Anyone working in any sector related to logistics and transport will have heard the term 3PL, or 3rd party logistics. But not everyone knows that 3PL is just one logistics configuration amongst many.
In addition to a 3rd party, logistics can also be carried out by a 1st, 2nd, 4th or even 5th party logistics supplier – so we have 1PL, 2PL, 3PL, 4PL and 5PL.
What is 3PL?
A 3PL, or 3rd party logistics provider, refers to the use of a 3rd party, which optimises the supply chain by taking on aspects of distribution, warehousing and fulfilment, on behalf of a business.
The role of the 3rd party logistics provider is to act as an intermediary between two other parties involved in the supply chain. They could be managing the logistics of anything from transporting raw materials from suppliers to manufacturers, to delivering finished products from manufacturers to retailers.
The use of the 3PL model can be a cost-effective way for business to take advantage of a responsive, dynamic and fast-paced supply chain. It makes it easy to meet (and exceed) the service demands of today’s customers, without spending excessive resources on the logistics process.
What is the difference between 1PL, 2PL, 3PL, 4PL and 5PL?
3PL is the most commonly referred to of the logistics configurations, but as mentioned, there are other options.
First-Party Logistics (1PL)
A 1st party logistics operation simply involves a business which moves their goods from one location to another.
Example of 1PL:
An independent furniture maker, producing chairs in the workshop and using their own vehicles to deliver them directly to a local store for sale.
Second-Party Logistics (2PL)
In 2nd party logistics operation, a business owns vehicles and uses them to move goods from one location to another, on behalf of another business.
Example of 2PL:
In our furniture example, the furniture maker is still producing chairs in the workshop, but they are now using a courier to deliver them to the store for sale.
Third-Party Logistics (3PL)
The most commonly referred-to setup is 3rd party logistics. While the business would still manage the overall logistics, use of a 3PL provider outsources the full transportation and logistics operation to a provider. The 3PL may also provide additional services that add value to the supply chain, like packaging or boxing.
Example of 3PL:
For our furniture maker, a 3PL might collect the chairs and package them in branded boxes before delivering them to the store for sale.
Fourth Party Logistics (4PL)
The 4th party logistics model takes it one step further. A 4PL provider strategically manages the logistics operation on behalf of another business. Essentially, using a 4PL allows a business to outsource its entire supply chain.
Example of 4PL:
A 4PL would not only collect the chairs from the manufacturer and package them before delivery, but could also be expected to store them in a warehouse until the retail store requires inventory, monitor stock levels, and proactively manage communication between the retailer and manufacturer to ensure efficient production levels.
Fifth-Party Logistics (5PL)
A 5th party logistics provider does everything that a 4PL does, in terms of managing the logistics operation on behalf of another business, whilst also developing and optimising the entire end-to-end supply chain network. A 5PL provider typically offers increased efficiency through the use of advanced technology and data.
Example of 5PL:
A 5PL would manage the logistics of the entire supply chain network on behalf of the furniture manufacturer. This could include not only monitoring inventory and requesting a fluctuation in production to maintain stock levels but also ordering and delivering the raw materials from suppliers to the furniture workshop, to ensure that production remains consistent.