Logistics Terms What Are the Differences? 1PL vs 2PL vs 3PL vs 4PL

In the modern business world, logistics plays a crucial role in the success and competitiveness of a company. This is because the efficient and systematic operation of logistics, which is the process of producing and delivering products to consumers, can greatly help a company's management and increase customer satisfaction.

For a successful business, companies use logistics services according to their size and situation, and they are categorized into 1PL, 2PL, 3PL, and 4PL depending on who performs the logistics work.

Let's take a closer look at the definitions and roles of 1PL, 2PL, 3PL, and 4PL.

1PL or First Party Logistics refers to a system in which a manufacturer or supplier, which is the main entity performing logistics activities, performs logistics activities on its own. In this case, the company has its own warehouse facilities, transportation equipment, and employees, and performs all logistics activities directly from logistics planning to operation, execution, and management.

The 1PL is mostly applied to small manufacturing companies with local distribution networks to produce and distribute their products. The disadvantage of 1PL is that since one company performs all logistics tasks, it often requires investment in assets and is less efficient and specialized.

2PL or Second Party Logistics is a logistics system that primarily utilizes subsidiaries or affiliates for operation. Since subsidiaries and affiliates are already operated as assets of the company, utilizing them to handle logistics tasks can make operations more efficient. This allows companies to reduce logistics costs compared to 1PLs while focusing on in-house manufacturing, allowing manufacturers to devote more resources to improving product quality and increasing productivity by reducing the time and effort required for logistics operations. 2PL is a logistics system that is more common in Korea than overseas, and is usually utilized by large companies with a large amount of their own inventory and a large scale of logistics transportation.

3PL or Third Party Logistics is a logistics system in which companies outsource some or all of their logistics tasks, allowing them to utilize a specialized logistics system. This allows companies to realize cost savings and increased efficiency, and has the advantage of being able to respond to the increasing complexity and cost of the logistics industry. 3PL is a model designed to compensate for the shortcomings of 1PL and 2PL, and is currently the most commonly used logistics system. 3PLs can provide flexibility and scalability based on specialized knowledge and experience, while utilizing the latest technologies and systems to manage logistics processes more efficiently. They can also provide international logistics services by establishing a global logistics network and take over logistics activities as an external partner for companies, allowing companies to focus on their core business rather than on their own logistics operations.

4PL or Fourth Party Logistics refers to a strategic logistics partner that comprehensively manages and coordinates logistics processes. In addition to outsourcing logistics, 4PLs also provide logistics consulting and IT solutions. They take over a company's logistics operations, integrating logistics networks and resources to help companies achieve their logistics strategies and goals. Recently, 4PLs have attracted a lot of attention as a new logistics trend, and they have the advantage of not only managing logistics operations but also creating corporate strategies that incorporate the latest technologies.

For example, cloud-based logistics management systems can be adopted to track and share logistics information in real time. This allows companies and their logistics partners to check inventory levels, order fulfillment status, transportation tracking, and more in real time, and respond quickly to issues as they arise.

4PLs also leverage data analytics and predictive modeling to comprehensively manage a company's logistics processes. This allows companies and logistics partners to effectively forecast demand, optimize inventory, optimize transportation routes, and more. Based on the results of these analytics, companies can create logistics strategies, reduce costs, and improve efficiency.

Through data-driven decision-making and the use of artificial intelligence and automation technologies, 4PLs have the opportunity to transform logistics processes and improve a company's competitiveness.

This comprehensive service offering makes 4PLs a key partner in the logistics industry.

More recently, a model that combines the role of a 4PL with supply chain optimization has emerged: Fifth Party Logistics (5PL). 5PL is a logistics system that provides services to comprehensively manage and optimize a company's supply chain, collaborating with various partners to maximize the efficiency and flexibility of logistics activities, and designing and operating supply chains to meet the business goals and needs of customers. 5PLs utilize the latest technologies and tools such as data analytics, artificial intelligence, big data, and IoT to create strategies for companies to manage orders, optimize inventory, optimize transportation routes, and forecast demand. They also enhance collaboration with various partners to facilitate information sharing and communication within the supply chain.

1PLs utilize a company's own resources to perform logistics activities. The company owns the facilities, vehicles, personnel, systems, etc. required for logistics, and manages and operates the logistics operations directly.

While 1PLs allow companies to operate flexibly with full control over their logistics activities by performing all aspects of logistics directly, they incur the cost of purchasing and maintaining the facilities, vehicles, etc. required for logistics. In addition, companies have to perform logistics tasks simultaneously with other core tasks, making it difficult to allocate sufficient resources and specialized personnel to logistics tasks, which can reduce expertise and efficiency of logistics tasks.

3PLs and 4PLs leverage partners to outsource logistics tasks, allowing companies to focus on their core business instead of building their own logistics infrastructure. For companies with large transportation volumes, using a 3PL or 4PL can maximize the efficiency and flexibility of logistics tasks.

In addition, it is possible to operate a strategic logistics system through optimized inventory management and transportation route management, which greatly helps to strengthen corporate competitiveness.

3PLs provide various types of logistics services, including order processing, inventory management, packaging, and transportation. 3PL is a method of outsourcing logistics tasks, and companies can utilize the expertise and resources of 3PL companies in shopping malls, etc.

4PL is a logistics system that adds logistics consulting and IT solutions to 3PL, focusing on the coordination and management of logistics processes. 4PLs work with various logistics companies to optimize the overall logistics network and provide consulting services such as strategic logistics management and operational support to companies to comprehensively coordinate and integrate their logistics activities.

In this way, the logistics system ranging from 1PL to 4PL provides different levels of external cooperation for enterprises' logistics operations. Therefore, enterprises should choose a suitable method among each logistics system based on their own logistics operation capabilities and requirements, which should be determined from the perspective of cost reduction, efficiency improvement, and corporate strategy.