3rdparty_4th_party_logistcis.docx

As supply chain management is an integral part of an eCommerce business, it is important to have an idea of the tools and mediums that are utilized when it comes to delivering the products to the end customer. It is not always possible for a sole eCommerce company to manage all the business processes starting from order process, shipping, to the end delivery. This is where supply chain mediumslike Party Logistics or PLs come into play. They are the various workforce and divisions that are required to smoothly manage the flow of the items from the seller to the customer. What is 3PL (Third Party Logistics) and 4PL (Fourth Party Logistics)? To put it simply, a 3PL or a third party logistics company is an outside agency that carries out the shipping and distribution processes in an eCommerce business. The main company outsources the shipping work to this 3PL agency and they do it for a fee. On the other hand, a 4PL or a fourth party logistics company is defined in a broader context that not only manages the distribution but also looks into the management of these services, ranging from resource allocation, technical expertise and so on. In order to know better about how an eCommerce business and logistics works, it is important that we get to understand these terms and their differences. The Council of Supply Chain Management Professionals (CSCMP) has very well put out the differences between 3PL and 4PL. According to them, a 3PL agency is “a person who solely receives holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product”. On the other hand, a 4PL organization is a “supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution”. In most cases, it is a separate entity that can be formed along with the parent company. These are the functions and operations performed by 3PL and 4PL agencies:

3PL and 4PL agencies function in the same way but their methods are different. While the former looks after the shipping and distribution like arranging freight, carriers or warehousing, the latter manages the end to end processes of these. It may be that the 4PL company can employ a 3PL agency to carry out the distribution and shipping. Typically, a third party logistics (3PL) provider specializes in the following functions:      

Warehousing services Transport services Cross docking services Packaging and distribution services Freight services Inventory services

On the other hand, a fourth party logistics (4PL) agency would mainly provide expertise on:    

Procurement Services Distribution management Storage management Resource management

The success factor is based on utilizing both the 3PL and 4PL services according to the requirement. While a sound 4PL is needed to manage end to end supply and distribution process, a 3PL is needed to carry out these processes in real time

The key to the smooth, successful shipment of goods is choosing the right forwarder. A freight forwarder who works efficiently with excellent information flow and is always aware of your cargo status can be a trusted and valued resource. Traditionally, the job of a logistics partner was simply to bring the cargo/consignment from point A to point B with a competitive rate. With the development of e-commerce and globalization, however, the freight forwarder’s role has expanded to more features and functions than that of a simple shipment transporting operation. This need has led to corresponding developments in logistics companies. As a result, 3rd Party Logistics and 4th Party Logistics companies have evolved to offer more services and features than merely freight forwarding – and the advent of 5th Party Logistics is imminent.

The major difference 1/2/3/4 PLs: o

1st Party Logistics (1PL) were essentially firms that transported consignments from point of origin to destination point. 1PLs typically function like a courier service, moving goods from a manufacturing point to a distribution or retail point.

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2nd Party Logistics (2PL) expanded their function to provide a transport service over a specific segment. 2PLs take care of transportation requirements, typically functioning as carriers.

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3rd Party Logistics (3PL) companies further expanded their vicinity by providing bundled logistics services. Their services included transportation,

warehousing, cross-docking, inventory management, packaging and freight forwarding. 3PLs are logistics service providers. o

4th Party Logistics (4PL) has further advanced in this sector – almost all aspects of the client’s supply chain are managed by the 4PL organization. The 4PL organization has an established joint venture or long-term contract with the client and acts as a single point of contact for all of the client’s supply chain and logistics requirements. 4PLs are also referred to as Lead Logistics Providers (LLPs). The 4PL company interacts with several logistics service providers to get the supply chain management job done for their clients. At times, a major 3PL company could form a 4PL organization within its structure.

5PLs could be in competition sooner with more e-commerce options.

4PLs vs 3PLs: o

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Functionality : 3PL targets a single function, i.e., taking care of the client’s logistics operations. 4PL integrates technology, resources and – sometimes – other 3PLs to support the complete supply chain management for the client. Responsibility : The broader responsibility and accountability of 4PLs is the major differentiating factor between 3PLs and 4PLs. From a client perspective, this means 4PLs take more control and ownership of the processes under their jurisdiction. 4PLs contain all aspects of supply chain, such as overseeing entire transport management, managing and analyzing large amounts of inventory management data, supervising warehousing operations, coordinating operations such as cross-docking, packaging and freight forwarding, liaising with 3PLs or other maritime/freight forwarding companies to get the work completed for the client. On the other hand, 3PLs are typically focused on logistics functions. Impact on client’s performance : 4PL forms part of the client’s operational component and the client relies on their data from 4PLs for some of their business decisions. Thus, 3PLs are a logistics support system while 4PLs are more involved in driving business performance.

The way forward:

Tech analytics firm CB insights has projected that over $5 billion will be invested in supply chain and logistics technology this year, which is an astounding 1300% increase from three years ago. Hence, there could be many more logistic service providers offering enhanced services, as these 3PLs and 4PLs compete to attract more businesses. The challenge that businesses face is in determining a reliable and efficient logistics service provider to support their needs.

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Understanding the Difference Between 3PL and 4PL 

Written by Junior 2 years ago

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Other Partners Product Training FEBRUARY 18, 2017 3 MIN READ There is often a fair amount of confusion and debate around the difference between 3rd Party Logistics (3PL) and 4th Party Logistics (4PL). While they are indeed different, and offer different levels of logistical services, some 3PLs call themselves 4PLs, and vice versa. This of course, tends to further confuse the matter. When it comes to logistics, many businesses find that outsourcing is not only the most cost-efficient approach but also the most effective. After all, logistics providers are experts in their field, and should know how to get the most effective and efficient results. If your business has chosen to use an outside provider for your some, or all, of your logistics, then the next step is to decide whether a 3PL or a 4PL is the right service for you.

So, what is the difference? In a nutshell, the difference between the two is that a 3PL handles your shipments and a 4PL handles your whole supply chain. While this is a simplified version of the true picture, it’s a good starting point, and one we can elaborate on further as we go.

The main characteristics of a 3PL Most of the time, a 3PL will be receiving, handling, storing and delivering your goods. Usually, they will do so under the name of your business not theirs. This isn’t a large distinction for many companies but is an important one for some. A 3PL may provide the warehousing, packing and even some of the inventory management of your products and stock, depending on the needs of your business

and what has been agreed to be supplied. Perhaps the most important consideration is that with a 3PL, the business is still, to some degree, in the managerial seat.

The main characteristics of a 4PL A 4PL, on the other hand, offers all the same things that a 3PL provides, as well as managing the overall supply chain, right down to the legal paperwork and managerial decisions. In other words, when a business signs a contract with a 4PL provider, they are signing over the complete control of their entire supply chain. This means that the 4PL will use their own resources to ensure your business’s supply chain needs are met, but that your business has no control over how that happens. There are of course pros and cons to both approaches, something which each business needs to consider before deciding which way to go.

Which road should I take? Perhaps one of the most important questions a business can ask themselves, when deciding between a 3PL or 4PL provider, is ‘how much control do I want to have?’, closely followed by ‘how much labour am I willing or able to invest?’. Again, this is perhaps an overly simplified approach to a complex decision, but it’s a good starting point, and one that often predicts which way you and your business are headed. On one hand, a 3PL provider will take care of the bulk of the actual moving and storing of your stock, but will leave the management to you. This can be both positive and negative, depending on your resources. Does your business have the knowledge to deal with legal papers and insurance? Do you have the manpower and expertise to manage the overall logistical operation? On the other hand, a 4PL provider will handle everything, including the many responsibilities that go along with it. But, from a managerial point of view, your

business will have no say in how that is carried out. Ultimately, the provider is in full control of your logistical operations, providing they meet the requirements of your contract.

Lay it out and plan it out Like with any business decision, small or large, the best thing you and your business can do is to sit down and look at it from all angles. Once you know what your business needs are, what resources you have available, and what factors are top priorities, then your decision-making process, and subsequent implementation, will go much smoother, and have less chance of causing problems down the line.