3PL or 4PL? Why You Should Hire Both
Do a quick internet search on the difference between a 3PL and a 4PL and you will get hundreds of results. All of the articles basically tell the same story… A 3PL handles your shipments and the operations of those movements, while a 4PL handles your entire supply chain.
This is such a broad statement, so I don’t think it needs to be up for debate. However, what most of these articles usually say next is surprising to me. Most continue the story with… “3PL or 4PL, so which one do you choose?”
What?! Which one do you choose? If you are deciding which one to choose, then you’ve already far underestimated the reasons you are bringing either of these providers in as partners with your business in the first place. I would like to speak to the true purpose of what both these companies should be providing to you in your partnership arrangements with them, and then I make the case why you should have both types of partners, not choose one over the other.
If you are a growing manufacturer or distributor and want to increase the insight and sophistication of your supply chain, you should seek consultation with a 3PL. There is a point in all expanding companies where the workload becomes too great and the buying power and/or leverage is too enticing to ignore. Where one, or more than one, 3PL can be hired to unburden your workforce and increase your savings through the providers’ networks.
What offerings can a 3PL provide to your company?
Leverage, Rate Negotiations, Savings
Tracking, Tracing, TMS/Visibility Software
Carriers, Capacity, Claims Management
These items above are just the tip of the iceberg when it comes to what a 3PL could be providing your business, the beginning of a full list of significant items that should be addressed and performed regularly by your logistics partner. I will write on these typical 3PL offerings in more detail in a future article.
For now, I’d like to explain how a 4PL can provide complementary and perfectly aligned services to much needed 3PL solutions. There are a wide variety of 3PLs calling themselves 4PLs. While it is my belief that although a 3PL may assure you are moving each modality of your supply chain efficiently and at a correctly negotiated cost, a 4PL will add additional layers of research, expertise, technology, and strategy. All of this designed to put price leveraging and client innovation at the forefront of your solutions. Here’s what a 4PL can bring to your company in addition to what a 3PL will deliver:
MORE CUSTOMIZATION OF STRATEGY:
A 3PL will normally work with your business to establish pricing contracts, set up an operating transportation management system, as well as other software solutions. Additionally, they iron out the details of the operational needs of your supply chain. It is determined where the provider, and its team, fit in to assist your company with those needs and then to what extent. If you do have extra requirements on metrics and/or the modality in which they’re delivered, it may be weeks as you hash it out with a 3PL project manager to possibly get only a portion of what you wanted.
Sometimes that’s because the strategic component ends, and the level of detail that could take your business to that next level of efficiency may get lost in the “sales” noise of closing the deal. There is a place for these elements, but legitimate consulting can drive the solutions that put you back in the driver’s seat of your supply chain. Imagine if the strategies unveiled by your 4PL provider set you up to accomplish all your desired KPI’s, and you were given this strategy for no other reason but the desire to do work together, no sales involved. Nice right?
COLLABORATION TO THE EXTREME:
In a 4PL relationship, a business is outsourcing the oversight of the entire supply chain. This type of relationship fosters a level of intimacy in which the provider is more incentivized to provide a highly specialized boutique solution for the client. Erin Jernigan, writes in her article 4 Reasons to Raise the Sophistication of your Supply Chain; “Their (the provider’s) best interest is to align with your business, so you have a true collaborator that is working to help your organization grow and succeed.”
For this reason, a client will normally get above and beyond personalized benefits that they may not receive working with their 3PL partners alone. For instance, a common 4PL offering is a single point of contact for any and all needs of employees throughout your company. It’s normal for a buyer to call an air freight carrier or division for an update on the shipment that left yesterday, and then make another call to the 3PL’s TL division regarding a full trailer that is running late. The varied group of contacts, and points of contact within the same supply chain goes on and on. This employee gains significant amount of time back when he or she can reach out to their single point of contact for all questions, no matter what mode or vendor.
ADDITIONAL LAYERS OF TECHNOLOGY:
As said previously, a 3PL will almost always offer a TMS at no charge for their clients to utilize for their daily operations. They may also offer analytics software to show insights on a daily, weekly, and monthly basis as well as metrics that may help them benchmark and make decisions based on these curations.
Technology and data can become stronger under a 4PL’s influence. Forecasting becomes deeper and more extensive. Individualized teams of experts are nimble to collect information in a variety of ways to customize the analytics and monitor the clients desired KPIs. 4PL’s are incentivized to learn all 3PL software so the client doesn’t need to invest unnecessary hours and, in that way, your 4PL can be the deployer of your business’s technology wish list. In addition to working through any kinks and requests of any acquired software, a 4PL normally has additional technologies which provide their clients issue resolution programs, capabilities to combine multiple TMS platforms, or additional levels of integrated solutions above and beyond the 3PL’s normal offerings.
THE MAIN REASON YOU SHOULD HIRE BOTH A 3PL AND A 4PL
Here is the biggest benefit to your company in hiring both types of partners:
You’ll develop, create and maintain “Healthy” Supply Chain practices.
Victory can be there to help empower you to make smarter, more effective decisions to grow your business. Reach out today to learn how.