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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Fourth Party Logistics — Everything You Should Know
Key takeaways
- Fourth-party logistics involves outsourcing the entire supply chain to a single provider.
- This process includes assessment, strategy development, execution, continuous monitoring, and optimization to enhance supply chain efficiency.
- 4PL reduces control and poses cost challenges for smaller companies, necessitating careful consideration based on organizational goals and needs.
Fourth-party logistics (4PL) help businesses to optimize their entire chain. Although it is gaining popularity, people still have little to no idea what 4PL is.
In this article, we will discuss what 4PL means. We will tell you its process and the difference between 3PL and 4PL logistics providers. Additionally, we will tell you the advantages and disadvantages of 4PL.
After reading this article, you will have a deeper understanding of what 4PL is. Once you know what 4PL is, you will know what operational model will work better for your supply chain.
4PL: What is it?
A fourth-party logistics, typically known as 4PL, is an operational model where a business outsources its entire supply chain and logistics to a single external provider.
In a 4PL model, the external provider (also known as the lead logistics provider or LLP) manages and coordinates all aspects of the supply chain, including transportation, warehousing, inventory management, and distribution. This provider may also manage other third-party logistics (3PL) providers on behalf of the client company.
A 4PL provider also contributes to bringing real-time visibility and control over the supply chain through advanced technology and analytics, allowing the client company to focus on its core business operations.
4PL providers usually offer more strategic insight and management over the company’s supply chain. Thus, in many cases, 4PL providers can help businesses to develop more cost-effective and efficient logistics solutions than businesses could create on their own.
Furthermore, as the logistics industry continues to grow, 4PL will continue to play an important role in helping businesses to streamline their supply chain and logistics processes.
The 4PL Process: How Does it Work?
The 4PL process involves the following processes:
1. Assessment
The first step in the 4PL process is to assess the organization’s supply chain and logistics requirements. This helps the 4PL provider understand the organization’s needs and identify areas for improvement.
2. Developing strategy
Once you are done assessing the supply chain and logistics of an organization, the 4PL provider will develop a logistics strategy that optimizes the supply chain, reduces costs, and enhances efficiency. This includes checking for new logistics providers, renegotiating contracts, or implementing new software.
3. Execution of strategy
The 4PL provider executes the logistics strategy by coordinating and managing the activities of multiple logistics providers, such as carriers, warehouses, and customs brokers.
This involves ensuring that each provider is meeting their obligations and working together effectively to optimize the supply chain.
4. Monitor the performance of the 4PL provider
4PL providers continuously monitor the performance of the logistics providers and the supply chain, using real-time data and analytics to check issues and opportunities for improvement.
This helps the 4PL provider to identify and address potential problems before they become major issues that will cause the business to have a setback.
5. Check what can be improved
Based on the performance that the 4PL providers monitored, they must now optimize the supply chain and logistics operations to ensure that they meet the needs and goals of an organization.
This may involve adjusting logistics providers, renegotiating contracts, or implementing new technology software to reduce costs and improve efficiency.
Difference Between 3PL and 4PL
Advantages of 4PL
4PL providers can offer various advantages to companies, including cost savings, advanced services, and flexibility.
4PL providers bring together traditional outsourced supply chain services and create customized strategies, technologies, and tools to improve the efficiency of logistics, resulting in a more seamless and efficient shipment cycle for companies.
Additionally, the dedicated support team of 4PL providers maintains close relationships with their customers and quickly identifies improvement areas in case of any issues.
By streamlining the supply chain and logistics processes, 4PL providers not only enhance supply chain visibility but also reduce labor costs by allowing employees to concentrate on strategic activities instead of doing mundane tasks.
All in all, 4PL providers can provide retailers with confidence in meeting their specific supply chain requirements while also saving time, money, and effort.
Disadvantages of 4PL
Using a 4PL as an operational model for your supply chain may have some drawbacks, including reduced control over the logistics and fulfillment process for a company’s product.
4PL services may also not be cost-effective for small companies due to their pricing. By outsourcing your supply chain and logistics management, you become dependent on a single provider. Thus, increasing the chances of disruptions in your supply chain if the provider experiences issues or is unable to provide the services the business expected.
Furthermore, the decision of whether you should use a 4PL model in your supply chain depends on the goals and needs of your company.
Conclusion
Fourth-Party Logistics (4PL) is a flourishing operational model that allows businesses to outsource their entire supply chain and logistics to a single external provider. By delving into the 4PL process, the article elucidates the steps involved, from the initial assessment of organizational needs to the continuous monitoring and optimization of supply chain performance. Drawing a clear distinction between 3PL and 4PL providers, the article emphasizes the strategic focus and comprehensive logistics solutions that 4PL brings to the table.
The advantages of employing 4PL services are underscored, including cost savings, advanced services, and enhanced flexibility. The dedicated support teams of 4PL providers are touted for maintaining close customer relationships and swiftly addressing improvement areas. However, the article does not shy away from discussing the potential disadvantages of opting for a 4PL model, such as reduced control over logistics processes and potential cost inefficiencies for smaller companies.
Ultimately, the decision to embrace 4PL hinges on a company’s specific goals and needs, with careful consideration required to strike a balance between benefits and potential drawbacks in the pursuit of a streamlined and efficient supply chain.
Frequentlyasked questions
What is 4PL?
It is an operational model where a business outsources its entire supply chain and logistics to a single external provider.
What is the difference between 4PL and 3PL?
3PL providers focus on managing specific logistics activities, while 4PL providers offer a more comprehensive logistics solution.
How to know if a 4PL provider suits my business?
This depends on the specific needs and goals of your organization. If you have limited knowledge in logistics management and you need a comprehensive and integrated logistics solution, a 4PL provider may be a good fit. However, if you need more flexibility in your logistics operations, a 3PL provider may be a better option.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
