Global Sourcing

Why Large Companies Move to 4PL Services

Why Large Companies Move to 4PL Services

SUMMARY: Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. By contrast, the third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources such processes as warehousing, shipping, packing, and distribution to a 3PL provider. When the COVID-19 pandemic began wreaking havoc in global supply chains, smaller companies turned to 3PL providers for help. Bigger companies with complex global supply chains, however, realised they needed sophisticated digital technologies and streamlined supply chain processes offered by 4PL providers to help them ride out the storm. The concept of fourth-party logistics has existed for some time but only truly began evolving with the arrival of Industry 4.0—the digitisation of manufacturing. Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. The Differences between 4PL and 3PL It will be helpful at this stage to determine the differences between 4PL and 3PL. The terms are often mixed up and some firms claim to be 4PL providers when in fact they only provide 3PL services. What is 4PL? In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. What is 3PL? The third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources processes such as warehousing, shipping, packing, and distribution to a 3PL provider. The key difference between the two can perhaps be explained in the following example: A 3PL provider working with a paint manufacturer may package and store products as well as transport them to retailers and/or customers. Unlike a 4PL, however, it won’t manage the paint maker’s entire supply chain. There are, of course, some other important differences between the two types of providers: 4PL is, in general, better suited for medium-to-large businesses, while 3PL is more suited to small-to-medium businesses.4PL companies operate at the optimisation and collaboration level...

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