Skip to content

What on earth is 4PL?

There’s much debate in the transportation logistics industry about the difference between 3PL and 4PL service providers, which has led to confusion and frustration, particularly among manufacturers and shippers who simply want to save money and improve service levels.

This article explores the differences between 3PL and 4PL specifically, then gets down to business with a one-line summary of each of the four models (1PL, 2PL, 3PL and 4PL) and the advantages and disadvantages of each.

It may help, to start, by demystifying those two letters: PL. What exactly do they stand for? The answer is "party logistics." Technically speaking, 3PL providers are the third party to the contract between the first party (the company that needs to ship something) and the second party (the carrier). The third party became important as transportation became more complex, encompassing warehousing, packaging, intermodal transport, border crossings, freight forwarding and inventory management.

I think of 3PL providers as tactical. They're getting your stuff from A to B. It's classic outsourcing-a simple "lift and shift" to a third party. A 4PL provider, in contrast, is strategic. They manage your entire supply chain without requiring the use of its own assets. They're like a football coach for your supply chain, thinking strategically, researching the field, changing the players and bringing in special teams to provide maximum cost savings.

Now that we've offered a distinction between 3PL and 4PL, here are the distinguishing features of all the PL models, including their advantages and disadvantages.

1PL

“You own the supply chain yourself”

Advantages

  • Complete control
  • Complete access to data

Disadvantages

  • High human resource costs
  • High asset costs
  • Impossible to be an expert in everything
  • Difficult to track and report on KPIs
  • Technology is expensive
  • Difficult and expensive to think strategically

2PL

"You outsource to multiple suppliers yourself"

Advantages

  • Perception of control
  • Human resource requirements reduced

Disadvantages

  • No sense of true costs
  • Energy spent managing many relationships
  • Suppliers are interested in their businesses, not yours
  • No opportunity for economies of scale
  • Difficult to think strategically

3PL

"You outsource to one company that provides all services themselves or through a broker"

Advantages

  • One relationship to maintain
  • Can focus on your own business
  • Human resource requirements reduced
  • Potential for economies of scale

Disadvantages

  • Entirely reliant on one supplier
  • Locked in to logistics provider's own services
  • Hard for supplier to be an expert in everything
  • Supplier is focused on tactics not strategy
  • Supplier may be more interested in their business than yours
  • Access to performance data is at the whim of the logistics provider

4PL

"You outsource to one company that outsources to multiple companies"

Advantages

  • One relationship to maintain
  • Freed up to focus on your own business
  • Human resource requirements reduced greatly
  • Manages all aspects of supply chain
  • Strategic focus
  • Consultant mindset
  • Able to implement recommendations for improved performance
  • Technology based, not asset based
  • Has relationships with multiple providers at each link in the supply chain
  • Chooses suppliers based on the best fit for your needs
  • Opportunity for data-driven decision-making
  • Opportunity for reductions and reallocations in people and assets
  • Offers economies of scale because buying services on behalf of a number of customers
  • Opportunity for dramatic cost reductions

Disadvantages

  • Entirely reliant on one quarterback
  • Access to performance data is at the whim of the logistics provider
  • Requires change management

Find out how 4PL services saved a distributor 20% on transportation costs in the first year while achieving 95% on-time delivery.