3PL vs 4PL Essentials: 5 Questions to Ask When Selecting a Provider

Understanding 3PL vs 4PL

In researching outsourced fulfillment options, you may have come across the terms 3PL (third party logistics) and 4PL (fourth party logistics), sometimes even used interchangeably. While on the surface these two services may seem very similar, there are some major differences in service levels, technology, and network capabilities.

What is a 3PL?

A 3PL, or Third Party Logistics provider, is an outsourced fulfillment solution that traditionally provides warehousing and pick, pack, and ship services. The primary benefit of outsourcing fulfillment to a 3PL is reducing expenses in warehouse maintenance, labor, and scheduling. However, 3PL’s typically have a regional footprint, and when businesses begin to expand into new geographic markets, they often need to contract multiple 3PL’s to get the national delivery coverage they need.

What is a 4PL?

A 4PL, or Fourth Party Logistics provider, is essentially a network of multiple 3PLs connected through a single technology platform. 4PLs have a nationwide footprint to enable 1- to 2-day ground delivery across the US. By partnering with a 4PL, a small to mid-sized merchant can offer the same delivery promises as major retailers without sacrificing margins.

A 4PL serves as a strategic partner and negotiates the best rates and SLA’s across the 3PL network. Using sales and shipping history, 4PLs can also advise merchants where to forward stock inventory in order to best serve their customers. 4PLs aggregate the inventory and shipping volumes of multiple merchants to negotiate the best SLA’s and eliminate peak season surcharges.

3PL vs 4PL: Key Differences

As the outsourced logistics industry continues to innovate, merchants have a wealth of options available to them to achieve the speed and flexibility to operationally keep pace with consumer expectations. With so many options available, it’s important to vet potential partners to find the perfect fit, beginning with understanding the difference in service offerings and capabilities between a 3PL vs 4PL.

• Storage Capacity & Delivery Footprint. 3PL services are a portion of what a 4PL provides. Most 4PLs have a variety of warehouses, often including multiple 3PLs, in their network to provide more comprehensive shipping capabilities, storage capabilities, and geographical coverage to merchants. For instance, a 4PL network may contain warehouses that specialize in big and bulky storage and temperature controlled ambient storage all within a single network.
• Financial & Operational Scalability. With “on-demand” 4PLs, merchants pay for only the resources they need when they need them. Contracts and service agreements are flexible, making them a highly scalable solution. With 3PLs, merchants must usually adhere to long-term contracts with stricter parameters on the allotted storage space and volume of orders that can be fulfilled.
• Integrated Technology. 4PLs will typically operate through a cloud-based warehouse management solution (WMS), giving merchants visibility into order receiving, fulfillment, and delivery statuses across all of their facilities. These fulfillment softwares also integrate with e-commerce platforms like Shopify or WooCommerce and ERPs like Oracle or SAP for automated reporting. 3PLs rarely provide this type of technology component.
• Professional Support. Today’s leading 4PLs will offer a customer service structure that goes beyond basic support and will provide strategic advice to merchants for purposes of optimizing their inventory and distribution management. Alternatively, the support available via traditional 3PLs is usually limited to answering basic inquiries and addressing day-to-day operational issues.

3PL vs 4PL Service-Level Differences

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5 Questions to Ask When Selecting an Outsourced Logistics Provider.

Whether you decide a 3PL or full-service 4PL is the best fit for your business, it’s important to vet all potential outsourced fulfillment partners. Below are 5 questions that will help you find the ideal fulfillment partner.

1. Can Your Warehousing & Fulfillment Needs Be Handled? Do you have perishable goods that need to be stored and shipped at specific temperatures? How about fragile items that need special care? Do you require specialized kitting workflows? How much storage space will you need, and how will these volumes shift with seasonal demands? ‍

2. Can You Reach Your Customers Quickly? It is important to understand each warehouse’s geographic coverage and how that aligns with your key customer markets and their shipping expectations. If you need to reach all customers with two-day shipping and only want to pay ground shipping rates, you need to narrow your search to partners that can meet those expectations. 

While identifying ideal shipping speeds and coverage may sound simple, it’s important to maintain a forward-thinking lens as you make this decision. Amazon, for example, has continually changed Seller Fulfilled Prime (SFP) delivery requirements. It’s important to choose a partner you can trust as the industry expert to adapt to changing requirements and keep your fulfillment operations ahead of the curve.

ANALYSIS OF STRATEGIC 4PL DISTRIBUTION COVERAGE

3. Will this partnership cut fulfillment costs or lower your overall customer acquisition costs? Understandably, most small to mid-sized merchants are looking first and foremost to lower their customer acquisition costs. However, when vetting potential partners, look for a provider who understands the overall business impacts of streamlined fulfillment and fast shipping. Data increasingly shows that advertising a 1 to 2-day delivery promise at the top of the sales funnel increases conversions and overall market share. Pay close attention to providers who offer these kinds of insights, and consider the relationship between top-line revenue and bottom-line profitability when comparing cost.

4. What level of warehouse & customer support can you expect? The trade-off to outsourcing your fulfillment workflows is often visibility and control, which is why it’s vital to have a strong understanding of what your partner’s client support will provide to you. You’ll want to consider both sides of client support, the warehouse team physically performing your fulfillment workflows and the client success team that will be your main point of contact. ‍

Ask about the availability of the customer support team that will be managing your day-to-day inquiries. For instance, if you have a question about the operations at a particular facility, need help with some aspect of the technology, need to track a return or outbound shipment, etc… How long will it take you to receive a reply from your representative? Will you speak directly with a person or will you be redirected to an FAQ page or rote reminders of SLA’s?

Dig in and ask questions about on-time fulfillment speeds, dock to stock time, and security measures to understand their warehousing processes and service levels. Ask about the speed to resolve issues, the number of clients to each team member, and the hours of client support services. It’s fair to ask for a reference from an active client before signing a contract to ensure that you’re comfortable with the support and service you will receive.

5. Are technology and integrations a priority? Beyond the “managed services” component of 3PLs, there is often a technology component associated with 4PLs, typically provided in the form of an online warehouse management system (WMS).

Integrated technology is a huge advantage for merchants. It bridges the gap between delivery (where sales and operations meet) and every other part of the business. It allows a full-funnel view of both the supply chain and the sales cycle for more accurate customer acquisition costs (CAC) and cost to serve figures. 

Consider your current tech platforms and how inventory and delivery data would enrich them. Most merchants see tremendous value by plugging their order management systems, marketplace sales channels, and ERP systems into their WMS. Additionally, the WMS will provide  full visibility reporting on the daily fulfillment workflows, including on-time order speeds, inventory volumes, and fulfillment delays.

In addition to the WMS, merchants should also ask about the use of technology in the warehouses. As sales channels continue to digitize and ecommerce demand rises, warehouse operations must also automate and digitize to keep up with demand. According to Ware2Go’s VP of Warehouse Operations, Chris Domby, technological innovation in their warehouses helped Ware2Go stay ahead of the ecommerce demand spike brought on by COVID-19. 

“We became more reliant on conveyor belts and sorters and applied workflows to quickly reconfigure warehouses to adjust with client order volumes and order type,” Domby said, “The impact has been strong, in fact, we’ve seen our on-time fulfillment rates increase throughout the pandemic and are sitting securely at 99.6% right now.”

3PL vs 4PL Is Only the Beginning

As the e-commerce landscape continues to evolve and as shoppers increasingly expect a faster, cheaper, and more transparent shopping experience, businesses whose supply chains aren’t fully optimized and integrated with digital sales channels will fall behind. But for companies that lack the resources, bandwidth, or expertise to upgrade their internal warehousing and fulfillment processes, the 3PL and 4PL landscape provides the perfect opportunity to outsource some or all of these workflows to specialists. Just remember that given the broad degree of diversity that exists within the space, businesses must work to identify the providers that can deliver the exact type of functionality they require, at a price point that matches their budget.

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To learn how Ware2Go is simplifying the end-to-end supply chain with 4PL services, take a look at Our Solution.