13 Oct 2022

Enhance Your Supply Chain with Fourth-Party Logistics (4PL)

Organizations that find difficulties in managing their supply chain and logistics operations can find a solution with a Fourth-Party Logistics service provider that takes care of all the organization's supply chain and logistics activities.

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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.

Table of Contents

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.

Frequently Asked Questions

Q: What is a 4PL model?

A: 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.

Q: What are the components of 4PL?

A: 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.

Q: What are some examples of 4PL?

A: Some examples of a 4PL company include 3SC, Shopify Fulfillment Network Delivery, and ShipHero, Amazon Delivery.

Q: What 4PL stands for?

A: 4PL stands for Fourth-party logistics, a distribution chain operating model in which an organization outsources its entire logistics and supply chain management.

Q: Which is the best 4PL logistics service provider?

A: 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.

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