As if supply chain management wasn’t confusing enough, logistics providers tend to have their own unique language as well. Naturally, having abbreviations and unique terms can make things more efficient when communicating. But these can also make it more difficult when choosing the right logistics services. Companies in today’s world cannot afford to make poor decisions when it comes to supply chain choices. Therefore, it’s important to understand the difference between different logistics providers. This is why a business should know the different services 3PL, 4PL, and 5PL providers offer. And they should recognize the pros and cons of each.
Logistics Provider Basics
When it comes to logistics and supply chain management, companies do not have to outsource these services. Indeed, some smaller businesses may handle their logistics needs in house. As first-party logistics (1PL) providers, they manage and control their own supply needs and product deliveries. This means they have their own trucks, drivers, and packaging services within their own company. This has become increasingly rare today, however, especially with the increased efficiency of many delivery carriers. As a result, many companies that used to be 1PL providers for themselves now utilize second-party logistics (2PL) providers for material receipts and product deliveries. Common 2PL providers include USPS, FedEx, DHL, and UPS. Such arrangements reflect the most basic level of outsourcing when it comes to working with a logistics provider.
Moving Up to 3PL Providers
The term 3PL was initially coined in the 1970s when some logistics providers began managing multiple carriers. Today, it is perhaps the most common type of logistics provider, with Fratogo often being included in this category. In essence, the best way to think of 3PL providers are those who manage 2PL carriers. Many 3PL providers not only organize and manage specific transportation carriers but also provide other supply chain services. These include things like warehousing, inventory management, packaging and consolidation, and freight forwarding. It is also worth noting that some 3PL providers are asset based, meaning they have their own trucks, warehouses, etc. Others are not, however, and simply coordinate logistics activities.
Lead Logistics or 4PL Providers
The term 4PL first emerged in the mid-1990s when Accenture trademarked the label. Their perspective of a fourth-party logistics provider was one that provided comprehensive start-to-finish supply chain management. In other words, a 4PL logistics provider represents the sole interface between a company and all of its logistics providers. This not only includes those managed by a typical 3PL provider but also management of the company’s 3PL providers as well. As such, 4PL providers represent a higher level of logistics management, overseeing the entire supply chain network. Fratogo provides such 4PL services in addition to their 3PL capacities. It is also worth noting that 4PL providers are not asset based but instead leverage the assets of other carriers and 3PL companies.
5PL Providers – The Latest Logistics Provider Concept
In recent years, the term 5PL providers has emerged, and it is notably still being refined. From a simplistic perspective, a 5PL provider is one that oversees 4PL services. How might it do this? Many include in the 5PL provider definition the use of Big Data and new technologies to enhance entire supply chain network efficiencies. Others also recognize that 5PL providers provide comprehensive e-commerce logistics solutions over brick-and-mortar ones. Using these as definition guidelines, Fratogo meets the criteria as a 5PL provider. In fact, Fratogo is well recognized as one of the highest-quality 5PL providers in the industry.
Which Logistics Provider Is Best for You?
Every business is different, and therefore each company will need to determine which logistics provider type is best for them. In most instances, however, outsourcing logistics and supply chain management offers many advantages. For one, 3PL providers, as well as 4PL and 5PL companies, have tremendous expertise and experience. They also enjoy extensive relationships with various carriers and services that create efficiencies and better negotiation capabilities. Generally speaking, moving from a 3PL to a higher-level logistics provider means relinquishing some level of control and oversight. But the benefits received often far outweigh these risks. At Fratogo, being a 3PL, 4PL, and 5PL provider, we can tailor logistics services to a company’s needs more effectively. And, with an understanding of what each of these levels represent, companies can select those specific logistics services that meet their specific needs.