3PL vs. 4PL: What to know about logistics’ latest solution

The global 4PL market is set to reach over $86 billion in 2027

5 minutes

April 20, 2023 Adecco

Three logistics workers, two in safety vests, have a meeting on the warehouse floor.

More than one-in-four distribution centers are currently operating between 81% and 99% capacity.  This lack of warehouse space, coupled with a critical labor shortage, means many companies are struggling to meet consumer demand. So how can businesses stay ahead?

Enter 3PLs, or third-party logistics. A 3PL will work alongside your business offering services like order fulfillment, freight transportation, and shared warehousing space to simplify your distribution and save money.

However, a new way to handle logistics is gaining in popularity: the 4PL model. Think it’s just a trend? The global 4PL market is set to reach over $86 billion in 2027. There are pros and cons to outsourcing so much of your logistics operations, so we’re breaking down what is a 4PL, the advantages and disadvantages of both, and what this means for your staffing strategies.

What is a 4PL?

Like a 3PL, a 4PL is an external partner that helps a business solve supply chain problems. However, a 4PL goes beyond providing solutions for physical challenges like transportation or warehousing. Instead, it manages all elements of logistics. This can include finance, IT, and other more strategic responsibilities.

A 4PL serves as the single point of contact for all the suppliers and transporters throughout the supply chain. By designing, executing, and managing each element, a 4PL should allow you to focus on expanding your business.

What are the advantages?

Advantages of both these models stem from how hands on or off you want to be. Additionally, since 3PLs specialize in the physical needs, they’ll have more resources to help procure space. Meanwhile 4PLs can leverage data to craft bespoke logistics solutions.

Advantages of 3PLs:

1. Enhanced customer service

Since there’s no middleman with a 3PL, you’ll have direct contact with delivery drivers who interact with your end customers. Through this you can better control the service your customers receive upon delivery. 83% of shippers said a 3PL improved their customer service.

2. Optimized supply chain

Again, no middleman means a business can work directly with a 3PL to discover how best to optimize their logistics practices. Many 3PLs operate multiple fulfillment centers within their networks via a warehouse management system (WMS), allowing them to give full warehousing analytics and real-time inventory tracking.

3. Space and scalability

Specializing in physical logistics mean 3PLs have scalable resources such as labor, distribution centers, and transportation. That should eliminate any worries about operating at over-capacity.

Advantages of a 4PL:

1. Solution-based model

Because a 4PL is a neutral party without deep ties to vendors, you’ll know any solution is crafted with your business in mind and not just what has worked before with other companies. Your supply chain will be designed to best fit your company’s needs and include other aspects like technology and analyses of overall business operations.

2. Build long-term relationships

Because of this business-based approach, a 4PL is better for organizations who want a partner for the long term. A 4PL will help you effectively organize, lead, and coordinate your supply chain. 4PLs additionally can provide extensive data analyses on how best to optimize your supply chain by aggregating data from multiple 3PLs.

3. All-in-one management

If you don’t have time to deal with logistics providers, then a 4PL could be your perfect solution. They will handle all contact with vendors and other partners allowing you to focus on growing your company.

What are the disadvantages?

Like any business model, both 3PLs and 4PLs have their cons. By hiring an external third or fourth partner you’ll be further away from overseeing important business operations while also paying out-of-pocket for logistics solutions. Disadvantages for both 3PLs and 4PLs include:

1. Loss of control

A 3PL will oversee all staffing of warehouses and delivery drivers. That means you’ll need to trust they make the right hiring decisions and implement current OSHA standards. This is even more so with a 4PL as they handle all communication with the 3PLs who oversee workers. By working with a 3PL or 4PL you’re opening yourself up to possible liabilities, including OSHA fines, if warehouses aren’t managed well.

2. Can be costly

Both 3PLs and 4PLs can cost more than in-house logistics operations. Over time you’ll business will consume more services making the model expensive to maintain over a long period of time.

3. Loss of business skills

Logistics is an important part of any retail business. Outsource your supply chain management and you’ll rob your own employees the chance to learn skills related to logistics operations. This is especially true for 4PLs as employees will have no contact with their warehouses and transportation departments.

3PL vs 4PL: Is it time to reconsider your staffing strategy?

Choosing between a 3PL or 4PL comes down to what your business needs most. If you’re experiencing rapid growth and are struggling with warehousing space and labor, then a 3PL will provide you with the resources you need to get ahead. If your entire logistics operation is standing in the way of growing your business, then a 4PL can handle all elements of your supply chain.

At Adecco we house both logistics service providers (LSPs), 3PL specialists, and a comprehensive network of trained warehouse workers. With over 60 years in the logistics industry, we’ve staffed companies both large and small, helping to keep inventory moving despite warehousing woes. Whether you’re considering a 3PL or want to re-energize your own, in-house contingent program by attracting more material handlers or forklift drivers, our logistics experts can help develop smart solutions, no matter the problem.

Contact us today to see how we can help.