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Fourth-party logistics (4PL)

Fourth-party logistics, also known as 4PL, providers help companies offload their fulfillment operations—or the work that helps get product orders to your customers. By handing off the responsibility and nuance of these logistics, DTC brands can focus their time and energy on the strategic initiatives that will drive the business forward. Read on to learn what 4PL is, why you should consider it, and how to choose the right partner for your brand.

What is a 4PL?

If you’re unfamiliar with what a 3PL is, you may want to brush up on it. But in a nutshell, a 3PL helps retail companies with warehousing, fulfillment services, inventory management, and more. In other words, a 3PL acts as a middleman between your business and the carriers that deliver your products to customers. This is important to understand because a 4PL company is more of an integrator that takes these services a step further by managing all of the 3PL operations for you. 

It may seem like the difference is slight, but for a company seeking the right level and fit of service for their brand, the distinction is crucial. With a 3PL you will have to be more hands-on, but a 4PL will manage the elements of operations on your behalf.

Nevertheless, you still have insight and control over every aspect of your brand’s fulfillment—from manufacturing to delivery—but you should think of a 4PL as an extension of your in-house team, monitoring operations and proactively addressing issues.

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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 that focuses on coming up with solutions that are unique to your business.

What are the benefits of a 4PL?

Working with a 4PL offers all the benefits of a 3PL, plus added oversight and consultation.

Some common benefits of a 4PL are:

  • Vendor management and single point of contact
  • Solution-oriented, white-glove approach
  • Tech-forward
  • Greater logistics expertise and support
  • More room to scale

Vendor management and single point of contact

A 4PL employs a unique approach that provides brands a single point of contact, likely a customer support manager (CSM). Through this single point of contact, a 4PL company will manage vendors and act as an intermediary between you and logistics providers. Therefore, you don’t have to deal with the challenges that normally exist across managing multiple partners. In this scenario, your CSM will have all of the information they need to solve problems as they arise and the ability to contact any stakeholder they need. This way, getting support is both simple and fast for you and your team.

Ultimately, a 4PL will coordinate the efforts of one or multiple 3PLs so it’s one less thing that you have to worry about.

Solution-oriented, white-glove approach

A 4PL is a neutral party that will design supply chain solutions that are tailored to your unique business requirements. From kitting to bundling to warehousing, 4PL services are not as limited as 3PL services that can only access the available infrastructure that they own. As a result, your supply chain will be tailored to your specific needs and industry requirements.

Tech-forward

Tech-forward 4PLs focus on creating a proprietary software solution that allows its users to control all aspects of their fulfillment logistics—from monitoring inventory to tracking individual orders and requesting projects. Because their proprietary software is typically built by in-house engineers, it’s more agile and can keep up with changes in the APIs of all integrations with warehouses, shipping carriers, ecommerce carts, and other integral tools and platforms. 

Better integrations mean fewer errors, less troubleshooting, and streamlined operations, as the orders are sent instantly from your online store to the warehouse, then tracked until they’ve been shipped. Your inventory is seamlessly updated, too.

A great fulfillment partner should allow you to step away from the day-to-day logistics, while great fulfillment technology will give you the same executive insight and control you would have if you were doing it yourself. 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.

With the insight available via tech-forward 4PLs, you can have as much (or as little) control over the entire fulfillment process as you like.  

Greater logistics expertise and support

Unlike a 3PL which specializes in the tactical movement of products, 4PLs specialize in strategy and optimization. 

A 3PL’s scope of work often doesn’t put much emphasis on support or anything outside of their standard processes, which are often quite rigid. The responsibility of tracking errors, misships, backorders, claims, and more is still on you as the customer, which could leave you stuck playing phone tag or unable to find a solution.

4PLs own their relationships across the fulfillment spectrum and proactively manage hiccups, leaving them better equipped to handle errors quickly and directly. 

More room to scale

4PLs typically don’t own their infrastructure, instead focusing on customer support, technology, and partnerships with 3PL warehouses that suit a range of diverse needs. Because choosing a warehouse is one of the most significant drivers of your overall fulfillment strategy, partnering with a 4PL company will most likely be able to get your product into a warehouse that not only meets your needs, but is able to scale with you as you grow your brand.

This is because 4PLs 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 and result in growth bottlenecks for the companies using those 3PLs.

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To understand why 4PLs aren’t a middleman, consider the example of web servers. You could choose to host your own servers in your office space (1PL), manage remote servers yourself (3PL), or pay a small fee to outsource the servers’ management through a platform like AWS or Azure (4PL). Most executives find it’s ultimately worthwhile to allow an outside expert to manage these details.

How can 4PL services help your ecommerce business?

Ecommerce companies often struggle to balance managing fulfillment logistics with their core business operations—which is why many turn to experienced 4PL providers.

Entrusting your ecommerce fulfillment logistics to a 4PL provider can offer you the following perks:

  • Benefit from their expertise: 4PL service providers are experts in the nuances of logistics so you don’t have to be.
  • Focus on business development: Outsourcing fulfillment allows you to focus on your strategic business activities without compromising a key operational process.
  • Increased time and cost savings: When you’re not managing your own operations, you can save time and money through reduced errors, transparent technology, and helpful customer service.
  • Greater flexibility: With a 4PL company, their services will grow as your business grows—this way, you won’t ever have to overcome fulfillment growing pains or challenges.
  • Expand internationally: Many 4PL providers have international warehouse locations that help you grow your business and expand more quickly.
  • Improve customer satisfaction: Customers value quick delivery. Since 4PLs offer turnkey logistics services, you can expect faster deliveries and greater brand trust.
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Beware 4PLs that use licensed software—they may have little control over the technology, meaning bugs and the problems they cause can be left to languish for days or weeks. Airhouse builds its own proprietary software.

How does 4PL pricing work?

Understanding fulfillment pricing aims to arrive at your per order cost. It sounds simple enough, but there’s a catch: the factors that impact fulfillment costs are highly variable. Unlike buying software where there’s a fixed cost per user, DTC fulfillment is subject to a large number of variables that impact pricing. To arrive at a true per-order cost requires analyzing a number of different variables—often up to ten or more. 

Each company offers a different fulfillment pricing model based on its service inclusions. As you evaluate their services and your needs, don’t forget to take cost and pricing into account.

There are two dominant types of fulfillment pricing models: a la carte and all-in-one.

  • A la carte pricing: With this pricing model—the one Airhouse uses—each fee is a separate line item: pick/pack, picks, shipping, shipping surcharges, packaging, etc. This pricing model provides the most visibility into costs and why they may fluctuate from month to month and order to order.
  • All-in-one pricing: With this pricing model, shipping and warehouse fees are collapsed into a single rate for fulfillment, often inclusive of the order base rate, up to a set number of picks, packaging, and shipping. This model is deceptively attractive in its simplicity, especially for companies that sell SKUs of various shapes and sizes, or those who don’t understand the ins and outs of shipping rates.
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It’s a step way beyond white-glove customer service. In essence, you’re buying into not just the service level capabilities, but also years and years'—I mean decades'—worth of high-level ecommerce experience that you can then lean on.
Michael Huffstetler
Founder, CEO of Bask

Is a 4PL worth the investment?

As mentioned previously, logistics is not typically a core competency for business leaders. Therefore, unless you plan on hiring an operations person—well, more likely an operations team—outsourcing your fulfillment operations to a 4PL makes a lot of sense.

Nonetheless, if your in-house operations are running smoothly, don’t take up too much of your time, and your business is growing, it may not be necessary to outsource. But remember, as your business grows, you’ll face new challenges that will require your attention. You may still choose to outsource then.

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