With 15 years of experience catering to third-party logistics (3PL) providers, we know that these businesses have historically been a driving force in the logistics services industry. However, it’s becoming increasingly more common to see companies providing fourth-party logistics (4PL) or even fifth-party logistics (5PL). With the rise of ecommerce, consumer demand for same- or next-day shipping requires warehouses to become more agile and assemble a network of other warehouses to provide competitive shipping speed to their customers.
In this article, we’ll dive into what makes up a 4PL and why they’re becoming more popular.
What is the Difference Between 3PL and 4PL?
4PLs are so named because they are three steps away from the end consumer, creating an extra degree of distance between the logistics provider and consumer. A traditional third-party logistics provider (3PL) owns the relationship with their client, say, a retail brand, and neither owns the products nor interacts with the purchasers of the brand’s products. However, let’s say this retail brand has ecommerce customer service all over the country. If the 3PL only operates one or two warehouses, it can be difficult to provide the speed of shipping that the brand’s customers expect and remain cost-effective.
In this case, the 3PL provider may enlist other 3PL warehouses to assist with servicing areas in which it does not have warehouses. The organizer of this network of 3PLs is considered a 4PL and remains the single point of contact to their client. The original 3PL can benefit from outsourcing portions of the logistics management process to others in different locations, allowing them to efficiently keep up with growing region and time expectations. It is a mutually beneficial process in which all 3PLs involved can take on more clients than they would be able to otherwise.
What Are the Advantages of a 4PL?
4PL networks are becoming more popular because of increasing consumer expectations. 3PLs who take advantage of 4PL services can distribute inventory strategically by location, thereby cutting delivery times and costs. Rather than relying on a 4PL provider, the original 3PL owns the relationship with the other 3PLs in the network, as well as their client. In fact, the organic 4PL network allows the 3PL to provide greater value, such as the ability to deliver products across many geographic regions in ideal timeframes to optimize the logistics process for their client.
How Can I Qualify Potential 3PL Partners?
If you’re interested in the potential benefits of building out a 4PL network, due diligence is key to ensuring you can provide the additional service you’ve promised your customers. Running a credit check or reviewing the company’s financials is a good place to start. This will allow you to gauge the company’s health and ability to deliver on their promises to you.
Secondly, you’ll want to verify that they have experience processing or can process a large enough volume of ecommerce orders. A company with an existing efficient pick-and-pack workflow would be an ideal 4PL partner. Additionally, it’s important to verify that their warehouse has the square footage to accommodate what you need. It’s ideal to join forces with a partner who uses similar workflows across similar product types–for example, if you both offer nutraceutical white labeling.
Lastly, it can be a good exercise to work up a sample service level agreement (SLA) and make sure that you can both agree to some standard terms and conditions that will allow you both safety and mutual benefits in the partnership. They should be prepared to allow you independent ownership of your relationship with the client and the expectations for fulfillment should be clearly outlined.
In choosing another 3PL to partner with, it can facilitate streamlined communications if you use the same or similar warehouse management system (WMS) platforms and integrations. For example, Extensiv 3PL Warehouse Manager can automatically notify you and your customer of their order status. In addition, it integrates with many shipping carriers, such as FedEx, UPS, USPS, and multiple online shopping carts or marketplaces like Shopify, Amazon, and eBay.
In addition, emerging technologies like Extensiv Network Manager allow for real-time visibility into inventory and order fulfillment across the 4PL network, allowing you to optimize inventory management and route orders from one 3PL to another. Thus, outsourcing a portion of the logistics process doesn’t have to mean giving up control. Plus, assess metrics designed to let you know how your network is performing against SLAs.
Find out more about Extensiv Network Manager and our other 4PL services.