Choosing how to manage your company’s logistics is one of the most important decisions you can make as you grow. Those first starting out could afford to fulfill their orders in-house, but those beginning to scale may need to consider third-party logistics (3PL), or even fourth-party logistics (4PL), providers. But how do you know which one to choose?
In this article, we'll explain the differences between 3PL vs 4PL providers so that you can choose the one that meets your business needs. We'll list the differences between all five XPL partners, and show you the pros and cons of the more prevalent 3PL and 4PL options. Then we'll show you which option most companies choose based on their own business journey — and how QuickBox can grow alongside you.
What Is a 3PL vs 4PL?
As your business scales, your process for bringing your products to your consumer will become increasingly elaborate. You may start off with first or second-person (1PL/2PL) logistics systems and may scale to a third or fourth-person (3PL/4PL) system as you expand. More on the specifics later, but the key difference between a 3PL vs 4PL is that a 3PL provider handles your order fulfillment workflows, such as picking and packing, inventory control, and warehousing, while a 4PL broadens its scope to manage your entire supply operation.
Types of PLs
Growing startups and small-to-midsized businesses (SMBs) may only concern themselves with 3PL vs 4PL processes, but there are actually five XPL levels. Your business may employ them all as it scales, so it's important to know which one could best fit your current operations. To understand the five XPL models, consider a furniture company starting a new business venture.
- First party logistics (1PL). 1PL processes consist only of a business fulfilling its own orders and directly delivering them to the consumer.
- Example: A furniture company hand-delivers their goods to local customers using in-house order fulfillment.
- Second party logistics (2PL). Once businesses scale, they can no longer hand-deliver each good. Under 2PL models, businesses hire a carrier to transport their goods to consumers, but the carrier isn't responsible for warehousing workflows.
- Example: A furniture company hires a delivery truck to transport its goods to consumers, freeing them up for more builds.
- Third party logistics (3PL). When businesses reach a large enough scale, they need warehouses and distribution centers to help them fulfill customer orders. 3PL logistics providers supply the shipping centers and order fulfillment workflows needed to help products reach the customers, such as picking and packing, tracking, and international warehousing.
- Example: A furniture company hires a 3PL to store and track inventory, fulfill orders, and handle kitting for products involving multiple components.
- Fourth party logistics (4PL). While a 3PL model encompasses direct warehousing processes such as order fulfillment, storage, shipping, and tracking, 4PL models extend further to include the entire supply chain. 4PL companies serve as overseers that monitor all your procurement, acquisition, transportation, and shipping processes. They work with 3PL providers to supervise order fulfillment workflows while managing broader logistics operations, ensuring complete supply chain optimization.
- Example: The furniture company goes beyond seeking a 3PL company to provide their warehousing and shipping, and uses a 4PL to identify alternative suppliers, establish strategically located fulfillment centers, manage last-mile shipping, and handle all customer returns.
- Fifth party logistics (5PL). 4PL companies handle individual supply chains, but 5PL providers handle your entire supply chain infrastructure.
- Example: The furniture company leverages a 5PL to secure all raw materials, oversee each 4PL, and manage each supply chain-related process from production all the way to delivery.
Growing businesses demand growing supply chains, and the more your business expands, the more you'll move through each PL model. 3PLs work well for companies at the SMB level while 4PLs may be more suited to enterprises, so choose the level that aligns with your operations.
3PL vs 4PL Providers: What's the Difference?
Understanding the difference between 3PL and 4PL providers is key to choosing which one is right for you. Here's how they compare.
Order Fulfillment
The main difference between 3PL and 4PL providers is the role they play in your supply chain. 3PL providers' duties are confined mostly to order fulfillment processes, such as pick-and-pack, inventory control, warehousing, and shipping. Other specialized 3PL services include:
- Custom packaging to include logos and other branding
- Product assembly and kitting for complex orders
- Data analytics and detailed reporting, for actionable insights and better compliance
Meanwhile, 4PL providers manage broader supply chain operations, such as transportation, procurement, and identifying bottlenecks in your processes. 4PL providers must also find suitable 3PL providers for their clients, and work with them to ensure smooth order fulfillment for your customers. 3PL providers handle the direct warehousing processes, while 4PLs oversee them.
Merchant Involvement
3PLs only handle direct order fulfillment and shipping activities. Merchants must still make critical supply chain decisions, such as where order fulfillment centers will be located. 4PL providers make supply chain-related decisions for their customers, taking the workload off their hands entirely.
This difference can be an advantage or a disadvantage to the merchant. The advantage is that they don't have to worry about their supply chain infrastructure and can focus on their primary business processes. The disadvantage is that they have less control over their operations and less visibility into how their products are shipped.
Supply Chain Optimization
3PL providers may have a network of warehouses and distribution centers, but 4PL providers have access to multiple 3PLs — and all the facilities that come with them. Therefore, 4PL providers have a larger supply chain infrastructure to draw from, enabling them to choose more strategic fulfillment locations.
Customer Communications
Merchants that use 3PLs are responsible for any communication with their customers. In addition to their other services, 4PL providers also handle customer queries and other logistics-related issues, creating another layer of separation between the merchant and the end-user. 4PLs that resolve consumer issues effectively can boost your customers' satisfaction, but those that fail could end up tarnishing your brand image without your knowledge since the complaints don't reach your ears.
3PL vs 4PL Pros and Cons
Both 3PL and 4PL providers offer unique advantages to their clients, but each has drawbacks as well. Here are the pros and cons of each:
3PLs
3PLs not only deliver order fulfillment expertise at a reasonable price, but they also provide a scalable solution that can accommodate rapidly fluctuating consumer demands.
Pros
- Available space. 3PL providers already possess the distribution centers and warehouses that companies need to scale up their order fulfillment operations. Their facilities are strategically located across the country, so you can find the shortest distance to your customers with ease.
- Industry expertise. 3PL providers possess a great deal of industry experience that lets them offer many specialized services to merchants. For example, 3PL experts offer not only custom packaging and kiting to best represent your brand, but provide detailed analytics and reporting functionalities that give you full visibility into your warehousing processes.
- Workflow automation. While companies may lack the expertise needed to optimize their own shipping processes, 3PL providers employ tools like workflow automation platforms and warehouse management systems (WMS). These tools let you maximize your efficiency and speed up shipping times, improving your customers' satisfaction.
Cons
Despite their advantages, 3PL providers don't deliver the same comprehensive supply chain services that 4PLs provide. Some of their limitations are:
- Greater complexity. Depending on your company's size, you may need multiple 3PLs to orchestrate your entire supply chain. Using multiple 3PL partners can quickly become complex and difficult to manage.
- More effort. Companies that use 3PL providers must still make some key order fulfillment decisions, forcing them to remain involved in their supply chain operations. This can take away from your focus on more central business processes, such as building a better product and reaching your base.
4PLs
4PL providers offer consolidation, insights, and technology that 3PLs simply don't have — but their services come at a price.
Pros
- Greater consolidation. Unlike 3PLs that only handle order fulfillment processes such as shipping, storage, and pick-and-pack, 4PL providers oversee your entire supply chain. This lets them act as a central hub for your operations, consolidating your workflow so that each phase functions at full capacity.
- Deeper insights. 4PL providers don't just have data on your own warehousing workflows; they possess vast amounts of data on other suppliers and supply chain players as well. The insights that they glean from their data lets them uncover how best to optimize your warehousing processes, making your entire supply chain more resilient.
- More technology. 3PL providers may possess some technologies such as automation and WMS solutions, but they rarely have the autonomous vehicles, robots, and radio frequency identification (RFID) tags that 4PLs use to coordinate their operations. 4PLs are also adopting AI/ML tools to help improve their processes over time. This technology helps 4PLs deliver more innovation to their clients' operations.
Cons
4PLs can sometimes be difficult to shift away from for enterprises that depend on them, and their services may be cost-prohibitive. Some drawbacks of 4PLs are:
- High dependency. 4PLs handle a company's entire supply chain, so companies that use them have difficulty transitioning away from them without disrupting their business. If you outsource your supply chain to a 4PL, prepare for a long-term commitment.
- Cost. 4PL providers offer end-to-end supply chain services, so their price tag is often higher than 3PLs.
3PL vs 4PL: Which One Is Right For Me?
Choosing between a 3PL or 4PL provider depends largely on the scale of your current operations and how much logistics assistance you need. Some factors to consider are:
- Involvement. The 3PL fulfillment process still requires some participation from the merchant, while a 4PL fulfillment company handles all your shipping operations. A 3PL company could be better if you prefer to retain some control over your processes, while 4PLs could be better for those seeking to outsource their entire logistics operations.
- Size. Larger enterprises have complex supply chains that may require 4PL or 5PL partners to handle their vast logistical network. Startups and SMBs may be rapidly growing, but their supply chains are simple enough that they only need the order fulfillment, shipping, and warehousing services that 3PL providers supply.
- Customer satisfaction. Because 4PLs handle all shipping operations, any communication between the merchant and 3PL goes through them. Customer satisfaction issues are passed on to the 4PL, sometimes without reaching the merchant. If customer satisfaction is a high priority, 4PLs can be a risk.
- Cost. 4PLs are larger and handle more supply chain operations than 3PL providers. That means they're often more expensive, so those with tight budget concerns may prefer 3PL partners.
Fundamentally, 3PL logistics providers are better suited for burgeoning companies that need assistance with their order fulfillment processes but would like to maintain their control over the rest of their supply chain operations. 4PL suppliers can be more cost-prohibitive and pose a risk to customer satisfaction, but their expertise enables enterprises to offload their entire supply chain infrastructure so that they can focus on mission-critical business processes.
QuickBox: The 3PL That Grows With You
Supply chain bottlenecks have made logistics issues one of the most pressing challenges that scaling businesses face, so companies must choose their shipping partners very carefully. 3PLs are often more affordable and handle shipping operations such as picking and packing, kitting, and order fulfillment, but they do require a more hands-on approach from the merchants that use them. 4PLs extend their services to oversee entire supply chain processes and optimize your entire logistics operations, but their services may be more expensive. They also serve as another degree of separation between you and the customer.
QuickBox is a 3PL industry leader with the technology and expertise that it takes to scale with you. We provide complete omnichannel fulfillment services across a wide range of industries, and our team has over a century's worth of combined industry experience to help you make the most of your shipping processes. We proactively build a lasting relationship with each of our clients to deliver the same partnerships that 4PLs provide except at a fraction of the cost, so contact us today if you'd like the best of both worlds and optimize your shipping processes.