Normally we’re more fun than this, but bare with us while we hit you with some knowledge.
Party Logistics: A College-Style Essay That Probably Got A C- (But C’s Get Degrees)
The key difference between 3PL, 4PL and 5PL is the layout of the people involved, and how supply chain management is structured.
The world of logistics often seems too complex for new businesses to get their heads around. This can leave many brands finding themselves struggling to manage their supply chains efficiently.
Knowing the nuances that exist between different logistics systems is key. Below, we’ll outline the key differences between 3PL, 4PL and 5PL logistics, so you can see where they fit into your business model.
1PL & 2PL – Very little outsourcing
The “PL” simply stands for “Party Logistics.” So, 1PL and 2PL mean first and second party logistics respectively. However, in even simpler terms, this means that a 1PL system involves a business that sends goods from one place to another.
An example is a toymaker that transports their toys and games from their workshop to a small toy store a few miles away, all by themselves.
In the case of 2PL, a business may have a fleet of vehicles to transport their goods from one location to another or even many different locations.
In our example of a toymaker, this could mean the 2PL transports all of the toys and games to one or multiple stores on behalf of the toymaker. However, 2PL providers can also travel much longer distances, with shipping companies using boats and planes also being 2PL enterprises.
3PL – Outsourcing for scale
A 3PL logistics provider takes more control of the shipping process, usually by being involved in the packaging or warehousing phase of the supply chain. 3PL providers are usually sought when a business is growing and needs to scale its supply network accordingly.
In the case of our toymaker, a 3PL provider could be packaging the toys for shipment elsewhere, and then delivering them to different locations. The 3PL provider may outsource some of these operations as well.
4PL – Total logistics management
A 4PL provider takes care of logistics management as well as fulfillment. This means the business simply manufactures the goods, and the 4PL provider manages logistical strategies to streamline the supply chain. They act as the sole point of contact in the supply chain, often outsourcing aspects of it to other vendors to cut costs.
In our example, the toymaker would only be responsible for making the toys. The 4PL provider would distribute the toys to one or multiple toy stores and communicate with the toymaker to adjust production levels to keep up with demand.
5PL – Complete supply chain management
5PL providers manage the entire network of a business’ supply chains. This means they no longer simply take care of logistics, but have influence on the production systems used with a focus on efficiency. They may introduce automation at the base level to increase production and cut costs.
They may also streamline the packaging and transportation phases to ensure everything is operating at maximum efficiency. In our toymaker example, a 5PL provider manages toy production, logistics and fulfillment, from the beginning of the supply chain to the end.
Choosing a logistics provider
Choosing which logistics system is right for your business will depend on two key factors:
- The size of your business
- How much control you want to have over the supply chain
3PL is usually the right choice for small businesses trying to scale up in a cost-effective manner. 4PL is the way to go for larger businesses with more complex, time consuming supply networks that could benefit from some automation and outsourcing.