4PL vs 3PL: Choosing the Right Logistics Provider for Your Ecommerce Business
August 24, 2020
What do you want to learn?
While researching fulfillment providers, most likely you will come across two different terms: ‘3PL’ and ‘4PL.’ While 3PLs are much more common, both terms relate to outsourcing fulfillment and ecommerce logistics services so it’s important to understand the difference between the two.
Both a 3PL (third-party logistics) and 4PL (fourth-party logistics) offer supply chain management that takes fulfillment off your plate. Partnering with either a third- or fourth-party logistics service provider can help your ecommerce business grow and scale more efficiently. But which type of logistics provider is right for you?
What is a 4PL?
A 4PL, also known as lead logistics, is a logistics company that manages and delegates parts of the supply chain, including the transportation of goods, shipping orders to end customers, and managing multiple 3PLs.
The 3PLs within a 4PL’s network are operated independently and utilize a separate operational system. Each 3PL sets their own standards and processes related to security and customer service.
Characteristics of a 4PL
With a 4PL, you outsource the logistics management and services of a 3PL provider as well as functions higher and lower in the ecommerce supply chain like overseeing freight forwarders and last-mile logistics.
The 4PL manages the relationship with different 3PL providers, in addition to other logistics tasks such as transportation, inventory management, and technology. Examples of a 4PL company include Shopify Fulfillment Network, Deliverr, and ShipHero.
There are advantages and disadvantages to working with a 4PL. In terms of scalability, 4PLs can add warehouses to their network quickly, which allows merchants to expand their distribution network fast.
But there are some key disadvantages, including the lack of quality control, customer support, and inconsistency. Below is an overview of how 4PLs work.
4PLs manage the supply chain
4PLs act as the single point of contact for operational support and communication with other vendors. This helps streamline logistics processes for the merchant since the 4PL takes on a more strategic, operational role.
With a 4PL, the customer doesn’t have to worry about managing relationships with multiple vendors, finding ways to optimize the retail supply chain, or making decisions on logistics.
However, since every warehouse within a 4PL’s network operates independently, it can cause inconsistencies in fulfillment.
4PLs don’t own assets
Not always the case, but most 4PLs do not own or lease assets. Instead, they coordinate transportation, warehousing, and shipping services with other logistics companies. A 4PL works with other vendors, including a 3PL, to find ways to optimize the customer’s supply chain.
Differences between a 3PL vs a 4PL
When ecommerce businesses outsource fulfillment to a 3PL, they work directly with their 3PL partner who manages the entire fulfillment process. Ecommerce businesses outsource fulfillment to a single 3PL partner so they can eliminate managing a warehouse and spend less time tracking inventory, packing boxes, and shipping orders.
Unlike a 3PL, a 4PL adds an additional degree of separation between the merchant and the 3PL as they manage the relationship with the 3PL instead.
Here are some key differences between a 3PL and a 4PL.
A 3PL focuses on order fulfillment, which includes warehousing, picking and packing orders, and shipping packages. A 4PL takes it a step further by managing the entire supply chain, including fulfillment, transportation, and technology. With a 4PL company, a merchant works directly with the 4PL to resolve any issues that arise throughout the supply chain and with other vendors.
Supply chain optimization
Unlike a 4PL, by partnering with a 3PL, a merchant can work directly with the 3PL to find ways to optimize fulfillment. For instance, ShipBob is a 3PL that partners with merchants to decide which fulfillment center locations to store inventory based on where their customers are.
Since a 3PL operates all fulfillment center locations within their network using warehouse management system (WMS), merchants are given access to data and analytics, from demand forecasting tools to shipping data, which helps the merchant make better decisions. Real-time inventory levels can be tracked and viewed from one dashboard as a single source of truth.
Since the 4PL is the merchant’s main point of contact, all communication is filtered through the 4PL to the different 3PLs. This can cause delays in resolving issues since the 4PL acts as the middleman during this process, rather than the merchant working directly with the 3PL. With this type of customer service, there is no ownership on the 3PL level, which can be a frustrating experience for the merchant.
With a 3PL partner, you’re given access to the same customer service team (in some cases, a dedicated account manager). This way, issues are resolved faster and you’re able to work with a team that understands your account.
How the 4PL process works
The goal of a 4PL is to manage and oversee the entire supply chain on behalf of the merchant, including the relationship with a 3PL. Here is an example of how a 4PL would work in partnership with an ecommerce business.
Step 1: Transportation
A 4PL will coordinate transportation of finished goods, oftentimes starting from the manufacturer and then sent to one or several warehouses that are operated by a 3PL company.
Step 2: Warehousing
After your products are transported to one or more warehouses, a 3PL service will take care of the day-to-day fulfillment tasks, such as receiving and storing inventory, picking and packing boxes, and shipping orders.
Step 3: Inventory management
Inventory management is managed by the 4PL using technology that centralizes inventory tracking. When working with a 4PL, the 4PL provides the technology, such as inventory management software, which gives the merchant visibility into inventory levels in one place.
(Note: A tech-enabled 3PL also provides inventory management tools that integrate with a WMS, so merchants can track inventory across all warehouses in real-time.)
Step 4: Shipping
The final stage of a 4PL’s process is last-mile delivery. The 4PL will manage relationships with a 3PL and/or carriers that will pick up orders from the 3PL’s warehouse and ship orders out.
Which type of logistics model is best for your business?
3PLs are by far the most common logistics model for ecommerce businesses, while 4PLs remove the merchant one degree further from the supply chain. 4PLs act as a consultant or head of logistics who outsources all supply chain tasks, unlike a 3PL who serves as a fulfillment team.
Here is an overview of the different phases of an ecommerce business and the logistics model that is typically best suited for each stage.
You’re just starting out: in-house fulfillment
If you’re a startup business, you can begin by fulfilling orders in-house. Keep in mind that this model is oftentimes not scalable, as packing and shipping orders can be a time-consuming task, which can take you away from other important aspects of your business like product development or marketing.
You’re experiencing rapid growth: 3PL
As you grow, outsourcing fulfillment is one of the best ways to scale more efficiently. A 3PL will take care of the order fulfillment process for you, including ecommerce warehousing, inventory management, picking and packing, and working with carriers to ship orders to customers.
“We are growing really fast and won’t slow down anytime soon. With ShipBob, we have the option to use more of their warehouses to further reduce shipping costs. Because ShipBob has a lot of people to handle our orders and additional warehouses we can expand into, we can scale up with ease as we continue to grow quickly. If we ran our own warehouse, it would be much harder to hire people and we’d inevitably outgrow the space.”
Oded Harth, CEO & Co-Founder of MDacne
ShipBob is a 3PL that offers international fulfillment center locations and best-in-class technology to help merchants save on shipping costs and speed up transit times.
You’re reaching enterprise-level: 4PL
If you’re looking to partner with a logistics company that will manage your supply chain for you, a 4PL might be an option for you. However, a 4PL can add another layer of separation from you and your supply chain, which means less control. Because of this lack of control, many fast-growing ecommerce businesses continue to work with a 3PL that they can grow with.
“As we started to hit that first inflection point of growth, it became apparent we needed to look for a 3PL that could help us expand geographically in the US and also drive down shipping costs and expenses.”
Michael Peters, VP of E-Commerce Operations at TB12
Why small and medium-sized businesses trust 3PLs like ShipBob
ShipBob is not a 4PL but a 3PL that offers on-demand logistics solutions, premium technology, and best-in-class customer service and expertise.
Managing fulfillment yourself can be difficult, time-consuming, and costly, while partnering with a 4PL can lead to even less control and inconsistencies.
ShipBob works with fast-growing ecommerce businesses to help them scale their business with Amazon-level logistics.With ShipBob, you can spend less time on logistics and save money in the long run all while still having full transparency and visibility inside the entire supply chain.
With an international fulfillment network powered by the same WMS, ShipBob makes it easy to expand into new locations based on where your customers are. You can track inventory in real time, view inventory allocation, and analyze SKU performance, all from one dashboard. You’re also given control over your supply chain with access to our analytics and reporting tool to make data-driven decisions.
Lastly, ShipBob provides access to a premium customer support team. No matter where you store inventory, you get access to support from a team that understands your needs. This ensures fast resolution so you can keep your business running smoothly.
“Overall, we are so appreciative of how merchant-focused ShipBob is. ShipBob has been so helpful in making sure we and our customers are taken care of, and it’s been such a rewarding partnership.
We feel like ShipBob is a partner that’s in it together with us. We never get the sense that ShipBob is just interested in getting our fulfillment fees. It is much more than that — they really care about our success and what makes us successful as a company.”
No matter what size your business is, you have options on how to manage your supply chain. Although a 4PL can manage the entire supply chain for you, the most common logistics company is a 3PL.
The right 3PL partner will go beyond just fulfillment by working with you to optimize your supply chain and help you make better decisions for your business.
“I felt like I couldn’t grow until I moved to ShipBob. Our old 3PL was slowing us down. Now I am encouraged to sell more with them. My CPA even said to me, ‘thank god you switched to ShipBob.’”
Courtney Lee, founder of Prymal
To learn more about how ShipBob can help your growing business, click the button below to request a quote.
Common 4PL FAQs
Here are some common questions about 4PLs.
1. What are the 5 types of logistics services?
The terms used to describe various logistics companies, services, or consultants can be confusing and not always intuitive.
The easiest way to understand the five different types of logistics services is to remember that as the number goes up, an additional party is added to the supply chain. For instance, a first-party logistics provider transports goods or products directly from the source to another location, while a fifth-party logistics provider manages the supply chain network, from production to delivery. Below is an overview of every type of logistic service:
- A 1PL (first-party logistics) provider transports goods and products directly from one location to another.
- A 2PL (second-party logistics) provider has ownership over the transportation means while distributing products for their customer.
- A 3PL (third-party logistics) provider manages all aspects of fulfillment, from warehousing to shipping.
- A 4PL (fourth-party logistics) provider manages a 3PL on behalf of the customer and other aspects of the supply chain.
- A 5PL (fifth-party logistics) provider manages the entire supply chain network for a business, also known as the ‘logistics aggregator.’
2. What does 4PL stand for?
A 4PL stands for fourth-party logistics, which refers to a logistics service that arranges and manages the entire supply chain, from transporting goods to shipping customer orders. The 4PL acts as a consultant or middleman, between the merchant and the 3PL.
3. What services does a 4PL offer?
A 4PL arranges and manages the entire supply chain, including the relationship with a 3PL. They don’t actually pack boxes or drive goods from one location to another. Other 4PL services might include: logistics data and analytics, business and strategic planning, change management, and more.
4. What are the cons of opting for a 4PL?
There’s a lot to keep track of in logistics. Most ecommerce businesses start out by managing their own inventory (in-home or at a small warehouse) and shipping orders themselves. When it’s time to outsource supply chain management, it can be hard to let go of some control. Although a 4PL will manage multiple logistics services for you, including outsourced fulfillment through a 3PL, it adds another layer between you and operations, which leads to less control over your supply chain.