Amidst complex global operations and rapidly changing market conditions,
companies face massive challenges in their supply chain management.
They need a logistics service provider that can solely manage their
logistics. To address these issues, a 4PL service provider could be the
best solution. The 4PL service provider is an expert in removing
complexities from the supply chain and allowing companies to focus on
their core business. A 4PL company not only provides solutions to
transportation problems but also suggests means to access untapped
opportunities. They provide an altogether different level of customer
service by benefiting from greater operational flexibility.
What is Fourth Party Logistics?
Fourth-party
logistics, or 4PL, is a supply-chain operating model in which a
business outsources its logistics along with its entire logistics
management to an external service provider. 4PL logistics are also known
as lead logistics providers that take care of all the distribution
chain and logistics activities and monitor the supply chain's
operational and financial efficiency. A 4PL logistics is a single point
of contact for an organization's transit management and shoulder
responsibilities like managing infrastructure, resources, and
technology, required to manage supply chain operations. 4PL logistics
companies leverage technology to plan, execute, and conduct compliance
monitoring for their client's chain of supply.
How does 4PL work?
4PL
logistics companies allow businesses to focus on their core functions
and streamline their supply chain activities to facilitate demand/supply
planning, inventory management, production, and distribution, along
with all inbound and outbound logistics activities. All the supply chain
and logistics operations are outsourced to a 4PL company that assesses,
designs, builds, runs, and measures integrated supply-chain solutions
for the client. The 4PL company controls and manages the chain of
distribution on behalf of the client by administering the combination of
shipping companies, warehouses, agents, and freight forwarders.
A
4PL company is a primary manager of the supply chain operations of a
business, including all 3PL services like receiving, warehousing,
packing, shipping, returns, and reverse logistics. It also helps in 3PL
management, project management, business planning and consulting,
logistics strategy, logistics management for inbound, outbound, and
change logistics processes, network analysis, design, and inventory
planning and management. A 4PL company has control of every aspect of
the supply chain, including transportation, warehouses, and every moving
part within the business's distribution chain. A 4PL company not only
manages and analyzes large amounts of data but also investigates
transportation management, manages 3PLs and transportation service
providers, manages warehouse operations, and even manages other areas of
the supply chain.
Advantages & Disadvantages of 4PL
Advantages of 4PL
A
4PL logistic company handles the entire logistics operation of a
business along with its strategic development and associates with 3PLs
to outsource part of the transportation and logistics activities. A 4PL
company as a strategic, operational, and technology partner brings about
significant changes in the logistics processes resulting in greater
efficiency and cost-effectiveness. Some of the considerable benefits of
associating with a 4PL company include the following:
- Better visibility over the supply chain
- Low procurement costs
- Better market transparency for goods and services
- Reduced order cycle times
- One-stop solution for contacting supply chain vendors
- Minimum inventory wastage
Disadvantages of 4PL
One
of the significant disadvantages of a 4PL service is that businesses
have minimal control over their products' logistics and fulfillment
process. Besides, it also generates high dependency on the 4PL company
in the long term, as the 4PL company fulfills all vital activities to
transform the supply chain of businesses that creates a dependency on
the 4PL company. 4PL Service may not seem to be a cost-effective option
for small and medium-sized companies.
A quick look at the pros and cons of 4PL Service
| Pros of 4PL | Cons of 4PL |
A 4PL company handles the entire supply chain and logistics | Businesses have little or no control over logistics and supply chain |
Businesses benefit from 4PL strategic advice, besides getting operational support | 4PL service is likely to be expensive for small and mid-sized businesses |
A cost-effective supply chain leads to better profit margins. | Generates high dependency on the 4PL company |
What are the Benefits of 4PL?
The
4PL companies have a comprehensive role within the supply chain, as
they have much broader responsibility than 3PL companies and have
greater accountability in helping businesses reach their strategic
goals. Some of the significant benefits of associating with 4PL
companies include the following:
Client-centric Approach –
4PL service providers design the logistic solution aligning with the
client's requirements encompassing the entire distribution chain.
Besides, the 4PL service providers are experts in rendering
comprehensive operations in distribution, warehouse, logistics, and IT
and address every aspect to come out with the best solutions.
Single Point of Contact -
4PL service providers are a single point of contact between business
and their supply chain process. They oversee and manage the complexities
of the logistic operations of companies. A 4PL service provider
coordinates every logistics step, from sourcing material and
manufacturing considerations to finding apt solutions; they provide a
distinct look into the business's overall supply chain operations.
Manage Multiple Vendors –
Managing multiple vendors of the distribution chain is often complex
for businesses, but this task is eased with a 4PL service provider
around. They manage the complete eco-system of vendors covering all
aspects of the supply chain like warehousing, procurement, distribution,
transportation, and IT.
Support Company's Growth -
4PL service providers lead to the growth of the business. They have
good relationships within the chain of supply, enabling them to assist
enterprises during growth and expansion. They build trusted networks to
support the growing logistics need of the company and hence possess good
terms with national and international partners. Thus, they can develop a
system for smoothly executing the goods.
How to Choose a 4PL Provider?
Choosing
an ideal 4PL provider can be daunting without evaluating some
significant parameters. Businesses, while selecting the best 4PL
company, should consider the following key factors:
- Businesses
should be clear on their business and financial goals with the 4PL
company they plan to select. Businesses should create their list of 4PL
requirements with the help of warehouse management software requirements
to be clear on their goals.
- Businesses should keep in
mind all essential metrics like transportation, warehousing cost,
warehousing locations, timely delivery, geographic coverage, handling
capacity, and ROI while choosing a 4PL service provider.
- Businesses
should consider the expertise, network, and resources of the 4PL
company before finally making a decision. They need to understand their
expertise in logistics, taxation, IT, finances, and customer service to
ultimately benefit from their Service.
- Before deciding
on a 4PL provider, businesses can check the reviews given by their
customer base to know about their experiences with the 4PL company.
Businesses can seek practical insights about the company by seeking
details on their implementation processes, goal completion, and team
coordination.
FAQs
What is a 4PL model?
A
4PL is a logistics operating model in which an organization outsources
its entire logistics, supply chain management, and optimization of the
supply chain to an external logistics service provider. A 4PL, besides
rendering operational control of the logistics function, also provides
strategic insights into the organization's logistics for
cost-effectiveness and better performance.
What are the components of 4PL?
The major components of a 4PL are the Architect, Control Room, Supply Chain Infomediary, and Resource Provider.
- The
Architect is responsible for defining supply chain design solutions and
rendering supporting skills to integrate the resources, capabilities,
and technologies.
- Control Room focuses on daily operations and manages several 3PL partners.
- A
supply chain infomediary creates interlinked infrastructure between
vendors and members to provide better administrative control and
visibility.
- Resource providers are asset neutral and don't necessarily have physical resources.
What are some examples of 4PL?
Some examples of a 4PL company include 3SC, Shopify Fulfillment Network Delivery, and ShipHero, Amazon Delivery.
What 4PL stands for?
4PL
stands for Fourth-party logistics, a distribution chain operating model
in which an organization outsources its entire logistics and supply
chain management.
Which is the best 4PL logistics service provider?
3SC
Solution is the best 4PL logistic service provider that provides an
organization with a more accurate look into their demand, production,
supply, inventory, and distribution planning. Also, it allows them to
improve real-time visibility and automate response, thus providing a
strategic and operational edge over others. 3SC's 4PL is a one-stop
solution for demand planning, supply planning, production planning,
inventory, and distribution planning.