Many businesses want to outsource their logistics as it is more cost effective, reduces internal labour costs and is more effective leaving the distribution, warehousing and fulfilment to a specialist company. Here are a few tips to consider when deciding whether to appoint a third or fourth party logistics company:
Third Party Logistics (3PL)
A 3PL company will handle the warehousing, distribution and often fulfilment of products for a company. They will receive and store stock and deliver goods (usually under your business name, not theirs) which can be important and is preferred by many companies.
A 3PL company may also provide packing and inventory management of products and stock, depending on the business needs. Ultimately, with a 3PL company your business still has control over distribution and management decisions.
Fourth Party Logistics (4PL)
A 4PL company offers all the services of a 3PL company but manages the overall supply chain including legal paperwork and managerial decisions. As a result, the 4PL company will have complete control over your entire supply chain and will use their own resources to ensure the supply chain needs are met.
However, a downside of utilising a 4PL company is that it removes the management of logistics from the business (in some cases this is, of course, a benefit).
3PL v 4PL
When considering whether to appoint a 3PL or 4PL company, consider if you want to retain control over your supply chain logistics and to what extent and the cost/benefit analysis of appointing a 3PL company as opposed to a 4PL company.
If your business can handle the administration, insurance, and logistics, then a 3PL company may be more suitable as it leaves the decisions to logistics with the business, as opposed to a 4PL company which will handle everything.
As with any contract, you should seek specialist legal advice and ensure issues such as risks, warranties, indemnities, and insurance, are adequately covered to protect your business.
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