)

A 3rd party logistics service provider (3PL) helps retailers with warehouse management, shipping coordination, goods, and package distribution, and return and exchange of products. Partnering with multiple 3PL vendors enables retailers to quickly respond to market demands, scale delivery operations, leverage the unique capabilities of individual 3PLs, optimize logistic costs, enhance speed to market and expand serviceability across geographies.

Key Benefits of 3PLs

1. Greater Control

Retailers directly work with 3PLs ensuring greater control of logistics processes. They can prioritize one vendor over another based on business needs and performance. They can also leverage the individual service offerings for better negotiation and compiling a competitive yet, comprehensive 3PL portfolio.

2. Logistics Flexibility  

Having a static delivery fleet negatively impacts costs and scale. With 3PLs, retailers can cost-efficiently upscale and downscale fleet operations based on current demand. 3PLs help businesses enjoy the benefits of outsourced logistics transportation and distribution without relinquishing control over core operational management. 

3. Objective-Oriented 3PL Selection

With a robust multi-logistics provider network, retailers can select 3PLs based on their business objectives. These can be the most economical, fastest, best SLAs, best custom ratings, and more. 

4. Rapid Market Expansion

Partnering with multiple logistics service providers empowers retailers to effortlessly position their supply chain so as to expand into new markets. It allows retailers to strategically partner with 3PLs based on their performance in a particular geography, region, and pin code.

5. Cost Optimization

Using 3PLs for executing logistics, businesses significantly reduce the need to invest in maintaining their own fleet. This also reduces the need to onboard drivers at high costs during peak business hours and seasons.

3PL or 4PL – Which One Should You Choose?

Opting for 3PL partners comes with added advantages, as compared to 4PLs. 

Even though the logistics functions are outsourced, businesses can still have complete visibility and control over logistics operations, especially when businesses use an advanced logistics management platform. Such solutions come with in-built carrier management functionalities powered by intelligent algorithms that help you specify constraints and rules for carrier selection, vehicle selection, smart routing, and more. 

Thus, businesses can choose and work with preferred vendors, adhering to multiple operational constraints and also take proactive measures for logistical sustainability. For instance, in the last-mile businesses can allocate tasks to 3PLs that have EV. Further, businesses can leverage the smart functionalities, such as customer feedback collection to identify the operational loopholes and improve their processes. 

Efficient NDR management, automated 3PL selection, and greater operational visibility reduce RTO instances, and delivery costs drastically. Businesses can perform carrier evaluation via KPI benchmarking, and prioritization based on past performances, and ensure highly efficient hub-to-hub and hub-to-customer movements, thereby unlocking logistics excellence.