An Easy Guide to Understand 1PL, 2PL, 3PL, 4PL, 5PL Services
In the last few years, the logistics industry is continuously evolving. In most of the logistic business models, it now serves as an intermediary for the entire supply chain management process or as a part of it.
When it comes to picking the suitable logistics for your business, there are a few options available to you.
The aim of this write-up is to let you know about different kinds of logistic models. Having an idea about it will help you make the right choice for your business.
What is x-party logistics?
Logistics is the different sets of operations that make the whole supply chain. All the activities include inventory management, goods packaging, tracking, shipping, transportation, customs clearance, packaging and delivery.
There are different logistic models to implement in your business according to your needs. Now, let’s get to know about these logistic models.
1PL or First Party Logistic
1PL or First Party Logistic provider is a logistic model that usually involves two parties.
Here, the manufacturer or the distributor ships the goods. And the retailer or the customer is there to receive the goods.
That means, in a 1PL or First Party Logistics, such a service provider is an individual or firm that has different transport options like cargo, freight, truck and so on to provide goods and agricultural products from one party to another.
For instance, you have a local egg farm, and you transport eggs to the grocery store without any third-party involvement. It is the perfect example of a 1PL or First Party Logistics business model.
2PL or Second Party Logistics
Second Party Logistics or 2PL is the transport of goods from a specific transport area of the supply chain like road, rail, sea and air. A 2PL is known as an asset-based carrier which is responsible for the method of transportation.
With the increase of internationalisation and the emergence of new management concepts, the idea of outsourcing logistic support became more prominent.
So the service providers for transport, storage and handling, etc., are considered as 2PL or Second Party Logistics providers.
For example, 2PL or Second Party Logistics providers could be an airline company that provides freight service or any company that provides other transport services.
Here, the common objective will be to send the products from the manufacturer to the distributor or the customers.
3PL or Third Party Logistics
Third-party logistics, or 3PL or TPL, is one of the popular logistic models. In this logistic model, a business hires third-party businesses for services like distribution, inventory management, warehousing and transportation services.
Both online shopping and consumer demand are increasing very fast. To fulfil their demand, these third-party logistics providers are playing a very crucial role.
A report from Armstrong and associates says that 90% of the US Fortune 500 companies depend on 3PL service providers to handle the logistics, whereas it was 46% just fifteen years ago.
There are so many transport and logistics companies around your locality. These companies provide you with the needed services for your business.
For example, Expert Logistics is one of the most trusted transport and logistics companies in Melbourne. It provides logistics support, freight-forwarding, unpacking & storage services etc. In simple words, it is a 3PL Provider.
4PL or Fourth Party Logistics
Among all the methods, 4PL is a comparatively new method that has come to the market.
In the fourth-party logistics method, a fourth party is assigned to mostly as an advisor for your business. The responsibility is to advise and manage the entire supply chain strategy of your business.
This is how they identify a suitable solution for your company. So, they are often called lead logistics providers, and they provide such services to many businesses.
To get all the tasks done, they often get involved with various third-party logistics businesses. They perform all the supply chain-related operations under the supervision of the Fourth Party Logistics.
4PL companies are mostly hired to ensure neutral management and provide genuine feedback for different 3PL logistics services.
Businesses get more strategic insights through 4PL providers. Thus, Fourth Party logistics is becoming the next big thing in this sector for making the logistics activities more functional.
5PL or Fifth Party Logistics
5PL or Fifth Party Logistics is the most recent concept. So, the definition still varies.
However, a fifth-party logistics provider is also called a logistics aggregator. 5PL providers come with innovative tactics to take your supply chain management to the optimum level.
They will figure out the best option available for you by aggregating the demands of 3PL and other parties at better rates with different shipping and airline companies.
The complete process becomes more efficient with the involvement of the 5PL logistic providers.
This logistic method also includes efficient integration of IT and computer systems to get real-time insight into the goods. Such real-time visibility and control of the entire supply chain make it much more convenient, no matter how many parties are involved.
What is the difference between 1pl, 2pl, 3pl, 4pl and 5pl logistics
Now that you know about different logistic models. You must know by now that these are quite different from each other.
For example, for 1PL, there is no third party involved, whereas for 2PL, there will be a second-party service provider involved, like an airline or a transport company.
So let’s try to be specific about 3PL, 4PL and 5PL regarding the difference between them at a glance.
3pl vs 4pl vs 5pl
It is a transportation and logistic support provider company that transports products from the producer to the distributor.
In other words, it transports farm-produced eggs from the farm to the grocery store.
4PL is a logistic company that strategically manages 3PL. They are mostly considered an individual advisor or consultant to carry out the overall supply chain-related activities of a company.
So, in this logistic model, A 4PL company manages various 3PL companies to deliver the eggs to the grocery store.
A 5PL company aggregates all the parts of a supply chain process to optimize it.
So, 5PL is a logistic company that manages the entire supply chain network of a company and picks the best alternative in the process.
1PL, 2PL, 3PL, 4PL, or 5PL: What Is Suitable for Your Company?
What is suitable for your business depends entirely on you. How do you want the logistics work to be managed, how much do you want to manage in-house and how much do you want to outsource?
When you decide to outsource, you will be able to focus more on your core competencies. It would serve better for your company sometimes.
While picking a logistic model, it is better if you have overall knowledge about the needs of your business. So, do your homework before making the final decision.
Communicate with several providers and know how they can add value to your business. Examine if the cost matches your budget for the logistic activities.
After a thorough evaluation, pick the logistic model that suits your company best.
Determining suitable logistic providers depends a lot on the business structure and strategy.
If you are looking for a 3PL transport and logistics company in Melbourne, then you can always reach out to Expert Logistics for logistics support, freight-forwarding, unpacking & storage services.