The supply chain industry is a complex ecosystem that involves numerous partners and moving parts to ensure a successful product journey. Among the critical players in this journey are third-party logistics centers (3PLs), which play a prominent role in facilitating the seamless flow of goods. As you optimize your supply chain, it’s important to understand what kind of logistics center best fits your company’s goals; how much help do you need getting items into customers' hands? And would it be beneficial for your logistics partner to utilize a strategic, technological solution?
The logistics industry can be perplexing due to the various terminologies used to describe different players in the supply chain. For instance, you may have heard of 1PLs, 2PLs, 4PLs, and 5PLs and wondered about their significance. As you optimize your supply chain, it’s important to understand what kind of logistics center best fits your company’s goals; how much help do you need getting items into customers' hands? And would it be beneficial for your logistics partner to utilize a strategic, technological solution?
Not to worry, we have you covered! Below is a detailed summary of how each "PL" contributes to the supply chain.
A 1PL, or first-party logistics, is a company or person that requires products to be transported from one place to another. 1PLs only comprise two parties: the distributor or manufacturer who ships the products and then the customer who receives them. There is no middleman between the two.
A 2PL, or second-party logistics, is responsible for the transportation of products. 2PLs could be shipping lines that operate ships, hauling companies that operate vehicles, or airlines that operate planes. 2PLs are also known as freight-forwarders. To work well with a 2PL, brands and retailers must learn if they need a license to ship their goods, get informed about who has jurisdiction over those products, and understand labeling and documentation requirements. Moreover, if brands and retailers are shipping internationally, they need to be schooled in trade policies and entities and how these laws differ in various countries. Retailers’ teams must also communicate cargo dimensions extremely accurately, or items may be too large to go on the mode of transport it was planned to be shipped on.
3PLs, or third-party logistics, are companies that handle the supply chain and logistics between a company and the shipper. Retailers and brands use 3PLs as partners to get their products fulfilled and into customers’ hands. Some 3PLs specialize only in warehousing products, while others specialize in transportation, while others have the bandwidth to support both. Essentially, a 3PL is in charge of all the phases between the current location of products and the final location.
3PLs typically work closely with brands and retailers, helping to receive and transfer merchandise from the retailer’s manufacturer, hold it in their warehouse, and then ship it off to end-consumers. With the expansion of e-commerce and omnichannel selling, 3PLs will also fulfill orders from various marketplaces on which their retail clients sell products. A well-functioning 3PL with a diligent operations manager and client success team will communicate seamlessly with their clients to ensure all items get to where they need to be in a timely manner. A 3PL does not ever own any of these products; instead, they operate as a mediator between the retailer and the final customer, hence the term “third party” in their name.
4PLs, or fourth-party logistics companies, can offer everything that 3PLs do, while also providing technology integrations, tracing, financial services, and order tracking. 4PLs generally have total supervision over their clients’ entire supply chains. Many 3PLs will decide to transform their businesses into 4PLs to offer a fuller range of services, even if it’s only for a few customers. With a better suite of resources, they can better support their clients’ supply chains and provide a unified view.
4PLs basically consist of connected networks of 3PLs; they control the logistics-retailer relationship instead of owning individual 3PLs. Brands and retailers that are hoping for 2-day shipping, even to geographically distant customers, may want to invest in a partnership with a 4PL since they can optimize the services of 3PLs in various locations for quicker delivery. 4PLs also typically work on a brand or retailer’s long-term strategy, instead of solely focusing on day-to-day logistics operations, as a 3PL does.
5PLs, or fifth-party logistics, differ from 3PLs and 4PLs because they control their clients’ entire supply chains, including shipping. 3PLs and 4PLs both require shippers to reach out and let them know that they have a product that needs to go from A to B. 5PLs are also doing the shipping, becoming a completely connected part of their partners’ supply chains. Having a 5PL partner means that a retailer or brand knows that everything logistics and supply chain-oriented in their business is handled by one entity, allowing companies to focus more on marketing or other front-end aspects of their brand.
In some ways, 5PLs are almost too new to solidly define. However, as supply chain networks grow more international, and thus trickier to manage, 5PLs and their cutting-edge technology could be the solution.
Each logistics company serves its function and purpose, so it’s important to decide what you’re looking for before committing to one of them. 1PLs and 2PLs are the simplest and give partners full control over their supply chain, but can definitely hinder your ability to grow your business. On the other hand, 3PLs, 4PLs, and 5PLs offer a lot more support, but that also means relinquishing control of your day-to-day logistics management. To decide what is right for your business, consider the size of your company and your goals!
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