Every Friday, we answer a common question about fulfillment, shipping, or business. This week’s question comes from a reply to one of our weekly emails. Today we will answer the following question: “what is a 4PL company?”
What is a 4PL (Fourth-Party Logistics) Company?
- Receiving inventory
- Warehousing inventory
- Picking and packing (retrieving inventory and preparing to ship it to customers)
- Inventory control
- Shipping / order fulfillment
- Returns management
A 4PL, on the other hand, goes one step further. These companies manage much more of the supply chain, including but not limited to:
- All 3PL functions
- Logistics strategy
- Freight sourcing
- Business planning
- Project management
This article by TradeGecko goes into even more detail. We abbreviated the list a lot for the purpose of this article. Suffice it to say, 4PLs do a lot.
Why Are 4PL Companies Useful?
There is one major benefit to using a 4PL – you can outsource all of supply chain management to another company. That means supply chain experts can not only complete routine tasks on your company’s behalf, but also actively suggest and even implement business strategies.
Of course, it doesn’t always make sense to outsource to a 4PL. When you outsource logistics to a 4PL, your company will inevitably lose most of its control over the logistics and fulfillment processes. That can be a fair price to pay for a simpler workload, but it’s certainly not comfortable for everyone. As you can also imagine, this can be quite expensive too.
When to Use a 3PL and When to Use a 4PL
When your business is bogged down by routine tasks like order fulfillment, it’s a good time to outsource to a 3PL. Letting a 3PL take care of inventory storage, order fulfillment, and returns can free up a lot of time and possibly even save your business money. This starts to make sense after your company ships around 50-100 orders per month or more.
Once a business starts to get really large – think tens of thousands of orders per month or more – then it makes sense to start thinking about 4PL companies. When your business is shipping hundreds or even thousands of orders per month, it’s still somewhat easy to know when to start another round of manufacturing or replenish inventory.
After a certain point, though, it makes more sense to contact experts who specialize in supply chain strategy. That’s why many 4PL companies are large consulting firms such as Accenture or Deloitte.
A 4PL company can be thought of a 3PL company with extra features. If you need someone to ship orders on your behalf, then a 3PL is the clear choice. If you need someone to book freight, find manufacturers, replenish inventory on your behalf, or consult on strategy, then you need a 4PL.