If you’re an ecommerce business owner, chances are you’re pretty familiar with logistics. That being said, supply chain is complex and even seasoned business owners can get confused about the different types of services. Here’s what you need to know about the various logistics solutions designed to help optimize your supply chain.
1PL (First-Party Logistics)
When the selling scenario only involves the manufacturer and their market, that’s 1PL. Consider a retail home decor store who produces their goods from scratch in their own space and then sells them directly to customers.
2PL (Second-Party Logistics)
If a manufacturer plans to sell their wares in other stores, they’ll need more support. For example, in our home decor shop example above, consider what would happen if the store becomes so successful that they want to offer their products in another store as well. Many people choose to hire a second party logistics partner to provide transportation of their products. A transporter supports the manufacturer in reaching new markets.
3PL (Third-Party Logistics)
In today’s digital world, many business owners choose to expand with an online presence. Offering an ecommerce option is a powerful way to go beyond brick and mortar locations. However, retail fulfillment brings its own set of challenges. A third party logistics partner can help companies to manage aspects of their operations that are necessary for scaling their business.
The important thing to understand about 3PL is that companies aren’t working with the original transporter and a new vendor. Instead, in our home decor store example, they would work with a logistics company that has relationships with carriers and can manage that process. A 3PL can negotiate discounted shipping and coordinate deliveries. 3PL services can also make ecommerce businesses more successful by streamlining functions like warehousing, packing orders, and managing inventory.
4PL (Fourth-Party Logistics)
When it comes to 4PL, a separate provider is included to manage an organization’s entire supply chain. In simple terms, a 3PL is going to handle the day-to-day tasks, while a 4PL is concerned with the bigger picture. A 4PL’s goal is to optimize the entire supply chain function, for example, coordinating suppliers. Companies who use a 4PL often do so because they want to take a more hands-off approach. Using a 3PL requires a certain amount of communication and coordination with merchants, while a 4PL aims to take this work off your plate.
5PL (Fifth-Party Logistics)
This is a newer logistics model that encompasses a variety of definitions. Their goal is to aggregate multiple 3PLs, in order to move from a supply chain to a more comprehensive supply network. Think of a 4PL as a type of consultant, while 5PLs literally run the whole show.
So which is best for you? No specific logistics model is ideal for every company, but generally speaking, a 3PL provider can improve the supply chain of most businesses. Your goal should be to create the most effective supply chain possible, making sure each step in the process is streamlined, efficient, and cost-effective. If you have questions about how to do this, reach out to our 3PL experts.