Why Are Businesses Opting to Work With a 4PL Partner?
Key Takeaways:
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The major difference between a 3PL and 4PL provider is that 3PL focuses on order fulfillment while 4PL focuses on your entire supply chain operation
- Many businesses are choosing to implement a 4Pl provider as a way to centralize and optimize their supply chain
- It's important to consider various factors when selecting which logistics partner is right for your business needs
What is a 4PL Partner?
Fourth-party logistics, commonly called 4PL, is an operational model in which a business outsources its entire supply chain management and logistics to one external service provider.
This provider has a broader scope of responsibilities that includes:
- managing resources
- technology and infrastructure
- providing strategic insights and management
A 4Pl provider will manage or own multiple 3PL operations taking a lot of the busywork out of the hands of the business owner.
The bottom line is: this means less managing moving pieces for you.
In today's blog, we will be examining what makes a 4PL unique from a 3PL and the several advantages a 4PL has to help you better understand why a 4PL might be the right choice for your business needs, and why many supply chain managers are choosing to get a 4PL on board.
What is a 4PL Partner?
Before we go into the differences, let's quickly define a third-party logistics provider. A third-party logistics (3PL) provider refers to a company that you can hire to fulfill your picking, packing, and last-mile shipping needs.
So what are the major differences?
3PL vs 4PL: The Details
Order Fulfillment vs Complete Network Optimization
A 3PL focuses on order fulfillment, which includes warehousing, picking and packing orders, and shipping packages.
A 4PL manages the entire supply chain, including fulfillment, transportation, and technology. They work with a network, which can include multiple 3PLs or fulfillment centers.
Managing Multiple 3PLs vs One Point of Contact
Since the 4PL is the merchant’s main point of contact, all communication is filtered through the 4PL to the network of 3PLs.
Having an effective 4PL as a middleman can keep things streamlined, but if you don’t choose the right 4PL partner, this might result in communication delays.
Advantages of a 4PL
A Centralized Partner To Optimize Your Business
4PLs can manage all operations within your supply chain, regardless of who is moving your products. This means if you are using a few logistics providers, the 4PL manages them all, along with their own services that they provide.
A 4PL essentially is a single point of contact that allows you to simplify your operations. By taking care of everything from purchase order management and warehousing to customs compliance, carrier management, and everything in between, they:
- free up more of your time to focus on other aspects of your business
- ensure a standardized experience for your customers
- eliminate the need to communicate with a variety of different partners
- can work with you to understand and optimize your supply chain network as a whole
Gain A Partner to Take Vendor Management Off Your Plate
Plenty of supply chain managers understand the pain points of managing multiple vendors. Working with a 4PL will eliminate this issue. Your 4PL works with all of the vendors involved in your success, so you don’t have to worry about it.
A 4PL can:
- get involved in the early parts of vendor evaluation and onboarding
- ensure that the right choices for vendors are selected based on appropriate systems, metrics and processes that are implemented with each vendor right from the start
Get Consistency Across Fulfilment Centers
In addition to eliminating the effort of managing your vendors, working with a 4PL reduces the required effort to manage multiple fulfilment centers. Not only can finding and vetting different warehouses be time-consuming, but they might have different procedures, software, and requirements.
When you work with a 4PL, the warehouses in their network will often have:
- been pre-vetted
- standardized procedures, technology, and more
Access to Powerful Technology at A Lower Cost
4PLs have access to some of the most cutting-edge technology platforms, enabling them to provide the foremost solutions to running their clients’ supply chains. When a smaller manufacturer looks to implement a tech system for their supply chain, it often isn't specialized and often doesn’t have powerful specialized features. Plus, these types of technology can be very costly, and what if you get it wrong? Certain technology providers can lock you into expensive start-up costs or licensing fees, so partnering with a 4Pl can be very cost-effective.
By signing on with a 4PL, you will receive the benefits of having all of your transportation and logistics managed by powerful technology platforms created, purchased, or designed specifically for that purpose. Rather than purchasing a less-than-optimal system for your business and hoping that it will meet all your needs and help you to accomplish everything you need, working with a 4PL gives you access to the right technology the first time.
In other words, working with a tech-enabled 4PL:
- reduces the up-front costs of implementing cutting-edge tech
- saves your team time and money
- keeps all of the information on your supply chain centralized and accessible through one platform
End-to-End Supply Chain Visibility
As we've already noted, rather than trying to invest in cutting-edge advancements in supply chain technology on your own, you can work with a 4PL provider to get essential cloud-based systems that aggregate all your significant data into significant reports. Once fully implemented, this variety of solutions can provide invaluable visibility into all parts of the supply chain.
Not only does this make it easy to monitor your supply chain and spot errors, but a 4PL can communicate with 3PLs on your behalf should any disruption arise.
Monitor and Improve Your Operation With Data-Driven Analytics and Insights
This point flows from our previous points about 4PLs bringing network centralization and leading technology. A tech-enabled 4PL manages all of your supply chain information and can be a powerful weapon for turning raw data into unparalleled business insights.
With easy access to specialized reporting and KPIs, you can:
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monitor the metrics that matter most to you
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more easily determine how to take action to address any disruptions
Get Peace of Mind and a Partner for Success With a Team of Supply Chain Experts
A favorite advantage of working with a 4PL is that you gain access to a team of supply chain experts. Many 4PL companies are made up of experienced logistics professionals who have the experience and knowledge to solve many of the logistics-related problems you may bring to the table. They also have unparalleled supply chain industry expertise making them an invaluable asset. They can help you navigate the supply chain industry in order to avoid detriments and costly mistakes that may come across your path.
How to Make the Right Choice?
Choosing which kind of logistics provider is right for you can look like a daunting task for any business. However, once you lay all the variables in front of you it becomes significantly easier.
Considering options like your business needs and budget are the first step to making the best choice between 3PL and 4PL.
The next step to consider is how involved you will want to be in the fulfillment process. If you want to be more involved, going with a 3PL is probably your best choice. If you would rather leave it to the specialists, 4PL can be a great decision.
Something you may also wish to consider is growth and scaling. For example, a business that is experiencing rapid growth for the first time should consider partnering with a 3PL. The rapid growth will leave an unprepared business with the inability to keep up with the demand in-house and will look to outsource a lot of its more difficult internal processes, so partnering with a 3Pl is a good short-term solution to sudden demands.
On the other hand, once a business has grown to be classified as enterprise level, working with a 4PL can bring greater efficiency than handling managing your own network and working with multiple 3PLs.
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