Consumer Experience

What is 4PL and How Can Your Brand Find the Best Partner?

Growing brands have to make tough decisions about what business functions they will keep in-house and which ones they can outsource. The question of outsourcing logistics often comes up fairly early in a brand’s lifecycle, and how it’s answered can have a large impact on the brand’s ability to scale.

We’ve already talked about why a growing brand might choose a third-party logistics provider. In this article, we’ll look at fourth-party logistics. This is another option for logistics outsourcing that somewhat larger eCommerce and direct-to-consumer brands can consider as they find ways to outsource everything that isn’t a core competency.

In this short guide, we’ll define fourth-party logistics, discuss its benefits, and give you some tips on how you can evaluate a potential partner.

What is Fourth-Party Logistics?

Fourth-party logistics, often called 4PL, refers to logistics providers that manage one or more third-party logistics firms on behalf of a brand or manufacturer. Compared to a 3PL, a 4PL provider is much more of a strategic partner that integrates all of the resources, processes, and technology across your supply chain. That means less wrangling all of the moving pieces for you.

As we discussed in our article on third-party logistics, it’s worth understanding the difference between 4PL and 3PL to get a sense of what 4PL truly is.

3PL is the process of outsourcing logistics processes, such as inventory management, procurement, warehousing, and fulfillment, to a specialized provider. Some 3PL providers simply offer partial supply chain services, offering only warehousing, distribution, shipping and receiving, etc. Others offer a full-service network of providers that give you an end-to-end array of supply chain and logistics management services.

The difference is that with a 3PL provider, you are still in charge of making strategic supply chain decisions. 3PL providers typically don’t include value-added services or knowledge-based skillsets like IT, material requirements planning, or sourcing, while 4PL providers may not necessarily own any assets, like warehousing, fleets, tracking software, etc.

Rather, many 4PL providers will act as an interface between your brand and several specialized asset-owning logistics providers. In this sense, a 4PL provider is more of a strategic long-term partner who can manage your entire supply chain operations than simply a point solution.

Fourth-party logistics, often called 4PL, refers to logistics providers that manage one or more third-party logistics firms on behalf of a brand or manufacturer.

How 4PL Can Benefit Growing Brands

The upfront costs to start working with a 4PL provider can be fairly steep, so it’s not something you should do unless you’re starting to deal with greater complexities than you can handle. Here are some ways you can tell bringing on a 4PL partner is worth doing.

  • Your brand has grown to the point where you’re ready to start serving customers internationally—Global supply chains are enormously complex to set up, as you’ll have to deal with customs, international regulations, taxes, etc. A good 4PL partner can help you manage the complexity of a global supply chain.
  • Your 3PL supply chain network is growing unwieldy—Managing multiple 3PL vendors, each with its own processes and technologies, gets more difficult as your operations expand. If managing 3PL providers is distracting you from your core competencies or leading to a decrease in customer service quality, it could be worth bringing on a 4PL provider to do it for you. The right partner will have the expertise to integrate multiple systems and vendors while standardizing processes across your supply chain. This will ultimately mean more visibility and control for you.
  • Your supply chain costs are difficult to control—Early on in your brand’s life, you may be able to keep costs low and align 3PL partners to ensure cost savings. But achieving larger growth often comes with an increase in costs. If your costs are growing to the point where your margins are affected and growth hindered, it could be worth outsourcing your supply chain to a partner that can handle the tricky parts of sourcing, negotiation, and last-mile delivery.

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How to Choose a 4PL Partner

Evaluating several 4PL companies before deciding on a partner can be tough if you don’t know what to look for. In this section, we’ll dive into some of the key points you should pay attention to as you consider multiple partners.

Look at Your 3PL Partner First

Many 3PL providers are building out 4PL-like capabilities to provide additional services for their clients. Where they used to offer only assets, now they’re looking to offer professional services like IT, strategic consulting, analytics, cross-docking, and more.

Switching logistics providers can be incredibly time-consuming and costly. If your existing partners can give you the 4PL experience you need, that might be a stronger option than completely rebuilding your logistics around a new partner.

Check the Right Metrics and Get Customer References

There are some important metrics that should be gleaned from any due diligence process before choosing a 4PL, such as:

  • Warehouse locations—If your 4PL partner will also be handling 3PL-like responsibilities, they should have warehousing and distribution in your high-volume regions.
  • On-time delivery—On-time delivery is considered a must-have for customers today, so you want to ensure your shipping partner isn’t going to lose you customers with late deliveries.
  • Transportation and warehousing costs—4PL providers should provide transparency around critical cost data. You should be able to get that data easily to optimize your logistics costs and improve your margins as you scale.
  • ROI—What sort of ROI can you get with a 4PL partner over hiring in-house teams to manage your logistics?
  • Capacity—You need to understand what shipping capacity the 4PL provider can handle right now, and if it can scale with you as you grow.

As important as they are, you shouldn’t only rely on your potential partner’s metrics. Ask to speak to existing customers to get a sense of what it’s really like working with that particular provider. Ask about how the implementation went, how certain problems were solved, and what their experience was working with their 4PL team.

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Determine Financial Health and Business Goals

Part of doing due diligence on a strategic partner is ensuring its financial health is up to par. That much is obvious, but it’s also important to dig deeper into how the business makes money.

You don’t want a business that is trying to set itself up to be sold or acquired without knowing exactly what that would mean for you. You also don’t want to work with a 4PL company that is dependent on raising funding from VC firms or investors. If they failed to get the funding they needed, you might end up scrambling to find another partner.

Learn Who You’ll Work With

4PL is more than just freight and warehouses. Professional services and strategic guidance is arguably the most important part of working with a 4PL company.

This is a partner that you’re trusting to take on the entirety of your supply chain management strategy. When evaluating different companies, ask exactly who you’ll be working with and their level of experience in the relevant areas you need the most support in. Will you have true IT, logistics, customer service, and financial and tax experts working with you? If not, it’s best to look elsewhere.

Determine if You Need Specialized Expertise

Depending on your business model and goals, you may need to find a 4PL partner with fairly specific expertise.

If you’re heavily focused on expanding to a certain region, such as the Middle East or Asia for example, you may want to see if your 4PL provider has specific expertise in those regions. If you’re selling a certain category of items that require certain shipping methods, such as cold shipping and storage, that may also be a major factor in your choice of partner.

Can They Work With Your Existing 3PL Providers?

If you already have a network of 3PL providers you’re managing, the costs of moving to new providers could be extremely high. When evaluating a potential 4PL partner, you should see if they are willing to work with and manage your existing network, or if they would expect you to move your logistics to its owned assets.

Doing so will give you much more visibility into the true costs of partnering with that specific company.

Finding the best 4PL service provider for your brand can be difficult, but getting it right can be a major boost to your business. Being able to outsource the entirety of your supply chain management process to a skilled, focused partner will make it easier to focus on your core competencies while knowing your logistics operations are in good hands.

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