It may seemmore risky to choose one of the smaller logistics providers over a big player, but,with their entrepreneurship and flexibility, they might be able to teach the big boys a trick or two. Jessica Davies reports.
At no time has adaptability been more crucial to survival. The biggest third party logistics providers continue to increase in scale and dominance of the market. But bigger isn’t always better; in fact size can sometimes be a deterrent for those companies that prefer a more personalised service.
Of course, the big players have some obvious advantages. Their scale and global reach means they can offer a one-stop shop to customers. They offer career opportunities that make them attractive places to work. And the systems-orientated approach promises consistency even when there are changes of staff. It is also undoubtedly true that big companies feel comfortable dealing with other big companies.
Nevertheless, John McClelland, managing director of PDS International, reckons larger companies could learn from smaller businesses like his. “When looking for a third party logistics company businesses ought to look beyond the big players to see the expertise and added value smaller companies can offer,” he says.
“Mutually beneficial partnering has been a successful working model for us for many years and has ensured we can offer the one-stop shop solution that many companies look for,” he adds. For example, it offers packaging services which are handled by its Warrington-based partner Porter Packaging. As a result, it doesn’t invest in equipment and capacity in-house, but can call on the expertise it needs when required.
John Stocker, commercial director of Acumen Logistics, points to a string of benefits for choosing an SME over a large 3PL. These include: lower overhead costs, greater flexibility, faster decision making, a more open approach as the company is not shackled by corporate policy, adaptability to change and a local management team rather than a call centre.
Some of the customers of big 3PLs can end up feeling that they’re not given the air time they need, says Keith Forster, managing director of Boughey Distribution. “People assume that the big players can always do what they say, but it’s not always the case,” he says.
This strikes a chord with McClelland, who says: “Feedback from some of our customers tells us that occasionally some of the bigger companies only offer a straightforward store and deliver service – they deal in high volumes and think in terms of dedicated pallets and full truck loads.
“We would ask if they can deliver the level of flexibility smaller businesses like ours are known for; personalisation of orders for example, right down to delivery of individual packages to consumers if required, while delivering on time every time with the big orders.”
The bigger players can afford to adopt a “take it or leave it” approach, whereas the smaller ones will go to some lengths to be flexible to a customer’s needs. “By offering tailored solutions we can nibble away at the big players,” says Forster.
Claire Walters, managing director of Unipart Technology Logistics, reckons scalable logistics providers can offer a nimble and entrepreneurial relationship. “At a time of economic pressure, knowing your business is ‘just a number’ can be unsettling, she says. “By thinking and acting in line with the customer, flexible 3PLs can offer a tailored package.” And when something is designed to work closely with you, it ensures cost benefits, not only as a result of the 3PL’s own practices but also by helping you sharpen your own, she adds.
Probably the biggest challenge in the current climate is late payments. A total £9.5 billion is owed to the distribution sector SMEs in outstanding invoices, with 63 per cent having experienced overdue invoices, according to the latest research from Bacs Payment Schemes – the company behind Direct Debit and Bacs Direct Debit.
Bacs’ figures show that of the million plus British SMEs that have been hit by late payments – which now totals £30.4 billion – distribution companies are on average individually owed £44,000. This far exceeds the sums due to their manufacturing and service sector counterparts, which total £18,000 and £27,000 respectively.
Stocker agrees that delayed payments are one of the major challenges for SME logistics providers, along with access to finance for growth, customer failures and bad debt. To overcome this, he says Acumen has restructured its finance team to focus on invoice collection.
It’s a difficult time for all, and flexibility is key to retaining a mutually beneficial customer relationship. Stocker says that if a customer is struggling with cash flow and requests delaying payments, Acumen can adapt by either changing the logistics model to a cheaper version, or by offering an extended contract in return.
Bibby Distribution, which isn’t particularly small or medium, but rather large, nonetheless is a privately-owned logistics company, and as such, stands apart from the big 3PLs.
Ian Speak, chief executive of Bibby Distribution, says one of the biggest challenges in the current climate is to guard against complacency. Although the risk is reduced it still exists regarding company bankruptcy and subsequent exposure to risk, he says. “There’s a trade off between bad debt and contribution levels. There is also the reduction in relief on commercial business rates which is another potentially expensive cost.
“3PLs must also engage with their customers and recognise the issues within their businesses. We have done this with our customers and in some instances changed agreements and decided on courses of action that are beneficial to both parties for the long term. Risk management assessments must be undertaken along with an assessment of the customer’s market,” he says.
Speak believes one of Bibby’s strengths is its ability to find a bespoke solution based on the particular business needs rather than implementing a solution that fits the way a large 3PL works. “A 3PL that is viewed as part of the team with more engagement to really get under the skin of the business and therefore be better equipped to optimise the service by making joint decisions.”
Some would say that one of the more apparent advantages that a big provider has over a smaller one is the economies of scale. However, Stocker reckons these are few. Labour costs are similar (may be fixed under TUPE anyway), he says, as well as fuel costs, and vehicles can be negotiated with manufacturers.
“Also, many centre purchasing groups are run as profit centres so the actual business unit costs are the same as a SME. In addition, SMEs have considerably less indirect overheads than large 3PLs, so overall margins are similar. Plus the SME does not have to reach internal rate of returns set by a centralised finance group but can take local decision of the value of a piece of business, specific to their enterprise,” he says.
Mark Richmond, managing director of Rhys Davies Freight Logistics agrees, saying that “the tools of the trade don’t differ that much.” For example, a larger 3PL may get a better price on 100 trucks as opposed to the ten ordered by a smaller one, but the cost can be offset by the smaller facilities and marketing campaigns of the latter.
Speak says: “It’s not only the biggest 3PLs that can offer the economies of scale – we have over 60 sites and can offer operational synergies with other customers. We are also more likely to share the benefits of these synergies with our customers.
“We take time to understand every business and provide a solution with the scope to change. The solution is then resourced and costed based on the needs of that individual business…Sometimes we take a short-term reduction in revenue on a contract to pursue a long-term gain for our own and our customers’ businesses.
“We are financially sound due to our low debt gearing and the fact that we are privately owned. We can also offer access to additional funds for investment in specialised assets, for example, we made a multi-million pound investment in state-of-the-art saws for one of our clients to add deferred product to our scope of services.”
With so many balls to juggle, it’s only natural that some of the big 3PLs’ smaller contracts are going to be less visible than the larger ones, and as a result, can get lost. After all, they’re relatively small fish in a very big pond. “A £2 million contract is not going to be as important to a major player, as it is to us,” says Richmond.
But that doesn’t stop the smaller providers going after the major contracts. PDS went head-to-head with the bigger players when it recently bid for a major contract to provide logistics services for the SEB Group, which handles major brand names like Tefal and Moulinex.
“Although we didn’t secure the contract on this occasion,” says McClelland, “we got down to the final two against intense global competition, and saw off some of the biggest players in the UK market. SEB understood our business model and liked it, they were happy with the level of service we could offer and our relevant experience in their market sector. The experience has really boosted our confidence to go after similar contracts, and it has shown that we can hold our own against much larger operators.”
The largest logistics providers are driven by policy, and with that there comes a level of rigidity. Stocker says: “Many customers feel that direct access to decision makers is a real benefit to their business. They know their custom is valued by an SME’s owner/directors as they have regular contact. In addition, opportunities exist where customers require a more focused and dynamic logistics model that can change with their needs.”
Speak echoes this when he says that Bibby has the ability to make key decisions quickly due to a flat hierarchy and a minimal amount of internal bureaucracy.
And Richmond says: “We’re a lot more responsive because we only have two layers of management. There are fewer of us, but we’re involved more deeply. Also, we’re not segregated by divisions but can share benefits across market industries.”
Speedy decision making is a clear advantage. “Often the internal sale is more difficult than the external,” says Stocker. “In the larger companies the CFOs don’t have to face the customer. In fact one of the hurdles in the larger companies is trying to meet the internal rate of return of a CFO who’s sitting hundreds of miles away.”
When push comes to shove, companies often opt for a well known name, rather than risk picking an unknown smaller player to handle their logistics. “It’s the ‘nobody ever got fired for recommending IBM’ syndrome again,” says Stocker.
Forster stresses the importance of SMEs keeping up their brand marketing. “We spent five years without needing to spend any money on marketing, he says, “but we turned it down so low the light went out. It’s about keeping the embers in the fire. The result is that we now get on tender lists a lot more than we used to.”
Richmond agrees that marketing is key to growth. “We offer all the same services and functionalities as the largest logistics companies. But our main failing is that our marketing is not as strong. One of our greatest failings is that we’re a very well kept secret.”
Just the facts
Cash flow is themost common reason cited for overdue payments,with 30 per cent stating this as themain excuse, but Bacs has found that six per cent of late payers claimthey “forgot all about it”,with the same number relying on “the cheque is in the post” excuse. Bacs reckons the situation will only get worse with research showing that two out of every three distribution SMEs agree that if they are paid late they will pay their invoices later too, evidenced bymore than a third reporting paying organisations later in 2009 than in 2008.
– £30.4 billion is owed to themillion plus British SMEs in overdue invoices.
– £9.5 billion is owed to the distribution sector SMEs.
– £16.6 billion is owed to the service sector.
– £4.5 billion is owed to themanufacturing sector.
– 63 per cent of distribution SMEs have experienced late payments.
– 29 per cent ask for payment upon receipt of invoice.
– Two per cent specify paymentwithin seven days.
– Three per cent give suppliers 14 days.
– 57 per cent ask for payment 30 days / end of month after receipt of invoice.
– Four per cent are prepared to wait 90 days for an invoice to be paid
Hauliers get a helping hand
A new service is smoothing fuel costs for small tomediumsized hauliers. Portland Fuel Price Protection absorbs fluctuations in themarket on small volumes with no change to their clients’ supply procedures,writes Johanna Parsons.
The service operates as a contract which specifies a rate the client agrees to pay over a set time.After purchasing fuel as usual, at the end of the contract the difference between actual fuel spend and the fixed rate is settled.
While amarket fall could result in paying over the odds, clients are protected fromthe volatility of the market, and afforded predictability for their budgets.PFPP offers to fix the price of your fuel on amonthly or even weekly basis and for orders as small as 50,000 litres permonth.
These strategies are already used by big corporations but founder James Spencer who worked with BP believes there is a demand for these services among smaller companies