What's The Core Difference Between 1PLs, 2PLs, 3PLs, 4PLs, and 5PLs?
A simple one-word answer to the above query is 'Logistics.' But wait! What exactly is logistics, and what does it entail? Understanding these details is essential to know the difference between these different level logistics parties.
Picture the journey of an average online order. It travels distant and wide to reach your client's doorstep. But, what really happens along the way? How many checkpoints does a package need to pass before arriving at its final destination? As it turns out, a whole lot is going on between point A and point B, which is where logistics, or the coordination and management of complicated processes comes in.
Logistics is an integral part of the overarching supply chain management, and it can vary from being relatively straightforward to increasingly complex depending on the individual needs and capabilities of the parties involved.
From the ground up, here's what each level of logistics looks like. Let's begin!
In order to comprehend this, let's take an example: Carlos is a brilliant chocolatier and the owner of Carlos's Chocolate Shop, which sells anything from chocolate candies to gumballs and everything else you can think of. Carlos prepares all of his treats from scratch, making him the producer in terms of logistics.
Carlos is keen to show off his creations to the rest of the world, but he must first shake things up. After much thought, he chooses to send some of his most promising stock to Samantha's Sweet Shop, which is only a short distance from Carlos's Chocolate Shop. Isn't it true that you may achieve great goals by starting small?
Samantha's Sweet Shop is the market or the recipient of the manufacturer's goods in this case. This arrangement is classified as first-party logistics because it only includes a producer and a marketplace.
But hold on, there's more!
Things are gradually gaining steam! Carlos's assorted chocolates are selling like hotcakes at Samantha's Sweet Shop, so he chooses to take things a step further by expanding his reach to other establishments in the region.
Carlos, of course, can't take on the burden of selling his wares over county boundaries - he's only one man, after all, and he's got chocolates to produce. As a result, he employs Billy's Trucking, a third-party logistics service, to lend him a set of wheels.
To summarise, Billy's Trucking has taken over as Carlos's transporter, allowing his shop to reach new and interesting markets.
Tasting huge success with 2PL encourages Carlos to spread wings by going online.
However, he also finds himself knee-deep in packaging just after a few months of being on the Internet – rendering him unable to concentrate on the brick and mortar components of his business. Carlos approaches a third-party logistics company specializing in helping a business reach its optimal potential — for example Ecosam — in order to keep up with the increased demand for his delectable offerings.
It's critical to remember the following at this point:
- Carlos bids goodbye to Billy's Trucking, who will continue to do a fantastic job elsewhere, as Ecosam took over the transporter duty for Carlos's Chocolate Shop.
- "But how?" you might wonder. "Does Ecosam have their own trucks and planes?" Not always. However, they are associated with many shipping companies, letting them bargain favourable rates and schedule timely deliveries.
- Besides, Ecosam’s services extend way beyond transportation, completing additional logistical responsibilities such as warehousing, packing orders, and maintaining inventory.
- Furthermore, Ecosam as a 3PL can offer additional services, such as product assembly, product repacking, labelling and much more.
As you've seen, 3PLs provide vastly more complex services than 2PLs and 1PLs. Outsourcing to a 3PL is a lasting, cost-effective and reliable solution for the typical eCommerce entrepreneur.
A separate supplier is recruited to handle and supervise a firm's whole supply chain via fourth-party logistics. A 4PL's purpose is to optimize the entire kit and caboodle — consider coordinating suppliers and synchronizing operations — while a 3PL remains focused on the day-to-day chores. Another significant distinction is that 4PLs are less "hands-on" than 3PLs, typically involving a substantial level of management and understanding with merchants.
Fifth-party logistics can be defined in a variety of ways because it is a newer logistics paradigm. In essence, 5PLs combine numerous 3PLs, transforming a supply chain into a supply network. If 4PLs serve as advisers, 5PLs are in charge of the entire logistics operation.
- 1PL - producer delivers products to the marketplace.
- 2PL - producer hires logistics firm to deliver products.
- 3PL - producer recruits a specialized third-party logistic service to meet the optimal business potential.
- 4PL - an expert logistics firm hired to oversee the entire supply chain management.
- 5PL - a logistics firm that facilitates supply network formation through 3PL and/or 4PL combination.
So which PL one must go for?
Which PL is the right choice for your firm? That is the billion dollars question. While no single PL can be right for every company, most would lean toward a 3PL.
For the most part, a 4PL and 5PL is enormous (and pricey) for many companies to use. While 1PLs and 2PLs may appear perfect for some organizations, choosing one of these could be a misstep.
Phew! That was a long trip, and we haven't even gotten to 6PLs and 7PLs yet! But don't worry, we have got you covered with the enough details to work upon… until next time.