The main difference between a third party vs a fourth party company is the accountability and management level. When you outsource the fulfillment operation to a 3PL, you work directly with your 3PL partner and manage their performance. In contrast, a 4PL acts like a trusted advisor, and merchants often rely heavily on their data and services to take care of the supply chain.
Here are the key differences between 3PL and 4PL:
The focus of a 3PL provider is on the daily activities of order fulfillment, such as warehousing, picking and packing ordered products, and shipping packages. A 4PL takes it to another level by controlling the entire supply chain – which includes fulfillment plus transportation and technology. The fulfillment is still assigned to a 3PL but managed by the 4PL with their solution and technology.
With a 4PL model, you work directly with your 4PL partner to resolve any issues from the supply chain and with other vendors. This allows more management power in the hand of a 4PL, giving you more time for other aspects to grow your business.
The relationship with a 3PL is usually transactional. It is often developed around lane costs instead of strategic elements. On the other hand, the relationship with a 4PL provider considers much of a long-term strategy. A good 4PL provider will proactively find bottlenecks and recommend to you how to organize, lead, design, and coordinate your supply chain.
3PL providers often own many assets needed to run your supply chain, such as trucks, distribution centers, and warehouses. On the contrary, most 4PLs’ assets are intangible. Software, IT systems, and intellectual capital are their competencies. 4PL mainly offers logistics expertise and focuses on finding the suppliers with the best quality and cost for your business.
3PLs connect with many industry partners and have access to resources like shared warehousing to reduce logistic costs and improve efficiency. Conversely, 4PLs focus on streamlining the entire supply chain. They offer various methods to help you cut costs, such as lean manufacturing, reverse logistics, and optimization of procurement best practices.
All communication is filtered through the 4PL as the main point of contact. This may cause delays in resolving issues since the 4PL is the middleman between the merchants and the 3PLs. The merchants have no ownership on the 3PL level, therefore the logistic service quality will depend on your 4PL’s responsibility.
With a 3PL partner, you can control the same customer service team yourself and may be given a dedicated account manager. Thanks to this, you can resolve issues faster while working with a team that understands your account.