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There is always specialised terminology within various industries. For the logistics industry, you will most often come across 3PL, 4PL, and 5PL. What these terms do is categorise what logistics services these specific providers offer. Depending on the services needed for your business, you will choose one of these terms. So, what is the difference? How do you know which one you should be using?
Outsourcing for logistics was a rare occurrence before the 1980s. However, as advances in technology began to happen, this transformed supply chains. With the rise of artificial intelligence (AI), outsourced logistics keep improving every year.
Having a clear understanding of logistics services and supply chain management can help your business financially. Things such as are my business spending too much money on transportation? Will outsourcing to a 3pl or 4pl save my business money? What exact services do I need, and do I need something simpler and more streamlined? What are the advantages and disadvantages of each service? So, let us discuss.
To have a broad overview of these services, we will also be touching on 1PL, 2PL, and 3PL.
1PL (First Party Logistics)
What is a 1PL?
1pl simply defined means first-party or first-person logistics. The company or business with the product also takes care of all its own transportation and logistics. You will see this a lot with retailers and grocery outlets. From Sainsbury’s to Marks & Spencer, they have their own trucks and take care of their own logistics.
What are the advantages and disadvantages of a 1PL?
Advantages – Having complete control over your own logistics can be seen as an advantage. Internal communication needed only instead of external communication. The company has complete authority to manage operations.
Disadvantages – Handling your own transportation and logistics is expensive and time-consuming. Therefore, only the most prominent retailers tend to handle their own logistics. They must pay for drivers, trucks, fuel, and so much more like insurance and vehicle maintenance. Could that money be spent better with having less employees who simply coordinate deliveries with a shipping service?
2PL (Second Party Logistics)
What is a 2PL?
2PL simply defined means second party or second person logistics. This is the scenario if a retail outlet didn’t use its own trucks and instead hired a service. If a manufacturer wants to send goods to a warehouse, they could a hire a shipping service to take care of that delivery. If a car dealership sells cars online and needs a car delivered across the country to a customer, they would hire a second party semi-truck company to do it. Some companies may also use the UK Royal Mail Service to send packages to their customers. So, 2PL basically covers transportation. Uber Eats, or Deliveroo could be considered 2pl’s as they only handle the transport of goods from restaurant to your front door.
What are the advantages and disadvantages of a 2PL?
Advantages – By using a second party, the business frees up time and company resources to focus on other aspects like growth. They may also be saving a lot of money by not hiring extra staff and trucks to handle their deliveries. Each company is different, so all costs must be considered. Would this option be cheaper for your business?
Disadvantages – You have to give up control to another party. If there are issues, you must rely on others to fix them. Quality control could be an issue if the provider is not a top-notch service. You’re still managing order processing and inventory management, which is very time-intensive. ( link to order processing somewhere?)
3PL (Third Party Logistics)
What is a 3PL?
3pl simply defined means third party or third person logistics. This is where outsourcing your fulfilment needs really ramps up, and service benefits kick in. The day-to-day operations of a 3pl range from receiving to final-mile shipping. They include:
• Storing and managing your inventory in their warehouse, Inventory Management.
• Picking and packing your items when an online order is made, Order Processing.
• Tracking your products to their final destination, Order Management.
What are the advantages and disadvantages of a 3PL?
Advantages – Companies can outsource all their fulfilment needs for customers. They can rely on the competence and proficiency of a company that handles substantial amounts of consumer goods. This is particularly attractive for online sellers who are time short and looking for intelligent solutions. They can solely focus on growing their business and managing customers.
Disadvantages – Quality control is out of reach. Therefore choosing the right 3pl with a good track record of quality control and competence is critical to success.
4PL (Fourth-Party Logistics)
What is a 4PL?
4PL simply defined means fourth party or fourth person logistics. A 4PL acts as the complete intermediary between their partner brands and several logistics companies. Essentially, they will work with other 3PL’s and manage the day-to-day operations closely with their supply chain network on behalf of their clients. They typically do not own warehouses, but partner with warehouses and 3PL’s in their delivery network to send items to for distribution.
What are the advantages and disadvantages of a 4PL?
Advantages – Freeing up the time to the retailer allows them to focus on day to day business operations.4pl’ss work to be very strategic in their process as they work to find the best solutions on behalf of the company. This means getting multiple quotes from differ3PL’s, pointing out inefficiencies and auditing the entire process.
Disadvantages – A inexperienced 4pl without the proper credentials or supply network can easily cause hiccups in the companies” supply chain. Though it can be helpful for a 4PL to control your logistics, you don’t have complete control over warehouse operations. Management of physical operations at the supply warehouses is removed.
5PL (Fifth-Party Logistics)
What is a 5PL?
5PL simply defined means fifth party or fifth person logistics. This service takes it one step further from a 4PL. Again, this is more of a consultant position rather than owning physical operations.
Their management of supply chain operations expands internationally, whereas 4PL and below tend to focus more on domestic operations. More than that, they also manage the supply chain from the supplier to the retailer or manufacturer they represent.
Basically, suppose they represent a company that makes computers. In that case, they handle sourcing the individual computer components for the computer manufacturer to build their computers while also managing the completed computers to be sent to customers afterwards.
They will source the services a company needs as well as negotiate contracts. Quite often, they focus on getting the best rates from many 3PL providers.
What are the advantages and disadvantages of a 5PL?
Advantages – They focus on leveraging technology to create highly efficient networks. The focus on eCommerce companies with no physical store space. Again, they are a convenience to companies that don’t want to handle logistics.
Disadvantages – Relying on a company that does not physically manage the process from the warehouse or supply chain. They work primarily from an office, not a warehouse.
I hope you now understand the different logistics providers, what they do, and how they operate. As a 3PL, Selazar believes we are the best solution for eCommerce companies looking to grow their brand and outsource their fulfilment. Our partners can meet us and see our warehouse. We are transparent and enjoy showing our clients our systems and automation to improve final mile delivery services to their customers with efficiency and precision.