By UrbanFox on Jul 8, 2020 4:51:49 PM
Why You Should Know The Different PLs.
“PL” stands for “Party Logistics”, or otherwise more commonly referred to as “Logistic Partners”.
Alternatively, some of you may know them by their numbers - 1PL, 2PL, 3PL, 4PL or 5PL.
They are entities that outsource their services to fill the logistical and transportation gaps within companies' supply chains. Such a process is called supply chain outsourcing, which is set to steer a significant change in future supply chains.
• Adopt more automation and technology to counter mass migration of workers
• Construct responsible regional sourcing hubs
• Digitalise supplier assessment and engagement processes
• Instill greater transparency and disclosure
• Integrate climate-smart supply chain planning
Supply chain outsourcing is no longer viewed as a liability whereby sensitive information is divulged to external parties. Instead, it is a quick buy-in strategy to acquire more technologies and streamline processes.
Today, more than 80% of professionals plan to increase their logistics outsourcing budget to beyond just warehousing and fulfilment, says Gartner.
What Are The Differences Between 1PL, 2PL, 3PL, 4PL, 5PL Logistics?
You may ask: why are there so many different PLs?
Truth is, different PLs vary by the breadth and depth of logistical services offered. The more processes a PL oversees, the more insights can be gathered from leveraging on technology.
In 2013, 3PL services were widely adopted by 96% of Fortune companies. Today, 42% of professionals are looking beyond that - they desire providers who can design, build, run and measure logistics functions for them.
What is 1PL?
1PL, or First-party Logistics, refers to a company handling its supply chain entirely on its own. Every process is completed in-house. Therefore, the company can keep its product quality and customer service in check.
Sounds great, doesn’t it? Yes.
Does it sound too good to be true? Also yes.
In fact, the sheer nature of a 1PL model can be too big of a responsibility for most companies to bear. The company will have to acquire the necessary assets, labour and technical knowledge to account for the numerous logistical touchpoints within a supply chain (manufacturing, freight, cargo, warehouse, distribution, inventory management, to name a few).
It is rather uncommon to spot a 1PL in our modern retail landscape. But if the outcome can justify the means, companies will not hesitate to adopt them.
Users of 1PL
A logical example of a 1PL user would be SMEs or companies with micro-businesses. With a small business scale, their supply chain processes are often less complex and costly to manage.
They may receive lesser batch of orders, have smaller group of customers, or excel in the business functions of procuring or producing raw materials.
For example, dairy collectives (commonly found in New Zealand and Australia), often engage in self-production businesses - producing dairy products such as pasturised/unpasturised milk and cheese. Finished goods and raw materials are also directly transported from farm-to-table, where they are sold to local food establishments or direct-to-consumer at farmers' markets. Through its 1PL model, dairy collectives have been known to produce fresh and sustainable dairy products.
What is 2PL?
2PL, or Second-party Logistics, are asset-based carriers who provide companies with means of transportation to either deliver:
• Raw materials from the source of production to a warehouse (inbound transportation), or
• Finished products to end consumers (outbound transportation)
For the latter, the delivery can span across local, regional or international markets. It is noteworthy to mention that 2PLs may not necessarily own transportation assets - they may also charter or lease them. The commonly known 2PL providers are courier services and postal companies.
Companies are free to negotiate the terms of delivery with the 2PL - quantity, size of goods, speed of delivery (1 day/ 2 to 3 days/ a week), pickup points, etc. In exchange, the 2PL will provide the company with traceability over their inventories. Businesses often rely on this capability to estimate inventory arrivals and update customers on their orders.
Users of 2PL
Along with an expansion to new markets, companies in the 1PL phase may soon find themselves with a “run-of-the-mill” challenge as their orders increase.
“How do I distribute my products out to my customers (new & existing) in time?”
Furthermore, the speed of delivery can be the essence of a success business expansion. According to Clutch, 45% of consumers are unlikely to continue ordering from a company if it delivers a package late.
Therefore, the lack of an extensive distribution network may drive them to turn to 2PLs for registered mail and/or courier services.
Examples of 2PLs are post offices, freight forwarders, shipping agencies, trucking companies, airline companies or companies specialising in last-mile deliveries.
What is 3PL?
3PL, or Third-party Logistics, are providers that help the company to get their products out to end-consumers, with the addition of value-added services along the supply chain such as:
• Picking & packing,
• Fulfilment & tracking
• Importing & exporting (handling of documentation to clear border customs)
• Inventory management and forecasting
• Onboarding to eMarketplaces/brand web-stores
The 3PL acts as the intermediary between the company and end-consumers, and there are no hard and fast rules in the relationship. Businesses can cherry-pick the 3PL services best suited for them and negotiate the extent of services to be performed.
Users of 3PL
Practically, the companies here can range from SMEs to MNCs, or even companies from the 2PL phase. They are typically at the expansion or maturity stages of the business life cycle with large volumes of day-to-day orders.
Companies will soon require additional warehousing space, inventory management, transportation, technology and labour to fulfill their orders. But these requirements are costly and time-consuming to operate.
The next best alternative is to pay a fee to a 3PL and outsource the logistical services to them.
For example, SingHealth has engaged GEODIS Logistics as its logistics partner for temperature-controlled storage and last-mile distribution solutions to deliver medications to patients’ doorsteps, nearby public locker boxes, nursing homes and pharmacies.
What is 4PL?
4PL, also known as Lead Logistics Partner (LLP) or supply chain integrator, acts on behalf of the company and oversees all supply chain related activities. At this point, the 4PL is devising a supply chain network to fulfill the company's organisational goals.
A 4PL integrates and manages a network of resources, technologies, and infrastructures pooled together from multiple 3PLs. Under a single network, the 4PL analyses and coordinates the data gathered from multiple providers and offers the company real-time information, enhancing its supply chain visibility. The company then relies on the information to assess its capability to meet procurement and customer delivery timelines.
The stark difference between 3PLs and 4PLs is that 3PLs focus on the individual logistical process whereas 4PLs focus on overseeing the entire supply chain process.
Similarly, like a 2PL, the 4PL may not necessarily own the assets to perform its logistical services
Users of 4PL
For a medium to large company, they can often find themselves with multiple customer segments. They may soon realise that some of their supply chain operations are either:
• Taking up too much resources and effort to monitor on a day-to-day basis, or
• Are not relevant to their core business processes
According to PWC, business leaders outsource around 50% to 60% of their warehousing, logistics, manufacturing and assembly activities. But they retain core strategic functions like sales and operations planning (S&OP), strategic procurement and research and development (R&D) in-house.
What is 5PL
5PL, or Fifth-party Logistics, are more focused on leveraging technology and big data (Blockchain, Robotics, Automation, Radio Frequency Identification (RFID) devices) to transform a traditional supply chain into a supply chain network.
A 5PL will consolidate the demands of multiple 3PLs to negotiate for favourable rates with airline and shipping companies. 5PLs are known to pool together 3PL and 4PL services to build a cost-effective and efficient supply chain network for the company.
The ultimate difference is that 5PLs are concerned with costs from the bottom levels of the supply chain. 5PLs will attempt to manage every stage of the supply chain process to create the most value for the company.
Users of 5PL
5PL is still a new concept as of now. Companies who are heavily involved in e-businesses may find 5PL services useful for them. With the imminent launch of 5G in 2025, 5PL may become the next buzzword among businesses.
A Trend Among PLs
By now, you may have observed a trend among 1PL, 2PL, 3PL, 4PL and 5PL.
That is: 3PL services are constantly revolving around the different logistics partners (The stark difference is “who” is performing them).
Why is that so?
From our standpoint, we think that 3PL services form the crux of many supply chains today. They are the fundamental logistical services required for businesses looking to expand into new markets. 3PLs are also at the middle of the spectrum between costs and control.
However, not all popular options are the best options. As a logistics partner ourselves, we think that there is no “one-size-fits-all” solution for supply chains. What matters most is the partner’s capability to scale along with your business needs.
The Pros and Cons of 1PL, 2PL, 3PL, 4PL and 5PL
It was said that companies who recognised their supply chain as a strategic asset tend to achieve 70% higher performance on average. Shockingly, only 45% of the companies had that perspective.
Finding the right partner to complement your strategic asset is indeed a huge step to take. It is also the onus of companies to practice due diligence in the assessment and selection of a logistics partner.
Here are some pros and cons of the different logistics partners for you to consider before making that critical assessment and selection.
We Are Here For You
We hope that you are now clearer with the differences between the PLs!
Don’t forget to bookmark this page so you can always come back and refer to it.
Lastly, leave a question at the comments section below if there is anything else that you wish to know more about.
Together with GEODIS Logistics, UrbanFox delivers 3PL and 4PL services to empower 500 esteemed homegrown and global brands to strengthen their presence in the region through our:
• Integrated B2B2C fulfilment
• Cross-border & last-mile distribution
• Real-time inventory and
• Online-to-offline retail management
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