The logistics industry is backed up by a dynamic network of logistics service providers that outsource logistic activities for shippers. Ocean carriers and freight forwarders are a few logistic providers that help the shippers by arranging containerisation, transportation, and documentation for international shipping. Shippers are stakeholders or manufacturers that require 4PL( Fourth-party logistics) solutions to facilitate their trade business. Let us learn more about the benefits of 4PL logistics solutions.
What is 4th Party Logistics?
In the shipping industry, 4th party logistics, commonly known as 4PL or lead logistics provider, is a higher-level operational model where a business outsources its supply chain management and logistics to an external partner. The manufacturer outsources all of the logistics and supply chain activities and leaves it to the responsibility of the external service provider. The fourth party has authority over the client’s supply chain management and oversees, manages and controls the movement of goods to suppliers and distributors. The outsourcing company is accountable for collaborating with other shipping companies, warehouses and freight forwarders. The service provider will single-handedly manage all aspects of the supply chain and help the client achieve their logistics goals.
What is an example of 4-party logistics?
Let us take an example to clarify the process of 4PL logistic companies. You may contract with a service provider if you are a manufacturing company and plan on outsourcing your business’s supply chain management and logistics operations. Now, this provider will manage your finished products’ movement from warehousing, inventory management, packaging, loading onto shipping containers, and transportation to the assigned location. The 4PL service provider will manage all the shipping parties involved. Your only task would be to manufacture products. In simple words, if you contract a supplier to handle your shipping operations and the supplier goes ahead and outsources another company to carry out a particular aspect of logistic processes, then your initial supplier becomes a 4PL service provider.
What is the need for 4PL in the supply chain?
Regulating the swarming demands of the supply chain is a challenging task. Manufacturers often face difficulties procuring raw materials, producing mass-finished products, looking for a buyer, and then packing and transporting the shipment to its destination. Fourth-party logistics service providers are external parties that partner up with clients to reduce their logistics burden and overcome the challenges of the logistics and transportation industry. In short, the benefits of 4PL logistics are that the companies involved are dedicated to taking control of an organisation’s supply chain management and logistics operations to delegate optimisation and profitability. Since they are experienced and experts in logistics, the manufacturer can streamline the finished products to profitable distributors through cost-effective logistics.
Difference between 3PL and 4PL
Manufacturing companies outsource their supply chain management and logistics to 3PL and 4PL providers. The difference between them is simple.
- 3rd party logistics providers are external parties that extend e-commerce services to clients. In comparison, 4PL services cover all logistics and management processes.
- 3PL logistics focuses primarily on shipping orders to the customers from the manufacturers. Their tasks include warehousing, picking up packages, packing the goods, and shipping them to their destinations. Whereas in a 4PL model, managing the logistics processes is the goal. Therefore, 4PL providers look into inventory management, collaboration between shipping parties, order fulfilment, transportation, tracking the shipment to its destination and managing the technologies involved.
- The job of 4PL Solutions is to offer consultation advice to the client. In case of any query or concerns, the clients can directly contact their 4PL providers and get solutions. 4PL companies are also responsible for completing a 3PL service provider’s tasks. A 3PL, however, does limited work.
- 3PL service providers are not in charge or liable to their clients. When organisations work with a 3PL, they are responsible for managing the performance of the outsourced company. At the same time, 4PL is accountable for managing all supply chain activities that concern the client.
- The relationship between the hiring organisation and 3PL is purely transactional. 3PLs are like brokers who connect organisations to clients. The relationship between the 4PL and the hiring organisation is more proactive and long-term. They act as partners with the organisation, offer recommendations and consultation on optimising logistics operations, and simultaneously fulfil the task of 4PL.
|3PL logistics||4PL Logistics|
|Function||Focuses on logistics services.||Works towards managing the supply chain.|
|Services||Shippers can hire 3PL for specific logistics processes.||Collaborates with shipping providers to offer end-to-end services.|
|Role||More transactional as they are hired for shipping tasks.||Offer consultation to shippers before outsourcing 3PL providers based on client budget and need.|
|Point of contact||They are the secondary point of contact for shippers.||Only point of contact between 3PL providers and shippers.|
What are the key benefits of 4PL logistics?
The five significant advantages of 4PL logistics are –
- Reliable consultation– The main goal of 4PL service providers is to improve the current working of the client’s supply chain operations. By collecting and analysing the organisation’s data, 4PL can check for drawbacks in the organisation’s current working and work with their clients to optimise the supply chain management. They commit to your organisation and take full responsibility for their job. They find solutions to potential issues and implement new strategies to increase productivity.
- Enhanced customer service– The 4PL providers thoroughly dictate all e-commerce activities related to the clients. They help keep track of the logistics needs of customers and their clients. By optimising supply chain operations, 4PL helps minimise delivery time and therefore offers better services to customers. 4PL ensures that customers are well-informed of their shipments and resolves their queries on time.
- Operational efficiency– By streamlining the supply chain operations, 4PL logistics solutions help eliminate inefficiencies and disruptions in the supply chain management. It helps in improving operational efficiency and effectively utilising the available resources. 4PL also assists in managing the flow of money and making profitable investments.
- Improved competencies– 4PL service providers allow clients to focus on their core competencies by handling the rest of their tasks. Manufacturing, eliminating errors, redistribution of resources, cumulating new designs, and improving the finished products are a few of the core functions of every manufacturing unit. While 4PL works on management, clients can focus on their primary tasks and work to enhance productivity.
- Managing suppliers– Many suppliers, distributors, shipping companies and freight forwarders collaborate to perform shipping tasks successfully. Manufacturers may find it challenging to look for reliable shipping parties and earn profits from the trade business. Based on the flexibility and scalability of operations, 4PL providers connect with different required parties and supervise shipment deliveries.
These are a few key benefits of 4PL logistics that enable organisations to streamline logistics operations and increase productivity to enhance operational efficiencies.
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