Back in the 1980s, trade restrictions made it difficult for companies to dive into the unknown territories of international markets. But once local markets began saturating and international trade started thriving, companies began exploring newer markets across the globe. The pace of globalization increased and companies needed to build an extensive supply network to support overseas expansion. This led to the development of third- and fourth-party logistics as we know today. However, before the evolution of these modern logistics services, first- and second-party logistics were the default choice of businesses.
What are 1PL and 2PL?
First-party logistics (1PL) refers to companies that retain complete control of their logistics. They use their own assets (trucks, warehouses, etc.) to store and deliver goods to their customers. Though, 1PL helps to keep a close eye on operations, the additional infrastructure and resources needed are a permanent cost to the business.
Companies might decide not to own any assets and outsource logistics to service providers with transport, handling, or storage capabilities. Such a service provider is known as a second-party logistics provider (2PL). This method provides the flexibility to outsource only a few components of the supply chain. Hence, it is only suitable for businesses that want partial control over their supply network.
What are 3PL and 4PL?
From warehousing to delivery, third-party logistics providers take care of the entire supply chain, using an asset-based model. 3PL enables companies to focus their time and resources on their core competencies while also reducing costs and delivery times. Since 3PL providers pool resources and generate economies of scale unlike any other logistics services, they are the go-to choice for businesses that want to reduce cost.
While 3PL takes care of the operational aspect, 4PL builds a customized model to increase the overall efficiency of the value chain. 4PL operates on an asset-free model to assist companies by enabling coordination among other service providers. However, the services of 4PL are limited to consultations -- they aren’t involved in the execution of the supply chain model. 4PL services are usually the ideal choice for businesses that are looking for custom solutions and value chain optimization.
The middle ground - 4.5 PL
4.5PL goes a step further than other service providers by integrating the operational excellence of 3PL with the technical and business expertise of 4PL. 4.5PL is a promising hybrid solution that is only provided by a handful of companies. In India, H&S continues to be the only 4.5PL company.
What makes 4.5PL unique?
● Cost efficiency - A 4.5PL enables businesses to reduce their capital investments by taking over their entire supply chain operations. Economies of scale allow service providers to optimize cost for all their clients
● Consultative partner - They consult businesses on every component of supply chain operations and devise strategies that can optimize the entire value chain
● Customized solution - They build customized solutions to address the specific challenges of each business
● Expertise - They have the industry expertise to understand the trends and upcoming technologies such as AI, ML, Blockchain, and IoT that can be implemented into the business
● Technological prowess - They provide a well-developed IT structure and boast in-house technologies to enable supply chain visibility and foster collaboration
Since the advent of global supply chains, the world of logistics management has gone through several transformations. As customers demand and technologies continue to change, so will the logistical needs of companies. In this ever-changing industry, 4.5PL providers handle current supply chain needs and bring the agility needed to respond to any future opportunity or challenge. H&S is one such dedicated 4.5PL partner that can help you design and execute a cost-efficient, high-tech model to address your business concerns and to equip you for the future.
Sources:
● https://beamberlin.com/logistics-101-1pl-2pl-3pl-4pl-5pl/
● https://legacyscs.com/evolution-of-3pl-supply-chain-challenges/