Managing your supply chain is no simple task. With the COVID-19 pandemic, supply chains in general – and logistics operations in particular – have had to become more agile and responsive to sudden shifts in supply and demand and bottlenecks. According to a recent survey conducted by Amazon Multi-Channel Fulfillment (MCF), 43% of US Amazon sellers think that managing logistics across their supply chain is the biggest challenge in their organization. For ecommerce business owners selling both on and off Amazon, outsourcing their inventory management and order fulfillment operations to external logistics providers has been one way to overcome their logistics challenges and mitigate their supply chain risk.
There are many different types of logistics providers and understanding the difference between them and their offerings can help you determine which type is the best fit for your business operations. It’s also important to note that your needs may evolve and change as your business grows, requiring you to engage with different types of providers.
In this article, we will give an overview of the different types of logistics service models:
- First-party logistics (1PL)
- Second-party logistics (2PL)
- Third-party logistics (3PL)
- Fourth-party logistics (4PL)
What is a 1PL?
First-party logistics (1PL) is a logistics service model where a company handles its own logistics operations, storing goods in its own warehouses and using its own transportation fleet to move those goods from one place to another. In the 1PL model, a company – which could be a manufacturer, supplier, or retailer – relies on in-house resources and expertise to manage its logistics operations. This logistics service model could be suitable for small companies with a single sales and distribution channel, like a brand website or social media store, or large enterprises that have invested extensively in developing their own logistics capabilities.
What is a 2PL?
A second-party logistics (2PL) provider is a carrier that can transport your goods to any location across your supply chain. A 2PL owns and operates the ships, planes, vehicles, or other methods of transportation used to move your goods, and will sometimes be referred to as a shipping company or freight forwarder. A 2PL can be used to send products from upstream manufacturing or storage facilities all the way to end customers’ doorsteps. If you’re looking to outsource your transport operations, including international transportation, then the 2PL logistics services model is your best fit.
What is a 3PL?
A third-party logistics (3PL) provider offers a range of logistics solutions and services for companies – of any size and across any industry – that are looking to outsource all or a part of their logistics operations. A 3PL, like MCF, will typically offer a range of services such as:
- inventory management
- order fulfillment across multiple sales channels
The pricing structure for 3PLs varies, as some 3PLs will engage at a contract level or some may offer pay-as-you-go-pricing.
3PLs are a good fit for companies looking to get an external party to handle their logistics operations – so that they can focus on their core competencies (such as product or business development). Partnering with a 3PL can enable you to optimize your logistics operations, improve your customer experience, and expand your business into new markets.
What is a 4PL?
A fourth-party logistics (4PL) provider offers end-to-end, integrated supply chain management solutions that go beyond what is typically offered by a 3PL. A 4PL is a strategic partner and single point of contact that can essentially run and optimize all or a part of your supply chain, manage multiple 3PL providers and other supply chain partners, and act as a supply chain consultant, bringing expertise in a number of areas including supply chain software and demand forecasting. 4PLs are a good fit for large companies with highly complex logistics operations and sprawling supply chains that stretch around the globe.
Conclusion
Depending on your company’s size, location, future plans, and supply chain, there are a variety of logistics service models and support levels to evaluate. With everything ranging from the carrier services of a 2PL to the fully-integrated supply chain management and optimization of a 4PL, the most important step is finding the provider that best suits your current and future needs.
