Difference between 3PL, 4PL and 5PL
3PL vs 4PL vs 5PL what is the difference?
While the world still reels from the effects of the global pandemic that just doesn’t seem to end, all major industries were affected. One of the business sectors that has been worse hit is the food business. With restaurants closing and a ban on food trucks, the ultimate resort was to engage in DTC (Direct-To-Customer) services. The stockpiling by everyone around the world leads to an increase in demand of all food products (beverages included).
This led to a change in methods of production, storage and shipping. There were so many new users of online grocery shopping, which will most definitely lead to a change in long term shopping behaviours.
These changes have led to a sustained growth of 3PL and 4PL, even 5PL. But what are these? These are used extensively by logistical providers known as ‘Party Logistics’. They define the various services offered by external logistical providers. These are mostly used in supply chain services and setups.
About 3PL (3rd Party Logistics)
3PL refers to the outsourcing of logistics to a third party. This third party manages part of or all of the company’s logistics. They are extremely time and cost efficient in warehouse, fulfilment and transport services.
Where does 3PL work best?
- Warehousing: Includes stockpiling, stock reporting, picking up of goods, fulfilment of orders.
- Freight forwarding: Freight forwarding refers to distribution of cargo or packages. 3 PL can help with long haul transportation that is safe and guarantees safe delivery of packages. This includes the transport of hazardous material and out of gauge cargo.
- Inventory management
- Ocean transport: When it comes to the sea, it is an expensive and dangerous system of transport, but 3 PL makes it a little easier and cost effective since these third parties have effective shipping manifests and communication lines. They can also help due to the fact that they can arrange for a wholesale rate of transport that is cheaper than individual transport.
- Air freight services: Same as Ocean transport, Air freight services are expensive, and if not transported properly, it can result in damaged goods. That is why 3PL should be employed in order to make sure that all your goods are transported safely and that this transport doesn’t cost you gold.
- Returns Management: One of the most stressful parts of the Direct To Customer (DTC) service is the returns services. If the products have been damaged or spoiled in the case of the food business, it needs to be returned. Now 3rd Party Logistics can make sure that the products are picked up properly from the respective locations and returned to the respective businesses.
3 PL doesn’t hold any warehouses or other logistical needs such as transport, it will hold professional relationships to companies that do have these resources. The role of 3 PL often collides with that of transport brokers.
Advantages of 3 PL:
- Significant cost benefits
- Beneficial for small businesses who cannot afford overhead costs such as storage facilities and privately-owned transport systems.
- Hiring 3PL in peak season can be good since their relationship can often lead to acquiring of storage boxes.
About 4PL (4th Party Logistics)
A step ahead of 3PL, 4th Party Logistics deals with the optimisation of the whole process (from manufacturing to transportation) rather than just transport of individual pieces.
They often deal in non-asset based systems meaning they don’t own the storage spaces and transportation vehicles and convoys (most of the time). They are more often than not hired in consultation and advisory capacity. They put up solutions on the board on how to improve the systems that have already been deployed in the company regarding its manufacturing and transportation. It results in better results gained from the supply chain. A 4PL may or may not have a definitive structure.
Advantages of 4PL:
- Beneficial for companies with complex supply chain structures and wider base of manufacturing (out of country/country wide)
- Can offer flexibility in securing assets since they don’t own any (4 PL is non-asset based)
- Capable of finding the most suitable option for the company
- Solidarity is guaranteed since all of supply chain is in one hand (Single point of contact)
About 5PL (5th party Logistics)
5PL has emerged more recently than 3PL and 4PL. This concept is open to various interpretations. 5 PL will be responsible for planning, organizing and implementing all of the supply chain elements. This means that all aspects of logistical planning are out of the company’s hands
They hover over the full supply chain network which essentially means they are responsible for micro managing every supply chain inside the company.
5 PL is responsible for all of big data analysis and technological use in the logistical department of the company. They are extremely valuable in e-commerce business which can become a logistical nightmare if not handled properly.
Advantages of 5PL:
- Their ability to manage multiple supply chains efficiently makes them a big asset if hired.
- Big boost for fast growing retailers and e-commerce businesses.
- Would be beneficial if business is conducted primarily through digital controls.
Now, the decision to hire 3 PL, 4 PL or 5 PL is completely dependent upon the need of the company. It depends on whether logistics can be taken care in-house or you need an extra hand in management especially in the logistics department.