3PL and 4PL services in the supply chain

May 25, 2018

Currently, companies that provide logistics services increasingly take advantage of IT platforms as a point of sale for their logistics services, however the line that divides companies that physically provide services and those that only provide a technological platform, becomes increasingly diffuse, as many 3PL (Third party logistics) are taking the role of a 4PL (fourth party logistics) in the supply chain.

Based on the above, it is important to understand the difference between a 3PL’s and a 4PL’s and understand the origin of these terms. The term PL is an abbreviation for party logistics (PL), and its meaning must be understood as the person or party that is involved in the logistics process. In supply chains there are many parties that are involved in its operation, and we understand as the first party involved (1PL) the owner of the goods that must be transported, these usually are manufacturers or retailers that have an inventory in their stores or warehouses. The second party involved are the carriers, who are the ones that the first involved party uses for the physical movement of their cargo. Then there is a third party involved (3PL’s), which are companies that handle the coordination of transportation and provide some additional services, such as storage, final distribution, customs brokerage, cargo consolidation, inventory management, etc. 3PL operators carry out an adaptation or customization of their services to be able to serve their different clients according to their needs.

Finally, we have the 4PL’s, which is a fourth party involved in the supply chain. These companies work directly for the producer or retailer (1PL’s) and manage the rest of the involved 2PL’s and 3PL's, in order to improve their performance and control its costs.

The base of this administration is a software platform that measures costs and performance of all those involved with the objective of keeping them within the conditions previously agreed upon. These conditions are established in contracts and service level agreements with each participant, determining rates, charges and service times. The 4PL’s use an IT platform that allows them to quickly identify any breach of the rest of the parties involved based upon the established contracts, which results in the optimization of the times and costs of the customer's supply chain.

The above produces certainty of costs and uniformity of lead times, indispensable aspects in the proper functioning of a first level logistics supply chain.

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It was the year 1922 and Benjamín Toruño founded one of the first customs agencies in Guatemala. The small family business continued to grow and his son, Guillermo Toruño Lizarralde...

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