What is 3PL & 4PL?

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The business terms 3PL and 4PL stand for "third-party logistics" and "fourth-party logistics." Logistics covers shipping, transportation, warehousing, inventory management and related activities. Companies looking to save money turn these functions over to specialized 3PL and 4PL firms that can do them more efficiently.

Third-Party Logistics

A company is pursuing a 3PL strategy when it hires an outside firm to handle most or all of its logistics. Doing so allows the company to focus on its core business without having to, say, maintain a fleet of trucks or keep abreast of ever-changing export regulations. According to the Council of Supply Chain Management Professionals, the term 3PL originated in the 1970s. That's when specialized companies began serving as intermediaries between firms that had goods to ship and the freight carriers, such as railroads and shipping lines, that moved those goods. These firms were the "third party" in the arrangement. The term "3PL" has since come to be applied to any company that handles outsourced logistics.

Fourth-Party Logistics

A 4PL company fills a broader and often more managerial role than a 3PL provider. Rather than simply perform logistic services for a client, a 4PL company lines up multiple logistics providers to meet specific needs. The 4PL company may even take over the company's entire supply chain management. It won't just move goods, but will handle ordering on one end and order fulfillment on the other. Some 4PL companies are set up as joint ventures by the very firms that use them. The term was coined in the 1990s by the Accenture consulting firm, which offered 4PL services itself.

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About the Author

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

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