3PL, 4PL, LLP…What’s What & Which Is Better for You
Many options exist for supply chain management professionals as they determine what logistics services their business needs, and which logistics partner is the best fit for their organization. Determining the right fit for your organization means navigating through the (sometimes) complex language and structure of logistics providers and then determining what they truly can and cannot offer.
There are definite advantages and disadvantages to enhanced logistics services. Through complete understanding of the options available, you’ll be able to determine which system creates the most cost-effective, efficient supply chain for your business.
Defining 3PL, 4PL and LLP
The first step in determining the best option for your business is to understand exactly what’s out there. You’ve most likely heard of a 3PL or 4PL provider, but what exactly do these acronyms mean, and is there a difference between them?
3PL– this stands for third-party logistics. A 3PL provider makes available the resources to execute some part, or function within the supply chain. It can be as simple as,a common carrier picking up freight to a hazardous materials carrier moving potential dangerous product. They are the service provider, making sure product is transported appropriately to its destination. Third party is just as it implies; someone other than you executing the service.
4PL– this stands for fourth-party logistics. A 4PL takes logistics services one step further in the supply chain by arranging logistics services on behalf of the client. A 4PL can provide full oversight as needed, from freight procurement, to invoice processing, to claims process management, depending on the needs of your business. This option provides an effective way for your business to focus time and energy on core business production, without the infrastructure and investment into logistics and transportation.
LLP– this stands for lead logistics provider. An LLP presents a deeper relationship between you and your logistics provider. LLP’s typically provide full end-to-end logistics management, handling all of the links in the supply chain. The goal of this relationship is to be mutually beneficial. The LLP is responsible for full management and visibility into the supply chain, and in turn you benefit from increased sales and efficient cost management.
By thoroughly investigating which option might best meet your needs, you’ll have a better understanding of the options and possible benefits available from the various logistics providers.
Advantages and disadvantages with 3PL, 4PL and LLP services
Determining what logistics services best suit your business requires full knowledge of the advantages and disadvantages that each provider option offers. Your decision is also based on your business’ focus and overall strategy:
- Do I have the personnel resources to manage my logistics needs internally?
- Do I have the financial resources to outsource my logistics management?
- How involved do I want to be in my logistics and/or supply chain management system?
- Is my time and capital better spent focused on my core business, or logistics execution?
The answers that come from these important questions, and reviewing the advantages and disadvantages of each will help you determine which logistics option will best serve your business.
3PL– The third party logistics provider relationship is very straightforward and fairly transactional. In this relationship, a key logistics person handles a link in the supply chain. The transportation of product for example, but does not become involved with production schedules or warehouse availability. They move product, but do not manage overall logistics or supply chain functions.
4PL– The fourth party logistics provider is more contractual in nature and requires a deeper commitment from both you and your logistics provider. The “price” may be higher than a 3PL, but you also have an expert in supply chain management overseeing your production process, managing pick-ups and delivery and handling invoicing with customers. The additional value created must offset any cost increases in order for this relationship to be viable.
LLP– The lead logistics provider relationship allows you to fully focus on your core business, and reduces your involvement in supply chain execution. You’re able to focus on overall business strategy, working closely with supply chain experts to improve business efficiency and drive cost savings. This relationship does require a long-term agreement, which can be seen as a disadvantage for some businesses; yet the additional time and energy invested from both parties typically results in increased efficiency and product value.
By determining your business’ resources, focus and intended outcomes, and through the careful assessment of the advantages and disadvantages of each logistics provider and their services, you’ll have a better sense of what option best fits your business needs.
What’s best for you
The relationship you have with your logistics and supply chain team is supremely important to the success of your business. Entering into this relationship – whether a 3PL, 4PL or LLP or something else entirely – is critical and requires a thorough assessment of your company’s strategic goals and desired outcomes. In addition, determine your business’ maturity level; are you ready to outsource your logistics function just yet, or is this something to consider in the next 1-3 years? Are you an SME that has realized the increasing complexity of supply chain management, and need a partner to more effectively manage this system? Are personnel and/or financial resources affecting your decision?
If you’ve determined that outsourcing logistics is a viable next step for your business, consider carefully your logistics partner. Look for the relationship that exists beyond the transactional to determine if your business philosophies match-up, if their service standards and results are at the same high level that you expect, and if you have similar or shared culture and values as a company.
Understanding the options, determining what will best meet your logistics needs, and then finding and selecting the best partner to meet those needs is key to creating the most cost-effective and efficient supply chain management system for your business’ success.