The Use of Third-Party and Fourth-Party Logistics in Small Businesses

Business Logistics simply means having the products or services reach the consumer from the supplier. Logistics is a part of Supply Chain Management and deals with controlling the storage and flow of products in order to meet the customer’s requirements. Logistics management becomes necessary especially when the businesses impose a budget on the storage and flow of inventory. Also, when businesses require maximum transparency – for example, in tracing a Swiggy order or tracking an order placed on Myntra- logistics play a vital role. As a result, variations in logistics have come into existence to meet different business requirements. On this note, let’s have a look into 3PL and 4PL, which expand to Third-Party Logistics and Fourth-Party Logistics.

What are 3PL and 4PL providers?

A Third-Party Logistics provider is contracted to manage the logistics of a company. It takes care of the company’s warehousing and distribution and is also responsible for the transportation services required for the delivery of the company’s products/goods. Apart from these services, 3PL companies sometimes offer extended services such as inventory management, packaging and cross-docking. 3PLs have a role to play in transportation, E-commerce, Customer Relationship Management and warehousing. For instance, consider transportation- 3PL functions under transportation include improvement of transportation cost and service, freight claims, freight auditing and bill payment. Some functions that a 3PL company performs in warehousing are labour recruitment, labour management, cross-docking and the basic warehousing functions like receiving, picking up, packing, storage and shipping products.

4PLs are usually either a joint venture or have a long-term agreement with the client company. A 4PL company not only takes care of the logistics but also manages the entire supply chain of the client. Often a 4PL acts as an interface between the client and other logistics service providers of the client. Basically, while a 3PL company only takes care of the logistics, a 4PL targets a wide array of tasks under the supply chain.

The need for 3PL

Third-Party Logistics providers take different forms depending on the requirement of a business.  Here are the four types of 3PL providers:

Standard 3PL: The standard 3PL functions are warehousing, packaging and shipping/transportation of goods.

Service Developer: Apart from the standard 3PL functions, a Service Developer 3PL provides services related to IT, security and tracking. This simply ensures that the products are packaged and delivered safely.

Customer Adapter: Customer Adapters do not have their own set of logistics operations. Rather, they completely take over the logistics operations of the client company.

Customer Developer: These types of 3PL providers take over the company’s logistics sector and add their essence to the operations. Customer Developers make changes to the logistical operations as and when required.

Most companies appoint 3PL providers instead of investing in logistics because a 3PL can adapt to customer demands and the needs of the companies. Here are some benefits of Third-Party Logistics:

  • Improve customer satisfaction: 3PL companies operate with the aim of delivering on time and error-free fulfilment of the orders. Some advanced 3PL companies provide real-time tracking and real-time alerts to the customers when there are delays in order fulfilment. This way, the customers are always aware of their order status.
  • Reduce current and future cost: Companies tend to use a 3PL to reduce expenses. Having a long-term logistics partner is more cost-effective than investing in logistics. Also, independent 3PL companies usually have lower transportation costs.
  • Save time: Employing a 3PL company to take care of thelogistics in long-term helps small businesses in a way that they can save time to improve their competency in the tasks that they are good at.
  • Facilitate flexibility and scalability: The operations of a 3PL can be scaled to meet the business needs. 3PLs are flexible in the sense that they work in accordance with the variation in the inventory. Space, labour and transportation are arranged depending on the current requirements.
  • Increase the chances of growth: A Third-Party Logistics company can operate from anywhere. 3PL operations can be set up even in places where the client company is not physically present. This enables the growth of the company across locations.

Benefits of 4PL

As a 4PL provides a wider array of services than a 3PL, there are several reasons for businesses to choose 4PL companies. Here are some plus-points of having a 4PL manage the supply chain of your business:

  • Reduction of cost: 4PL is the single point of contact for all the matters related to Supply Chain Management. Having a single entity manage the entire supply chain is much economic than the company having a separate logistics sector. This is clearly an advantage for small businesses.
  • Supply chain expertise: Fourth-Party Logistics providers have their own team of professionals in various fields of the supply chain. This eliminates the need for a company to invest in expertise to manage logistical operations.
  • 4PL technology platform: A 4PL company operates based on its own technology platform and has technical expertise. This is a perk for the client company because using a well-known 4PL’s expertise is in all terms better than using a less-understood technology for logistics management.

Choosing the right type of logistics is vital for the prosperity of a business. In a world that is subject to change, the flexibility that comes with 3PL and 4PL providers is clearly an advantage. With cost-effectiveness, efficiency and other positive aspects, 3PL and 4PL companies have an increasing demand among small businesses.

Author – Sabqat Ruba

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