Most people working in logistics or supply chain related fields have heard the term 3rd Party Logistics or 3PL. But what is a 3PL?
However, I’m not sure many would be that familiar with the terms 1st Party Logistics, 2nd Party Logistics, or 4th Party Logistics, let alone ponder the meaning of 1PL, 2PL, or 4PL.
Since this blog is all about managing third-party logistics service providers, it would be remiss if I didn’t explain how the term 3PL is interpreted on this site.
At the same time I will do my best to help you understand the terms 1PL, 2PL and 4PL.
If you ask the Google machine, “What is a 1PL?” or “What is a 2PL?” It takes you to many different pages and there are countless explanations – most of which I don’t quite understand from a logistical point of view.
I just don’t understand the logic that is presented.
The following diagram is a summary of my take on what it all means, and is a little different from some of the other explanations currently found in cyberspace.
To be honest I think the terms 1PL and 2PL were developed as an afterthought after the term 3PL was coined.
To complicate things further, the concept of 4th Party Logistics (4PL) was thrown into the mix by Andersen Consulting (now Accenture), although it came after the word 3PL became more widely accepted as part of the language of logistics and supply chain managers .
Anyway, before we get to what is a 3PL? Here is another explanation of 1PL and 2PL.
To provide some context, my definitions are based on the premise of how remote the entity performing the logistic processes is from the original source of the end product.
Therefore, the following definitions apply on the 3plmanager.com blog:
First Party Logistics (1PL)
In 1st Party Logistics (1PL), the organization is the manufacturer and distributor of a product and performs all (or some) of its logistics processes in-house.
This includes that the manufacturer operates a warehouse and delivers finished orders to its customers with its own fleet of vehicles.
2nd party logistics (2PL)
2nd Party Logistics (2PL) is when the organization is a distributor of a manufactured product and performs all (or some) of its logistics processes in-house.
This includes the distributor operating a warehouse and delivering finished orders to their customers using their own fleet of vehicles.
Third Party Logistics (3PL)
In third-party logistics, the manufacturer (1PL) or distributor (2PL) of a product hires another organization to perform some or all of its logistics processes.
This would include the other organization providing services to perform one or more of the following processes:
- International Courier Services
- International forwarding services
- Customs Clearance Services
- storage services
- transportation services
So back to the question “What is 3rd Party Logistics (3PL)?”
Third Party Logistics (3PL) is defined as “a logistics process performed by an organization that is NOT the manufacturer or distributor of the product”.
Therefore, a Third Party Logistics (3PL) service provider is defined as “an organization that provides services to perform logistics processes on behalf of a manufacturer or distributor of products”.
Further clarification of this point came in 2008 when legislation was passed in the US defining a 3PL as “a person”. [or organisation] who exclusively receives, stores or otherwise transports a consumer product in the ordinary course of business, but does not acquire ownership of the product”
And finally the notion of a 4PL.
Fourth Provider Logistics (4PL)
As noted above, the concept of a 4PL (4th Party Logistics) service provider was first defined (and trademarked) by Accenture in 1996, and defined 4PL as “a supply chain integrator that assembles and manages its own resources, skills and technology organization with those of complementary service providers to provide a comprehensive supply chain solution”
Also known as a “Lead Logistics Provider” or LLP, a 4PL typically uses a technology solution to integrate the services of multiple 3PLs to manage a manufacturer’s or distributor’s supply chain from end-to-end.
It is not uncommon for a 3PL organization to develop a 4PL solution that manages both its own services and the services of other 3PLs.