We recently received an interesting question regarding the possibility of making a full, 360-degree assessment of the capacities of 3PL and 4PL logistics service providers.
This set me thinking about the fact that these terms "3PL" and "4PL" are thrown around a lot by industry people, but that not everyone who hears them will necessarily have a clear understanding of the differences between the two levels.
This set me thinking about the fact that these terms "3PL" and "4PL" are thrown around a lot by industry people, but that not everyone who hears them will necessarily have a clear understanding of the differences between the two levels.
The question is particularly relevant when discussing logistics and supply-chain management. Having sought the opinion of several experts before writing this blog, it became clear to me that there is no consensus on the matter.
There is a notable distinction, for example, between the answers given by Europeans and those given by North Americans. This is owing to the different understandings of the concept of “supply-chain management” in the two geographies: what is regarded in North America as supply-chain management would be regarded in Europe as simple logistics management.
European suppliers regard supply-chain management as a deeper process that extends to procurement and manufacturing. A European would, therefore, classify pure logistics services as 3PL, while a service that incorporates all the areas mentioned above would be classified as 4PL. However, for complete clarity, we need to define each term carefully.
3PL
The term “3PL” covers the traditional logistics companies, often referred to as “freight forwarders”, who handle the documentation and transportation requirements of moving cargo from A to B. They co-ordinate various service providers into a transport chain, but typically take no responsibility for meeting delivery or transit deadlines, maintaining inventory levels, or issuing materials to contractors.
4PL
4PL service providers operate on the next level from 3PL, offering a full supply-chain-management service, including managing inventory levels, and taking responsibility for on-site delivery. Nowadays, they are typically IT-driven, employing a core system that manages the flow of goods and places Purchase Orders.
Some customers are wary of using 4PL suppliers, as they feel that they bring too many links into the supply chain and dilute control of the delivery process. However, this is clearly the way that the international logistics industry is leaning, in a race to improve efficiencies and control costs. All 4PL suppliers are basically 3PL suppliers with an increased service offering, and, if they have undertaken a careful assessment of their supply chain at 3PL level, these same core suppliers should provide a solid supply chain at 4PL level, too.
Ikea: showing the way for 3PL providers
Sweden-based retailer Ikea is a strong example of a 4PL service provider that utilises retail-sales data effectively to predict and meet stock requirements, and even uses these algorithms to manage orders of raw materials for its manufacturing base. This is the model that 3PL businesses must follow, providing efficiencies that allow them to compete in the 21st-century marketplace.
Nevertheless, some feel that the days of both 3PL and 4PL service providers are numbered, as all logistics services may be fully computerized within the next decade, with many roles more efficiently filled by computers, leaving only the product suppliers to liaise with their carriers.
However, there will still be a question as to who will supply the logistics troubleshooting knowledge derived from experience, when it is required, as, inevitably, it will be.
There is a notable distinction, for example, between the answers given by Europeans and those given by North Americans. This is owing to the different understandings of the concept of “supply-chain management” in the two geographies: what is regarded in North America as supply-chain management would be regarded in Europe as simple logistics management.
European suppliers regard supply-chain management as a deeper process that extends to procurement and manufacturing. A European would, therefore, classify pure logistics services as 3PL, while a service that incorporates all the areas mentioned above would be classified as 4PL. However, for complete clarity, we need to define each term carefully.
3PL
The term “3PL” covers the traditional logistics companies, often referred to as “freight forwarders”, who handle the documentation and transportation requirements of moving cargo from A to B. They co-ordinate various service providers into a transport chain, but typically take no responsibility for meeting delivery or transit deadlines, maintaining inventory levels, or issuing materials to contractors.
4PL
4PL service providers operate on the next level from 3PL, offering a full supply-chain-management service, including managing inventory levels, and taking responsibility for on-site delivery. Nowadays, they are typically IT-driven, employing a core system that manages the flow of goods and places Purchase Orders.
Some customers are wary of using 4PL suppliers, as they feel that they bring too many links into the supply chain and dilute control of the delivery process. However, this is clearly the way that the international logistics industry is leaning, in a race to improve efficiencies and control costs. All 4PL suppliers are basically 3PL suppliers with an increased service offering, and, if they have undertaken a careful assessment of their supply chain at 3PL level, these same core suppliers should provide a solid supply chain at 4PL level, too.
Ikea: showing the way for 3PL providers
Sweden-based retailer Ikea is a strong example of a 4PL service provider that utilises retail-sales data effectively to predict and meet stock requirements, and even uses these algorithms to manage orders of raw materials for its manufacturing base. This is the model that 3PL businesses must follow, providing efficiencies that allow them to compete in the 21st-century marketplace.
Nevertheless, some feel that the days of both 3PL and 4PL service providers are numbered, as all logistics services may be fully computerized within the next decade, with many roles more efficiently filled by computers, leaving only the product suppliers to liaise with their carriers.
However, there will still be a question as to who will supply the logistics troubleshooting knowledge derived from experience, when it is required, as, inevitably, it will be.
