The difference between 3PL and 4PL service providers in the supply chain management industry has been a growing conversation piece within and outside the industry for many years now. While this is an industry that is bound to have a lot of confusing and confusing terms and abbreviations, it is also important for service providers and customers to make basic distinctions about this type of service.
The basic and most important point for 4PL is strategic activities not only for the customer’s supply chain, but also for the development of that supply chain in line with the company’s overall vision.
3PL service providers, on the other hand, provide only tactical or slightly more services, often at certain links in the supply chain.
Let’s start to understand the difference through the definition of 3PL and 4PL as follows:
Third Logistics Service, also known as 3PL, is the outsourcing of logistics activities of a company.
Third Logistics Service Provider, according to Supply Chain Vision website, 3PL is a company that provides multi-dimensional tactical logistics services to customers. These companies will help facilitate the flow of equipment and materials from suppliers to manufacturers, and end products from manufacturers to distributors and retailers. These tactical services typically include transportation, warehousing, cross-docking, inventory management, packaging or freight forwarding.
The Fourth Logistics Service (4PL) is essentially a strategic partnership with customers rather than tactical operations throughout the supply chain. According to leading expert at Accenture consulting firm John Gattorna, 4PLs are different from 3PLs for the following reasons: Companies providing 4PL services are often a separate entity established as a joint venture or on a foundation long-term contracts between the main customer and one or several other partners. 4PL companies act as the sole bridge between customers and other service providers. Every aspect of the customer’s supply chain is managed by a 4PL company. Sometimes, and even more in complexity, 4PLs are also referred to as Lead Logistics Providers, a definition of a company associated with other 3PLs. to provide to complete outsourced logistics functions.
It is clear from the above definitions that the role of 4PL in logistics is a management role. Any or all physical flow movement in the logistics chain that can be outsourced to 3PLs based on the so-called Service Level Agreement, is as defined above The 3PL will be responsible for accomplishing tactical objectives. 4PL, on the other hand, assumes a strategic and in-depth management role in the customer’s entire supply chain, which means focusing on improving process efficiency and operating the entire supply chain and logistics. This explains why the above definition refers to a “strategic partnership” agreement with a client company, as 4PLs are increasingly becoming an integral part of the business of cutomer. This role even extends to reorganizing the customer’s business if necessary to improve the entire supply chain.
Clearly, 4PLs need a lot of skills and resources to manage these changes effectively and benefit their customers. As part of the customer management process, 4PLs may also be involved in the management of one or more 3PLs engaged in providing logistics services to customers. This has made 4PL a Leading Logistics Service Provider. In part to fulfill that role, 4PLs also need to perform some of the 3PL’s functions within the customer’s supply chain network, if this is a viable (effective and efficient) solution in the future 4PL supplier assessment plan.
But why should we care about the difference between 3PL and 4PL?
Hiring a 3PL can benefit several links in the supply chain. After all, this tactical operation cannot be a core customer value, and is often managed by outsourcing to ensure the lowest costs. But managing those individual logistics activities with the aim of reducing costs actually increases costs, or reduces service quality somewhere in the supply chain. Managing all the complex activities in the supply chain is the core value that 4PLs can bring to their customers. It is the value that 4PLs bring that impacts the entire supply chain, not just individual cost-cutting activities.
