3PL vs. 4PL
- Published: 03 Mar 2017
Being in the supply chain industry, you see a lot of terms and abbreviations. It can be overwhelming, especially if you're new to the industry, you have a poor memory, or you haven't seen or heard of a term before. Certainly, 3PL is one of the most well-known terms to someone in the supply chain. But, did you know there's 4PL? 4PL is a lesser known term, and is, as you may have guessed, related to 3PL. To help explain what 4PL is, you have to know what 3PL is and what 3PL companies do.
Third-party Logistics (3PL)
Third-party logistics companies handle physical distribution and logistics. 3PL companies can do this by using their own resources, such as warehouse facilities, and their network of freight transportation providers to help clients ship or store their products appropriately. Whether in transit or in storage, 3PL companies leverage their experience to ensure that all steps are taken to keep the client’s products safe.
According to the Council of Supply Chain Management Professionals (CSCMP), a third-party logistics company can be a lot of things nowadays. The CSCMP glossary of supply chain terms references the legal definition set out in 2008: “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.” In plain language this means that a 3PL company holds or transports a product that they do not own (i.e., a client's product).
What Does a 3PL Company Specialize In?
3PL companies tend to specialize in:
- Inbound and outbound freight
- Freight consolidation
- Order fulfillment
- Inventory management
All of the above third-party logistics services are scaled and customized to a client’s requirements. One client may not require warehousing, whereas another will, which is why 3PL companies are adept at providing different services to different clients. The services offered by a 3PL company can include all of the above, more, or even as few as one.
Fourth-party Logistics (4PL)
What 4PL is, is still heavily debated, and there are other definitions out there, but here is one of the more popular ones.
A 4PL company does not stop at outsourcing logistics services but also outsources the management of said services. Generally, 4PL companies have no way of transportation or warehousing, but rather use the transportation and warehousing services of a 3PL company. There are exceptions to this, of course.
What Does a 4PL Company Provide?
4PL companies tend to provide (generally through 3PL partners):
1) 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners;
2) 4PL organization acts as a single interface between the client and multiple logistics service providers;
3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and,
4) It is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.
The CSCMP defines a 4PL company as 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.” Essentially, what this means is that a 4PL company deals with the planning, management, designing, and optimization of a supply chain from start to end and does so by outsourcing the services it needs to trusted companies.
Same Idea, Different Parts
Third-party logistics and fourth-party logistics operate the same way but consist of different parts. A 3PL company arranges freight carriers and warehousing by dealing directly with the service providers. A 4PL company, on the other hand, arranges the same services and more for a client but does so by employing companies such as 3PL companies, who use their vast network of carriers and warehousing providers. 4PL companies manage these 3PL companies and other companies to provide a client with a comprehensive, end-to-end supply chain.
Many people see this as double brokering. ADLI Logistics is contacted by many 4PLs looking to enlist our services for a customer of theirs, but ADLI Logistics prohibits double brokering, as it is not in the best interest of any prospective client. When this happens, ADLI Logistics asks to deal with the 4PL's client directly, as we prefer to be involved in providing the customer service to the client, rather than the 4PL.
 Vitasek, Kate. Supply Chain Management Terms and Glossary. August 2013. Accessed February 27, 2017. http://cscmp.org/imis0/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx?hkey=60879588-f65f-4ab5-8c4b-6878815ef921. 195.
 Vitasek, Kate. Supply Chain Management Terms and Glossary. August 2013. Accessed February 27, 2017. http://cscmp.org/imis0/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx?hkey=60879588-f65f-4ab5-8c4b-6878815ef921. 86.