3PL, 4PL, 5PL — these combinations of numbers and letters appear in many articles regarding the supply chain, but what are they? And why should you know about them?
If shipping is a major component of your business, a third-party logistics provider (3PL) can help you maximize fulfillment logistics and provide you with more time to concentrate on marketing, customer service, and growth.
What exactly are 3, 4, and 5PLs?
To fully explain the complexity of these terms, we need to start from the beginning. A company that manages its own transportation and logistics in-house is referred to as having 1PL, or first-party logistics. This company uses its own vehicles and employees to pick up raw materials and to deliver finished goods.
2PL (second-party logistics) comes into play when a manufacturer hires another company to transport raw materials or finished products. If, for instance, your company uses FedEx to deliver finished goods to a reseller, FedEx is acting as your 2PL provider.
The next level, 3PL (third-party logistics) refers to a third-party business that handles shipping operations and logistics processes for a manufacturer. Generally, 3PLs offer a variety of integrated warehousing and transportation services that can be tailored to meet a customer’s specific requirements. In essence, a 3PL provider oversees and coordinates your 2PLs.
4PL (fourth-party logistics) is a term that emerged in the mid-90s. When a manufacturer doesn’t want to handle any supply chain logistics, a 4PL will take over all of those responsibilities. To do so, the 4PL will often collaborate with multiple 3PLs to streamline the manufacturer’s supply chain.
A fairly recent idea, 5PL (fifth-party logistics) relies on technology and data to optimize supply chain networks. Most often, 5PL is used by e-commerce businesses that don’t have brick-and-mortar stores.
What is the role of a 3PL?
The specific role of a 3PL will vary, depending upon the needs of the customer. While some clients may require a 3PL to manage all aspects of their shipping logistics, others may simply need a 3PL warehouse. Here are a few services provided by 3PLs.
Shipping
Even in the best of times, global shipping can be challenging, but the COVID pandemic has turned it into a major disruption. A 3PL manages all the stressful aspects of shipping logistics, such as customs, trade compliance requirements, freight forwarding, etc., and will help you navigate these turbulent times in the shipping industry.
Transportation
Because most 3PLs work with various carriers, they can find the best deals and the right level of service for your freight. They also help you consolidate less-than-truckload (LTL) freight, secure insurance documents, and manage freight payments.
Warehousing
While third-party logistics warehouses may offer different levels of service, their purpose is to fulfill your orders quickly and efficiently. In general, a 3PL warehouse receives your goods, manages your inventory, takes care of picking, packing, and shipping, and handles returns. Because the 3PL handles all of your warehouse logistics, you have more time to focus on growing your business.
How could my company benefit from a 3PL?
No matter what level of service your company needs, chances are that your business could benefit greatly from working with a 3PL. Here are just a few reasons to consider using a 3PL.
Receive Instant Access to Industry Expertise
Are you well-versed and current on all aspects of shipping and warehouse logistics? The professionals at your 3PL are. They have years of experience, which they can leverage for you. Plus, they utilize the latest technology and partnerships with other businesses, such as marketing firms, trucking lines, packaging providers, etc., to help your business succeed.
Save Time and Money
When you use a 3PL, you don’t have to spend time looking for a warehouse to rent or buy. Nor do you have to buy equipment, like forklifts and storage bins, or hire warehouse employees. Additionally, a third-party logistics provider can alert you to supply chain fluctuations and help you optimize inventory levels.
Become More Flexible
Because most 3PLs have extensive networks, they can help you expand your market with minimal effort and cost. They also enable you to scale your operations based on current and projected inventory, thereby easing seasonal fluctuations in your business.
Why Should I Choose Nexterus?
Even before the terms “outsourcing” and “3PL” were coined, Nexterus was a logistics company for small and mid-size businesses. We offer a full line of services to manage all your supply chain needs. Contact us to learn how Nexterus can help you build your business and avoid the distractions of complex supply chain challenges.
