Many people involved with logistics will have heard of the term ‘third party logistics’ or ‘3PL’ or ‘TPL’ but what are the others? There are actually several forms of ‘party logistics’ – here I will cover 1PL to 6PL and show how the systems integrate the supply chain. The more a company moves from 1PL to 6PL (and beyond) the more of the company supply chain managed by outsourced companies and the higher the level of service integration.
1PL: 1st Party Logistics
What is 1PL? 1PL refers to a company or individual that transports and delivers their own goods, using their own vehicles. There will be no other companies involved in the movement of the goods. For example: a manufacturer makes tools and delivers the tools on their own vehicles directly to shops for sale.
2PL: 2nd Party Logistics
What is 2PL? Probably the one we are all most familiar with, if not the term itself. A 2PL solution involves a company using a separate transport company, a subcontractor, to move their goods. A 2PL logistics provider will be ‘asset-based’ and will own the means of transport.
3PL: 3rd Party Logistics
What is 3PL? 3PL was first used in the early 1970’s to identify intermodal marketing companies in transportation contracts. Now 3PL is the first solution that includes outsourcing part of the supply chain. A 3PL logistics provider will offer first stage supply chain integration in the forms of:
- Transport and freight forwarding
- Warehousing including inventory management and cross docking
- Packaging and labelling
So, a manufacturer can outsource all their transport, storage, packing and distribution of their goods using a single 3PL company. Most 3PL companies are flexible so that you can select to use as many or as few of their services depending on your requirements.
4PL: 4th Party Logistics
What is 4PL? The 4th Party Logistics solution involves an independent, or ‘neutral’ lead logistics provider, effectively acting as an agent. A 4PL company will liaise and co-ordinate one, or more, 3PL provider companies in order to provide and tailor the best service for the customer. Therefore 4PL will include all the benefits of 3PL providers but also include:
- Project Management, sourcing and negotiation
- Logistics strategy and analytics
- Impartial service advice
- A single point of contact
In 1996 4PL was registered as a trademark and was defined as: “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” but the registration has since expired.
5PL: 5th Party Logistics
What is 5PL? 5PL involves a fully integrated logistics solution to encompass the whole supply chain from beginning to end through multiple outsourced service providers. The integration must be achieved through the application of IT solutions to provide full visibility throughout the supply chain in ‘real-time’. The 5PL logistics provider would need to control the entire supply chain regardless of how many different service providers were involved. With the focus on technology the 5PL solution is best suited to e-commerce.
6PL: 6th Party Logistics
What is 6PL? Still mostly theoretical, 6PL is a fully integrated and partly automated supply chain solution monitored by artificial intelligence (AI), often referred to, as ‘artificial intelligence driven supply chain management’. While the concept is still mostly theoretical, it is evident that the application of AI across the supply chain would give huge technological advancements. For example: an incorporated AI could monitor the whole supply chain using trends, ordering patterns and forecasting models and proactively send instructions upstream. This could automatically trigger goods production, send instruction to deliver stock or highlight anomalies.
Download a 1PL 2PL 3PL 4PL 5PL 6PL, the Advancement of Party Logistics infographic in A4 pdf format below:
Download the 4PL infographic in A4 pdf format below:
For details on 7PL see my article here