3PL, 4PL & 5PL EXPLAINED
What is 5PL? What is the difference between 3PL, 4PL and 5PL. You might be unclear on what each level of logistics services entails.
The role of outsourced logistics in the supply chain hasn’t been fully explained. It is still unclear what level of services the 3 different PL’s offer.
Supply chain and the logistics industry are getting complicated. Increasing customer expectations, growth in e-commerce, and new business models lead to more pressure applied to the supply chain channels. Businesses have to do a lot to manage their logistics. There is hardly any room for error.
What is A 3PL?
A 3PL (third-party logistics provider ) offers outsourced logistics services, which includes anything that involves management of one or more aspects of procurement and fulfillment activities. In business, 3PL has a broad meaning that applies to any logistic service that involves storing, fulfilling or shipping items. Most 3PL’s are asset based while 4PL’s and 5PL’s are not. Many companies who provide multiple types of services call themselves 3PL Companies for examples, a Freight Forwarder who handles storage and some distribution can claim that they are a 3 PL. The same applies to Trucking companies who handle storage, they too can claim to be a 3PL. It has to be noted that not all 3PL’s are created equal. To be a true 3PL, you have to offer many services under the logistics Umbrella.
What is A 4PL ?
4PL ( fourth-party logistics ) is a more sophisticated form of supply chain management, focusing on the optimization of the whole logistics process.
While some 4PLs perform similar functions to 3PLs, they are usually non-asset based, meaning they don’t own any vehicles or storage facilities themselves.
A 4PL may coordinate the activities of 3PLs that handle specific parts of the supply chain. There is no set structure for a 4PL, and some larger 3PLs may even offer 4PL solutions to their clients.
5PL is a relatively new term in the logistics industry and reflects the development of full logistic integration through many outsourced providers. encompass the whole supply chain from beginning
A 5PL provider looks beyond individual supply chains, focusing instead on wider supply networks.
A 5PL will plan, organize and implement a client’s logistics solutions, taking all elements of supply chain management out of their hands. Their focus on supply networks means they’ll oversee every single supply chain within an organization.
5Pls tend to be more valuable to e-commerce businesses with AI implementations. 5PL Firms Manage Multiple 3PL and 4PL Companies
How to choose a logistics Company
Here are some tips
While there’s definitely more many reasons why a company might look for a third party logistics provider here are a few reasons:
- To provide supply chain support to penetrate new regional markets or countries where your company doesn’t currently have a presence without the costs involved in such venture
- If you are a company whose business is seasonal in nature using a 3pl provider allows you to cut the operating costs.
- To increase on-time performance and increase efficiency with the management of your inventory by using a 3PL provider that has the technology and capability to deliver an effective solution.
- To take advantage of lower transportation rates provided by logistics firms that have buying power due to the volume of freight they deal with.
- To quickly build a multi-location distribution network with lower risk, without the significant capital investment associated with building out a network on your own.
- By using a 3PL provider, you can divert your resources to grow your business by engaging in new marketing strategies
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