In the world of supply chain management, e-commerce businesses use multiple ways of getting online products from warehouses and store shelves to end consumers. You may be tasked with elevating your company's logistics game, but it's all too confusing. Let's go back to beginning — learn the clear difference between 1PL to 5PL to find the best supply chain solutions for your business needs.
1PL, First Party Logistics
1PL, or First Party Logistics, refers to a situation where a company chooses to store and transport goods using in-house logistics. Think of a small-to-medium (SME) retailer that uses the brand's own assets to run local product distribution and delivery. Unlike the other models, 1PL companies are self-sufficient in having control over the supply chain operations but also shoulder all the risk and responsibility.
2PL, Second Party Logistics
2PL, or Second Party Logistics, offers contract-based transportation services like trucks, railroads, air transport and shipping lines. In other words, they're transporters that operate vehicles and physically enable the movement of goods without getting involved in other aspects of order fulfillment and logistics. They may be asset- or non asset-based.*
*See related logistics terms explained below
3PL, Third Party Logistics
3PL, or Third Party Logistics, covers a much wider range of externally outsourced logistical tasks or even the entire process. As an intermediary service provider between the client and its customers, Third Party Logistics companies offer warehousing, inventory management, order fulfillment, cross-docking, transportation and reverse logistics services*.
*See related logistics terms explained below
4PL, Fourth Party Logistics
4PL, or Fourth Party Logistics, acts as a single interface between the client and multiple logistics service providers. Think of planning, strategy and management. 4PL companies typically don’t own assets — physical capabilities are outsourced to 3PLs — but provide the oversight and expertise in end-to-end supply chain optimization. They're more of a long-term, strategic logistics consultancy service.
5PL, Fifth Party Logistics
5PL, or Fifth Party Logistics, manages an entire supply chain network for the client. 5PLs take one step further by combining the transport and logistics services of a 3PL provider with the supply chain optimization of a 4PL provider and the latest e-logistics technologies.
Bonus logistics terms explained
Asset- and non-asset-based carrier
Asset-based carriers own their own transport and equipment required for the haul. Non asset-based carriers partner with subcontractors, lease equipment and configure custom warehousing needs. Non-asset based transport providers may come with more flexibility and wiggle room in rate negotiation.
Cross-docking
Cross-docking in logistics means unloading goods from inbound delivery vehicles and loading them directly onto outbound vehicles for the next leg of the shipping process.
Freight forwarding
Freight forwarders act as an intermediary between the company that books the shipment and the final destination for the goods. Essentially, they facilitate a safe and cost-effective shipping process and provide services like rate negotiation, transport procurement, customs clearance and shipment tracking. They're not logistics providers — they're brokers.
Reverse logistics
Reverse logistics operations move goods from end consumers back to retailers or manufacturers — think of customer returns or package re-use.
TMS
Transportation Management System (TMS) — also known as Transportation Management Software and Transportation Management Solution — is a technology that helps businesses plan, execute and optimize the shipment of goods, both incoming and outgoing.
WMS
WMS stands for a Warehouse Management System — a software application for real-time administering and optimizing warehouse operations from the time goods or materials enter a warehouse until the moment they are shipped to another location for the next stage in the fulfillment process.
What's next in your supply chain strategy?
Are you leveraging the best logistics model for your business needs? Assessing your current strategy and being open to change could open doors to efficiency, cost savings and better customer satisfaction.
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