If you’re thinking about outsourcing your online business’ fulfillment functions, you have two primary options to consider: third party logistics (3PL) and fourth party logistics (4PL). There are some key differences when looking at a 3PL vs 4PL, but either option has the potential to improve customer satisfaction, simplify business processes and increase revenue.
Research shows that a whopping 86% of shippers agree that outsourcing fulfillment has improved customer satisfaction metrics. Keep reading to find out which option is right for your business.
What Is a 3PL?
A third-party logistics (3PL) provider refers to a company that you can hire to fulfill your picking, packing, and last-mile shipping needs. In other words, 3PL focuses on managing your fulfillment center so that you don’t have to.
But how do you know if 3PL is right for you? Let’s take a look at a few advantages and disadvantages of third-party logistics.
Advantages of Using a 3PL
Maintain Direct Oversight of Your Fulfillment Operations
If you want to stay closely informed over your fulfillment processes, third-party logistics is the way to go. With a 3PL partner, you can choose a single logistics service that will work closely with you to pick, pack, and transport orders to their destination. Not to mention, 3PLs will typically come with software that connects to an e-commerce store. This automatically sends orders to the appropriate fulfillment centers and allows you to see where orders are being fulfilled and the status of each order.
Save Money Shipping
The relationships and resources that third party logistics companies can offer you is another major bonus of using them. With the right 3PL, you’ll enjoy discounted shipping rates, which can increase your profit margin, and you can rest easy knowing that your logistics process is in good hands with expert 3PL software and 3PL warehouse capabilities. Another cost advantage is the fact that 3PLs typically own their own fulfillment centers so you don’t have to worry about leasing our buying space to run your own fulfillment center.
Many 3PLs have multiple fulfillment centers scattered across the country or even the world. This means that they can fulfill orders closer to your customer base, limiting the amount of time packages have to travel once their packed and handed off to carriers. This also means lower shipping costs since shipping shorter distances is often less expensive than cross-country shipping.
There’s no doubt that if you’re looking to save time and money, third party logistics can help you get the job done.
Disadvantages of Using a 3PL
Even though recruiting third party logistics services offers major benefits, there are a few drawbacks that you should be aware of. For example, having to rely on a third party to pick and pack your orders results in less power over your company’s inventory control.
You’ll also need to consider how reliable your order volume is when deciding if 3PL is right for you. If you’re not receiving enough orders, using 3PL could be too costly to sustain long-term. This will especially be the case if you have a seasonal business that only sees a spike in orders for a short period during the year.
Lastly, utilizing a third party logistics company reduces your control over not only your fulfillment processes but also your customer experience. If a customer has an issue with their post-purchase experience, they will be looking to your business, not the fulfillment center for answers. You’ll need to make sure the partner you choose has a proven track record of success before selecting them to outsource your fulfillment processes.
What Is a 4PL?
With fourth party logistics or 4PL, you’ll outsource your entire fulfillment process to a separate logistics company. Like 3PL, these companies take over the picking, packing, and shipping operations for you – and more.
Fourth party logistics companies work with a network of third party logistics companies to handle your company’s fulfillment needs. 4PL operations can help you manage inventory levels, select the right shipping partner to move your packages, and more.
Working with 4PL partners allows you to completely outsource fulfillment so that you can focus on other aspects of your business. However, 4PL isn’t right for every business.
Luckily, understanding the pros and cons of using 4PL can help you make the right decision.
Advantages of Using a 4PL
If you want to eliminate the need to manage your fulfillment processes altogether, 4PL is the perfect solution. Fourth party logistics providers handle these functions from start to finish. That means you’ll have more time to focus your energy on other areas of your business while leaving fulfillment to the experts.
Fourth party logistics services also use dedicated technology that simplifies the tracking and communication process. This means you can take advantage of unmatched visibility in real-time across your supply chain.
When fulfillment problems arise, 4PL is a great partner to have in your corner. You can rely on your 4PL partner to identify and solve issues as they arise, leading to a more streamlined experience overall.
Disadvantages of Using a 4PL
There’s no doubt that opting to use 4PL can be a game-changer for many businesses. However, this fulfillment model is not without flaws.
If you value having control over your company’s fulfillment and logistics processes, 4PL probably isn’t the right fit for you. This is because fourth party logistics handles these processes independently.
If you have a small to medium size business, 4PL might be too expensive to be feasible for you. Although the price tag on this fulfillment model is worth the investment, it’s a good rule of thumb to do an in-depth cost analysis before you take the plunge.
Biggest Differences Between a 3PL vs 4PL
It’s no secret that outsourcing fulfillment is a great way to save time, save money, and give you more opportunities to focus on other areas of your business. Though there are similar business models among 3PL vs 4PL, there are a few differences between the two.
Third party logistics services focus on picking, packing, and shipping orders. When you work with a 3PL partner, you can expect to maintain oversight over fulfillment and logistics processes regarding your business. You’ll also have a direct relationship with the 3PL partners you choose to do business with.
Fourth party logistics companies take care of a wider range of fulfillment and logistics operations, such as:
- Picking, packing, and shipping
- 3PL management
- Business planning
- Carrier performance analysis
- Logistics management (inbound, outbound, and reverse)
- Inventory management and planning
Because 4PL providers take on increased responsibilities, you won’t need to provide any oversight over the fulfillment side of your business. You’ll communicate your needs to the 4PL provider and let them handle the rest.
Which Logistics Provider Is Best for Your Business?
Choosing the right logistics provider can be a daunting task to take on for any business. However, it’s not as complicated as it sounds. Considering things such as your business needs and budget are some simple ways to make the right decision regarding 3PL vs 4PL.
You’ll also want to consider how involved you want to be in the fulfillment process. If you want to maintain some oversight, 3PL is probably the best option. On the other hand, if you want to leave it to the specialists, 4PL is a great choice.
Usually, e-commerce businesses that are experiencing rapid growth for the first time will turn to a 3PL. They are unable to keep up with the demand in-house and need the assistance of a fulfillment provider that has its own fulfillment centers, staff, and carrier relations to ship orders in a timely fashion.
Once your e-commerce business has grown to the point that you’re bordering enterprise level and have multiple 3PLs that you’re working with, that might be time to switch to a 4PL. As your business grows even further, the complexities of your logistics processes might be better suited for a specialist like a 4PL.
To find a 3PL or 4PL you can trust, be sure to check out our fulfillment partners page. Or, for a more specific recommendation, be sure to contact our customer success teams and they will point you in the right direction based on the current scope of your business.
What Is a 1PL?
First party logistics, or 1PL, refers to the fulfillment process where one person stores goods themselves, packages items, and handles transporting them to their destination. No third parties are involved.
What Is a 2PL?
Second party logistics, also known as 2PL, involves the transport of goods directly from a company to another carrier, such USPS, UPS, or FedEx. In this instance, you’ll be in charge of packaging products, but last-mile delivery will be handled by a carrier that owns its own modes of transportation.
What Is a 5PL?
Fifth party logistics, or 5PL, refers to a business that encompasses many outsourced fulfillment and logistics providers’ technology and gives you visibility into the entire supply chain from beginning to end, all in one place. It is a very advanced system that requires reliable IT and computer systems to integrate data from multiple sources.
How Much Do 3PLs Cost?
3PLs are usually priced by the hour or unit. For example, hourly 3PL companies charge anywhere from $20 to $50 on average, while per-unit costs can range from $5-$15 per pallet or an average of $.25 an item. This is potentially something you can bake into the “handling cost” when selling an item, if the fee is low enough not to deter customers from abandoning their cart.
How Do I Integrate My Business With a 3PL?
First, you’ll need to establish a relationship with a 3PL service provider. Then, you’ll need to get both of your tech teams aligned on how data will be transferred from the e-commerce platforms you use to sell your products and the 3PL’s platform. Once those connections have been made, you’ll need to test them out to ensure a constant stream of orders is fed into the 3PLs database. This allows the 3PL’s fulfillment team to simply pick, pack, and ship rather than pinpoint where orders are coming from.