4PL: How Did We Get Here?

Redwood’s new book, Modern 4PL For Dummies, begins by answering a simple, straightforward question: What exactly does 4PL mean? Eric Rempel, Chief Innovation Officer at Redwood, explains how the term originated, and its unique value proposition, in the opening chapter.  

What’s the difference in 3PL vs. 4PL? The easiest way to explain the concept of 4PL is through a linear approach. Let’s walk through the various logistics service models, from simplest to most complex:

• First-party logistics (1PL). In this model, the producer and the deliverer are the same party. Imagine a small craftsperson or farmer who hand-delivers their products to customers in a small town. While this scenario is fast-disappearing, it’s the foundation for all subsequent logistics models. 

• Second-party logistics (2PL). The supply chain becomes a bit more sophisticated when a new partner — a carrier — enters the picture. Now the small business owner relies on a parcel company or a rail carrier to get their goods to customers. Each partner can focus on their strengths and areas of expertise. Typically a 2PL model spans multiple carriers and transportation modes as business volumes grow.  

• Third-party logistics (3PL). Now the logistics network expands to include an expert third party that serves as a “bridge” between the producer and the carrier. 3PLs are typically freight brokers or managed transportation providers who work with multiple carriers. The business owner is free to focus on their core capability of production — or, in the Modern world, retail — and carriers are tasked with moving products. The 3PL brings specialized, invaluable expertise in choosing modes and carriers, negotiating the best rates, assigning loads, and coordinating freight movements. 

• Fourth-party logistics (4PL). As supply chains have grown in complexity — spanning thousands of miles, fueled by many supplier tiers, selling products through multiple channels, and supported by digital solutions — a need for new specialized expertise has emerged. 4PLs orchestrate the physical supply chain, as well as the digital supply chain. 4PLs “own” the extended supply chain and have accountability for financial, strategic, environmental, customer service and other outcomes. They’re equipped to manage every logistics capability, from order management through warehousing and last-mile delivery, although many 4PL customers pick and choose what activities they want to outsource. The first party — whether a manufacturer or a retailer — is now free to focus 100% on the core business, without the distractions, frustrations, and complexities of modern, omni-channel logistics. 

4PLs Optimize End-to-End Logistics, So You Don’t Have to 

Why do you need a 4PL? And how exactly does it make life easier for a manufacturer or retailer? A real-world example may be helpful. Let’s say a port closure delays a critical customer delivery. A third-party logistics provider (3PL) would focus on a work-around for that one shipment that’s sitting offshore. Because the 3PL only owns that one shipment, they have limited visibility and narrow responsibilities. 

In contrast, a 4PL would use advanced technology, data, and decision science to understand the impact of that port closure on the entire end-to-end supply chain. The 4PL would look beyond that one shipment to see, and minimize, negative consequences both upstream and downstream for all shipments. It would explore alternative routes, sources of supply, and other actions that keep the entire supply chain — not just one shipment — on track.  

As extreme weather, geopolitical tensions, labor strikes, and other events occur with increasing frequency, the role of a 4PL is more important than ever in setting and re-setting the entire supply chain, profitably and intelligently. 

Closed 4PLs vs. Open 4PLs: What’s the Difference? 

If they choose to work with a 4PL partner to master modern logistics complexity, manufacturers and retailers still have one more choice to make. Should they collaborate with an “open” or “closed” 4PL? 

A closed 4PL relies only on its own proprietary capabilities and a standard logistics outsourcing playbook. Closed 4PLs have invested heavily in developing their own transportation management system (TMS), warehouse management system (WMS), order management system (OMS) and other solutions. They’ve defined specific roles, workflows, and processes. 

The problem with the closed 4PL model is that every customer, and every supply chain, is entirely unique. The inflexible, standard operating procedures of a closed 4PLs are unlikely to be a good fit for every company’s products, supplier partnerships, customer and consumer needs, geographies, service models, and other key supply chain characteristics. 

An open, Modern 4PL offers much greater freedom, flexibility, and customization. Because 4PLs offer a wide range of services and solutions, they’re not constrained by, or personally invested in, their own in-house capabilities. Open 4PLs can objectively match each customer with the software, services, partnerships, operations models, and process templates that best serve that specific customer’s needs. Their expertise in certain industries, like consumer goods, makes open 4PLs familiar with industry best practices — but they customize their solution and service footprint for every single customer. 

At Redwood, We’re Your Trusted Advisor in 4PL 

As a leader in the Modern 4PL industry segment, recognized as a Representative Vendor for the second consecutive year in Gartner’s 2024 Market Guide for 4PLs, Redwood is proud to offer a comprehensive range of solutions and services. Customer can create a unique supply chain ecosystem by mixing and matching our offerings — as well as integrating their outsourced logistics with their core supply chain for maximum flexibility, speed, profitability, and responsiveness.   

This is just the beginning! As we dive into Modern 4PL for Dummies, our LinkedIn Live series will feature industry experts breaking down each chapter. Want to learn more? Download your free copy of Modern 4PL For Dummies — or watch Redwood’s recent LinkedIn Live event for a sneak peak of what’s in the book. 

We’ve got a LinkedIn Live session coming up—don’t miss it! Check out the full schedule to see what’s ahead and follow us on LinkedIn to join the conversation live!