Over recent years, the supply chain profession has expanded to take in a wider range of disciplines—and functional titles. Nowhere is this trend more apparent than in the service provider space.
In the industry’s alphabet soup of provider titles, it can be difficult to figure out the differences between acronyms such as 3PL and 4PL, or LLP and LSP. Maybe you’re wondering whether there’s such a thing as a 5PL.
Does it matter if you know the exact differences between these acronyms? Well, misnaming a service provider probably won’t throw the efficiency of your freight network into a nosedive. And if you’re confused, there is no need to rush out and recruit a director of semantics.
Still, confusion over the functional identity of a service provider can reflect muddled thinking on the type of services you actually need. Also, a provider that calls itself one thing, but in reality fulfills another role, should raise some red flags.
One way to clarify the differences is to check out a few official definitions. But even here there is acknowledgement that naming names is not easy.
3PL vs 4PL
The Council of Supply Chain Management Professionals’ (CSCMP) Supply Chain Management Terms and Glossary lists both third party logistics (3PL) and third party logistics provider. 3PL is defined as “outsourcing all or much of a company’s logistics operations to a specialized company.” CSCMP states that the definition “has broadened to the point where, these days, every company that offers some kind of logistics service for hire calls itself a 3PL.”
CSCMP’s definition of a third party logistics provider is “a firm which provides multiple logistics services for use by customers.” It is preferable that these services are integrated or bundled together by the provider, according to CSCMP.
On the difference between a 3PL and a 4PL, CSCMP offers four indicators. For example, a 4PL “acts as a single interface between the client and multiple logistics service providers.” It is possible “for a major third party logistics provider to form a 4PL organization within its existing structure,” says CSCMP.
LLP vs LSP
As to what distinguishes an LLP from an LSP, CSCMP defines an LLP—or lead logistics partner—as “an organization that organizes other 3rd party logistics partners for [the] outsourcing of logistics functions.” They are the client’s primary supply chain management provider, states the Council. On the other hand, an LSP—logistics service provider—is defined as “any business which provides logistics services.” And that includes businesses with titles such as 3PL, 4PL, and LLP. Clear?
Adding another note of confusion is the fact that provider definitions can vary from company to company. For instance, within TMC, a key difference between a 3PL and a 4PL is that the latter does not negotiate carrier rates or own supplier/carrier contracts or relationships. Another important differentiator is that a 3PL takes on a brokerage role with the primary aim of providing capacity support that a 4PL does not.
When titles matter
Establishing the precise meaning of every supply chain provider acronym is hardly a high-priority work item. However, a working knowledge of the terminology can help to pinpoint the differences that are important to you and align a provider’s functional profile with your needs—which is what really matters. The rest is just semantics!
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