3PL vs 4PL: What’s the Difference & Which Do You Need?

Supply chains are a fundamental part of any business.

You need pieces to develop products, products that need to move from point A to point B or Z, and the ability to be everywhere at every time.

And well…sometimes it can be too much to handle. 

Searching for external fulfillment providers is a solution for many businesses that want extra help in managing their supply chain operations.

All of that is great, of course, but choosing the right alternative isn't as straightforward as it might look.

You have options available, like 3PL or 4PL, depending on your needs.

But what exactly does working with a third party or four-party logistics provider entail?

That's what we're going to discover now.

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What is a 3PL?

3PL or third-party logistics represents a group of external providers you can work with if you're seeking ways to reduce your supply chain workload, without giving up full control over strategy and processes.

A 3PL company helps with services like warehousing,  transportation, order fulfillment, and inventory management.

For example, let's say that you want to reduce costs as you're planning to expand to a new market. Instead of investing in running and maintaining a warehouse on your own, you partner with a 3PL company to store your products in their facilities.

You still control your inventory and customer experience, but now you’ve got a logistics expert by your side. 

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Types of 3PL Providers 

We know what a 3PL provider does now, but were you aware that there are different types of services to choose from? 

Depending on what you require, you can opt for one service or another.

Transportation-based 3PLs

These providers specialize in moving your goods to the location you need. If you are struggling to figure out the best approach to freight shipping, long-distance delivery, or coordinating across multiple carriers. They may work with their own network of carriers or private fleets, so your products can arrive at their destination on time.

Warehouse/distribution providers 

Need a place to store your products and get them shipped out quickly? These 3PLs focus on warehousing, inventory management, and order fulfillment.

Perfect for an e-commerce business or any other company not wanting to deal with the pain of handling warehouse operations.

Forwarder solutions

Most of the time, this type comes in the form of regular freight forwarders that happen to offer additional logistics services. 

Among their responsibilities, you'll find activities like planning, coordinating, and executing all things related to transportation.

Financial and information services 

There's no supply chain and inventory management without dealing with money and data. 

But what happens when you just don't have the time to handle those aspects? 

You work with these providers.

They give tracking, analytics, and supply chain visibility using software platforms while keeping an expert eye on finances.

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What is a 4PL? 

Four party logistics providers pretty much fulfill the same functions of a 3PL, but with a more strategic input. 

They're in charge of not just helping you with specific functions. They're the ones who oversee the management of your whole supply chain.

Risky?

Not for some businesses or contexts. If you run a large business working in multiple parts of the world, it might make sense to delegate the management of your supply chain to an external company with deep expertise in your industry.

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Types of 4PL

Lead logistics providers 

The most popular alternative when it comes to 4PL

You can see it as the operations center responsible for managing your entire supply chain. From the strategy to the logistics, everything works on the clock for your customers.

Solution integrators 

And speaking of strategies, these providers work, assessing first the current situation and processes of your company. Once that's completed, they build personalized solutions from start to finish, relying on advanced technology, analytics, and performance monitoring.

Functional 

These focus on optimizing specific functions like procurement or returns. 

You still get a complete coordination service, but it's targeted to a particular part of your supply chain rather than the whole thing.

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3PL Vs 4PL: Key Differences

Now that you are familiar with what both fulfilment options are individually, let's move on to a bigger question: 

What exactly makes 3PL different from 4PL services?

Type of services offered

3PL

A third-party logistics provider is a good idea if you require assistance with only some operations, like storing your products or order fulfillment.

4PL

It is a more end-to-end solution. 

They oversee your entire supply chain and often manage multiple 3PLs on your behalf. It's a more hands-off approach for you and more strategic on their end.

Level of control 

3PL

This is probably the biggest difference between the two. Working with a 3PL provider means you are only delegating key activities for them to handle. The decision remains with you. 

4PL 

Things change here.

4PL services are only effective if you are willing to let someone else make all the important decisions.

Technology 

3PL 

Most 3PLs offer tech tools for tracking shipments or managing inventory, but they’re usually focused on the specific services they provide.

4PL

As their work is more complex, you can expect them to work with supply chain digital platforms and have a heavy dependence on data analytics.

Costs 

3PL

It's an alternative, more affordable, considering they work with a focus on specific services.

4PL

It's a bigger investment, but it can also deliver bigger results.

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4 Benefits of 3PL

Flexibility: You can pick and choose the services you need, shipping, warehousing, returns, the decision it's up to you.

Cost-Effective: Great for small to mid-sized businesses that don’t need 360-degree supply chain management.

Scalable: As your business grows, you can scale up your 3PL services without rebuilding your whole logistics system.

Frees Up Your Time: You have more time to focus on growing while they handle the packing and shipping.

4 Benefits of 4PL 

One Point of Contact: No more wasting hours or days dealing with providers; they handle everything and coordinate it all for you.

Optimization: They don't work just to move a couple of boxes; they’re dedicated to improving your entire supply chain, something that can benefit the whole business.

Advanced Tech & Data Insights: You’ll get access to real-time dashboards, predictive analytics, and efficiency reports.

Strategic Partnership: A 4PL becomes part of your long-term team, helping build continuous improvement.

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When to Choose a 3PL or 4PL?

Okay, sufficient information about how external logistics providers work. 

Once you know all of that, the next logical step is to wonder about which one could work best for your business.

Work with a 3PL if: 

• You’re a small or mid-sized business that's growing and just needs help with only some logistics tasks, like shipping or warehousing.
• Having complete control matters for your business and vision as a leader.
• Flexibility is important. 
• Your operations are still relatively simple, and you need reliable support, not a full strategic partner.

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Work with a 4PL if: 

• Your supply chain has reached new levels of complexity
• The moment to keep growing has arrived, and you foresee the necessity of optimizing and having a higher visibility degree.
• Your business would benefit from working with a single point of contact for everything related to your supply chain.

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