Outsourced logistics is the secret sauce of small and medium e-commerce businesses. Part of what makes that secret sauce work so well is knowing the different options available. One that e-commerce store owners should explore is 3PL vs 4PL.
Both 3PL and 4PL services impact the e-commerce supply chain. But to what degree do they support better business operations? And more importantly, which one makes the most sense for you?
Here’s a closer comparison between 3PL vs 4PL and when to use each.
What is 3PL?
Third-party logistics, or 3PL, focuses on the logistics aspect of a supply chain. This includes, but is not limited to:
- Freight reception and transportation
- Order fulfillment
- Inventory storage
- Returns processing
In the supply chain, your 3PL provider is the middle entity between your business and the carriers that deliver products to your customers. When customers place orders, the order goes to your 3PL for fulfillment, then travels to your buyer.
For small and medium e-commerce companies, hiring a 3PL is usually one of the first handoffs in responsibility. That’s because logistics is one of the hardest departments to build internally but one of the easiest to outsource.
Studies show that 3PLs:
- Process 8x more orders compared to doing it yourself
- Save you up to 25% on shipping costs
- Ship products 43% faster
- Improve customer service by as much as 32%!
With a 3PL, e-commerce companies can save time and money, especially as they grow. 3PLs are turnkey solutions and are already set up to handle picking, packing, and shipping. They have the systems, equipment, and people in place to organize and store inventory.
Because 3PLs serve a wide customer base, they can access volume shipping discounts that small companies typically don’t qualify for. These savings are passed on to you, the e-commerce store owner. As your business grows and you start getting more orders, a 3PL can help you scale your operations without taking more overhead.
Last but not least, 3PLs can help you allocate your inventory strategically. Based on your sales and order history, they might spread your products across multiple warehouses. Depending on your customers’ locations, your 3PL partner will choose which warehouse to fulfill the order so your customer gets a timely delivery.
Potential Drawbacks of 3PL
Before you dive headfirst into a 3PL relationship, there are a few other considerations to make.
First, know that by handing over this part of your business, you’re also giving up control of your inventory. You’re not placing items into boxes yourself. You’re not checking product quality before sending an item to a customer. You need to be able to place a lot of trust in your 3PL partner to represent your business appropriately.
There’s also less control over the total customer experience. 3PLs pack orders as efficiently as possible, which means parcels usually look the same unless paying extra for personalization in the packaging.
Still, the benefits of a 3PL can far outweigh these potential drawbacks. It’s all about finding the right partner who you can trust with this vital component of your business.
What is 4PL?
Comparing 3PL vs 4PL, fourth-party logistics take 3PL to the next level by managing the entire supply chain. 4PL service providers generally work with wholesalers and manufacturers, not e-commerce store owners.
For example, a product manufacturer might use a 4PL provider to move their product from the factory to a warehouse or distribution center, then divide larger lots into smaller parcels for retail stores.
4PL providers offer a much broader range of services, given the type of clients they serve. This is one of its key advantages, as manufacturers can get end-to-end service from a single source.
Manufacturers have a single point of contact for all logistics operations. This simplifies transportation and distribution, which also contributes to a higher margin.
Potential Downsides of a 4PL
Similar to the downsides of a 3PL, 4PLs come with a few potential disadvantages. Companies give up an even greater level of control over their inventory and the customer experience.
Also, because of the comprehensive nature of a 4PL, it can be cost-prohibitive to startups and smaller businesses.
Why 3PL vs 4PL Matters
It takes a lot of helpers to run a business, especially when you’re a small e-commerce operation. Outsourcing usually provides the clearest path to growth because it provides a predictable cost structure and allows you to make better use of your resources.
When comparing 3PL vs 4PL, what is best for one business may not be best for another. Both serve an important purpose, but your decision should be based on the scale of your operation and which aspects of your logistics you are comfortable outsourcing. If you are a small or midsized e-commerce business, 3PL is usually the best place to start.
How Zenventory Supports E-Commerce Logistics
Zenventory inventory and order management software supports 3PL providers and small e-commerce businesses alike. We integrate directly with your online store platform to give you more visibility over every order. Get a bird’s eye view of inventory levels and sales trends to know when to reorder to ensure there are no gaps in stock availability. Most importantly, use real-time data to provide optimal experiences to your customers, even when you outsource part of the process.
Knowing the difference between 3PL vs 4PL is the first step. The next step is deciding whether a 3PL is right for you and whether you can fill the logistics gap with tools like Zenventory. Schedule a call today to learn more.