Whether you’re considering a 3PL vs. 4PL, outsourcing fulfillment operations is a great option for ecommerce businesses big and small. By handing off the responsibility and nuance of logistics, B2B and direct-to-consumer (DTC) brands can focus their time and energy on the strategic initiatives that will drive the business forward, rather than worrying about shipping rates, inventory, and other logistics minutiae.
The two most common models when it comes to outsourcing fulfillment are third-party logistics (3PL) and fourth-party logistics (4PL). The key difference between the two is how much oversight is required from you as the business owner. While 3PL providers handle the physical work of fulfillment—storing inventory, picking and packing, shipping, and returns—4PL companies go a step further by proactively managing the 3PL operations for you. While you still have insight and control over every aspect of fulfillment, from manufacturing to delivery, 4PLs act as an extension of your in-house team, monitoring operations and proactively addressing issues.
There are pros and cons to both of these approaches. When choosing the right approach for your business, consider the differences in support, infrastructure, flexibility, and technology.
Specifically, when considering a 3PL vs. 4PL, you should evaluate:
As previously stated, the biggest difference between 3PL and 4PL providers is how much support and oversight they provide. It’s easiest to think of a 3PL as a vendor and a 4PL as an extension of your team.
A 3PL will handle the following fulfillment processes:
Using a 3PL removes an enormous amount of work from your plate, and has additional benefits, including cost savings (more on this later); but managing these processes and ensuring all is running smoothly is still up to you.
You will have a direct relationship with the warehouses, but you’ll also need to monitor operations to be certain orders are leaving the warehouse within the parameters of your service level agreements (SLAs), that they’re arriving to your customers on time, that you have the appropriate level of inventory, and so on. Depending on the 3PL’s support model, you may also be required to maintain relationships with multiple contacts at the warehouse to address specific problems within shipping, receiving, inventory, packing, or returns.
4PLs simplify fulfillment even more by proactively managing the 3PL operations for you. Partnering with a 4PL is like growing your team without the extra salaries and management overhead—the company will oversee everything from receiving to returns and will ensure the 3PL handling the day-to-day operations is following your agreed-upon SLAs and specifications.
In some cases, using a 4PL can mean relinquishing some control over your operations and having less visibility into what exactly is happening at the warehouse, but technology-forward 4PLs provide user-friendly software that gives you the same level of insight and control as you would have working directly with a 3PL. The difference is that you can set your specifications and trust that things are running smoothly without having to keep tabs on day-to-day operations.
Most 4PLs offer a dedicated customer support manager (CSM), providing a single point of contact for all of your support needs. Tech-forward 4PLs use their proprietary software to create a single source of truth for the user and the CSM, ensuring no one is playing messenger, but rather has access to all information—and therefore the ability to troubleshoot—at their fingertips. 3PLs, on the other hand, tend to follow one of two service models:
The 4PL approach often offers the best of both worlds by combining these approaches: you will have a single point of contact in your CSM, but your CSM will have all of the information they need—from various stakeholders at every step of fulfillment—readily available in the platform, and the ability to contact any of these stakeholders if they need to. This way, getting support is both simple and fast for you and your team.
To understand why 4PLs are more than a middleman, consider the example of web servers. You could choose to host your own servers in your office space, manage remote servers yourself, or pay a small fee to outsource the servers’ management through a platform like AWS or Azure. While owning the servers or managing third-party servers allows you more control, most businesses find it’s ultimately worthwhile to allow an expert to manage these details for them, so they can focus on building their business and furthering their mission.
Another key difference between 3PLs and 4PLs is that 3PLs usually own their warehouse infrastructure, while 4PLs typically do not. There are many questions to ask before choosing a warehouse to partner with, but two of the biggest considerations are:
Working with a company that owns its warehouses means having a direct line of communication with the people handling your product, as well as consistency in SLAs, carriers, and protocols; but working with a company that oversees warehouses means greater flexibility and diversity of experience.
Working with a 4PL that partners with, but does not own, its warehouses enables your business to find the perfect fit among a diverse group of 3PLs that specialize in various products and are strategically located. If you’re unhappy with the service at a 3PL warehouse, but you’ve partnered directly with the 3PL, you’re likely going to encounter the same issues at each warehouse under that 3PL’s purview. 4PLs offer the flexibility of moving to a different warehouse under different management if you’re unsatisfied with your current solution, without the headache of finding a new outsourcing partner. Even better, the 4PL will manage the transition for you.
4PLs also have the freedom to partner with new warehouses quickly, while 3PLs are not as nimble. Under a 3PL, onboarding a new warehouse means either constructing a new building or a major acquisition, both of which take time and resources to get up to speed.
Because 4PLs don’t own their infrastructure, they can invest more into support for your team, and can easily move away from underperforming warehouses, whereas 3PLs will need to spend more time fixing any deep-seated issues.
Both 3PLs and 4PLs benefit from the 3PLs’ working relationship with shipping carriers. Warehouses typically have negotiated rates with the primary carriers—the United States Postal Service (USPS), UPS, FedEx, and DHL—and occasionally with more local carriers, like CDL Last Mile Solutions and On Trac. The savings reaped from these negotiated rates are passed on to you and your business, saving a ton of money in shipping costs.
What’s more, 3PLs have the infrastructure and partnerships to achieve much faster delivery times without breaking the bank. Customers have come to expect 1-2 day shipping, which is difficult if not impossible for most DTC brands to achieve without a 3PL partner.
4PLs add a layer of advocacy to the mix. Because they usually don’t own the infrastructure involved in packing and shipping, 4PLs are free to be more solution-oriented, seeking out what is best for your business, rather than what works best within their framework. This often means that you’ll have better dedicated support when it comes to remediating supply chain or carrier delays.
On top of that, 4PLs can often provide more freedom to tailor your packaging to your brand—and at a more reasonable price—than 3PLs, because they are not shouldering the cost of maintaining the warehouse itself. This goes beyond the box or envelope itself, and includes things like adding inserts to each package, using branded filler, and creating a unique unboxing experience for your customers.
Most 3PLs today are still operating under old-school models and standards, relics of an era before ecommerce took such a big share of the retail market. This is especially apparent when it comes to the technology available to you as the business operator: the warehouse management software (WMS) at most 3PLs is clunky and outdated, making it difficult to integrate your sales channels and leaving you without the level of insight that modern businesses need and expect.
Today’s 4PLs and tech-forward 3PLs use advanced, intuitive software to deliver aggregated insights on a single platform. That means that with a single login, you can see your inventory count, the status of every order, and the location of your returns. Consider the benefits of being able to set alerts when inventory is running low, or to reserve inventory for wholesale or VIP orders with the click of a button.
Modern technology makes the onboarding process seamless, too. While some legacy 3PLs could take months to get you up and running, modern solutions can shorten that to just a week - saving you invaluable time and bringing in revenue faster.
With the insight available via tech-forward 3PLs and 4PLs, you can have as much (or as little) control over the entire fulfillment process as you like.
At the end of the day, both the 3PL and the 4PL approaches to fulfillment are valuable. Both free your time to focus on strategic business functions and save you money while ensuring a satisfying experience for your customers.
Choosing the right fulfillment model for your business depends on your specific needs and preferences. To recap: