There is a general belief that bigger is better, but that’s not necessarily the case when it comes to the third party logistics sector. Some of the smaller players are showing the big boys a thing or two when it comes to flexibility, customer service and innovation and it looks like it’s paying off. Lucy Tesseras reports.
Small to medium logistics providers might not be able to compete on size, but they know how to pack a punch when it comes to service and can give even some of the biggest players a run for their money.
Just last month, Advanced Supply Chain, a relatively small company in terms of turnover with sales of £20 million, extended its contract with Makro, the UK arm of retail giant Metro Group, in a three-year deal worth £24m.
Despite not having the financial pulling power of the big logistics machines which turn over billions each year, Advanced has gradually extended its remit for Makro since the companies began working together in 2004.
Makro originally took on Advanced to handle pre-retailing and to distribute fashion ranges. This was then extended to include footwear, then all part pallet product and finally, as a result of this latest agreement, all full pallet ambient product.
Dave Jones, head of supply chain at Makro, describes Advanced as an innovative and pro-active third party logistics partner, which has continually sought and identified areas of service and cost improvement. He says: “Following commencement of operations at the Advanced Makro distribution centre in Bradford, we have seen improved stock availability, reduced stock holding and a consequent improvement in sales.”
A contract such as this might be two a penny for the major players, but considering the new three-year deal will result in ten to 15 per cent growth per year for Advanced, as well as the creation of 50 to 60 permanent jobs, it’s not to be sniffed at.
Advanced Supply Chain’s chief executive Mike Danby reckons where the SMEs have the edge is personal service. One size does not fit all.
To win the business, the company said it spent time understanding Makro’s supply chain requirements, spent investment capital in developing bespoke IT systems and, most importantly, spent time developing relationships, which in turn helped to develop the partnership approach which it operates today.
Danby says: “Smaller organisations are well-placed to offer excellent, bespoke customer service which is simply not possible for larger organisations to match. Working closely with clients and offering hands-on management means that we are able to provide tailored solutions which are designed to fit customers’ needs completely and offer niche sector expertise. This level of care is not possible once a logistics provider reaches a particular size.”
Ben Morris, managing director of operations at Howard Tenens, agrees that it is the personal touch that draws in the deals.
“We have a portfolio of many blue chip clients who have clearly decided to outsource their business to us rather than the industry giants,” he says. “We believe the reasons for this relates to our reputation for delivering excellent service levels, the lack of bureaucracy, swift decision making, as well as our environmental innovations.”
One such innovation is Howard Tenens’ investment in dual fuel technology which is now being rolled out across its entire fleet.
The project began in 2009 following discussions with Mercedes-Benz UK. The initial trial involved two vehicles fitted with Hardstaff Duel Fuel OIGI technology using the umbilical trailer system and compressed natural gas cylinders for fuel containment.
The trial created savings of 36,036kg of carbon dioxide and once the roll out is complete, the company estimates savings of 1 million kg.
To support the technology Howard Tenens has also invested in three natural gas refuelling stations at locations in Andover, and more recently in Boston and London (Aveley) both of which are also grid-connected.
The company has plans to roll out more refuelling stations across its transport network and is also allowing third party access to the stations by arrangement, so that other companies can operate gas vehicles without incurring the capital outlay.
The second phase of the environmental project will see Howard Tenens replacing natural gas with bio-methane, which will either be delivered as a liquid by tanker or through a virtual supply of bio-methane that is injected into the grid from anaerobic digestion plants and then drawn off at the point of demand to use as a road transport fuel.
However, it’s not all about competing with the big players for the big contracts. Michael Martin, business development director of the Sittingbourne-based logistics firm Carousel, says: “We look at the large organisations and we recognise that as a medium-sized business we take different sections of the logistics exchange. We fulfil a niche – time critical items, complex deliveries.”
For example, Carousel delivers all spare parts for a major German tractor manufacturer to dealers based in the extremities of the Highlands throughout the night, which would be difficult for a large company to do.
“Big companies have regimented trunking routes. They have to leave at a set time on a set route for the network to work. We can create routes on a daily or even hourly basis,” he says.
Of course, the big players offer some clear advantages too. The global reach and international network of offices they provide can be hugely enticing, plus the systems-orientated approach encourages consistency even when there are staff changes or absences.
But because of this John Harvey CBE, executive chairman of Keswick Enterprises, says: “The management of large providers can sometimes become detached from their customers, and internal issues, processes and corporate hierarchy can slow response, limit flexibility and impersonalise relationships.”
It’s a point which a number of operators are keen to highlight as decisions at SMEs can be made quickly.
Michael Martin, business development director of Carousel, says: “From our point of view, we can offer flexibility, and we can implement a project very quickly for a customer. There’s no massive hierarchy of people in a medium-sized company which reflects across all departments. Decisions are almost instant because there isn’t a system of having to get things signed off at each stage of the process. Even people at the most senior level are involved in the day-to-day process so we never lose sight of what’s going on and why we’re doing it.”
This inherent flexibility is something which small and medium logistics providers agree is a key differentiator.
Bryan Hindle, managing director of Spatial, a Keswick Enterprises company, says: “In short, small and medium- sized logistics providers can offer tailor-made solutions. We are not limited to working within a particular corporate model or strategy – we adjust our services to fit the customer, not the other way round. We can customise our approach and provide services that meet every nuance of our customers’ requirements.”
Plus, he suggests the potential problem of not having the global reach or scale a large firm can offer can be overcome through alliances. In the Middle East, for example, Spatial has grown its business by £2m over the past year through just such a link-up.
“With an alliance we have the ability to agree and set service parameters, and then proactively switch partners if these are not achieved – something that the larger players never do. They have good and bad offices, but they have no choice but to use them regardless.”
John Harvey adds: “Customers working with an alliance can often obtain the benefits provided by smaller suppliers without the disadvantages. They know that their account really matters to the service provider – yet the alliance can also have wide geographical spread and scale.”
With that in mind, five UK hauliers joined forces earlier this year to launch Harlequin Logistics.
“It’s a product of our times,” says managing director Paul Smith, who previously launched Jigsaw Solutions in 2002. The members are R Swain and Sons, Prestons of Potto, John Raymond Transport, Jack Richards and Son, and Currie European Transport.
“I do think the market is going to move and the time is here for a more innovative and flexible approach, and a move away from the staid operations of the past.
“Even a regional haulier with 200 vehicles is still not able to access work from the big blue chips as they are not perceived to be big enough, or have the geographical reach needed. By being part of a well-structured consortium it will enable them to access parts of the market they couldn’t previously reach.”
With Harlequin, Smith aims to fill the gap between the super consortiums such as DHL, Kuehne + Nagel and Ceva at the top end of the scale and the regional, privately-owned hauliers at the other end. The only companies he thinks really operate in that middle ground at the moment are the likes of Stobart and more recently Bibby, which has been on the acquisition trail, increasing its turnover by £94m, doubling its fleet and adding 40 more locations in recent years.
In fact, the recession has brought about a number of mergers and acquisitions among the big players, but rather than it being seen as a problem, the savvy smaller operators have actually used it to their advantage.
Michael Martin of Carousel says: “We have to look at it as an opportunity as there is so much instability in the market. It has created opportunities for us because there is a time period when companies merge where there are account changes, system changes, staff changes, depot changes and the merging of different ethoses. We recognise what the client requires. The decision maker wants security which isn’t always possible during a period of transition.”
Plus, the larger the big operators become the more space there is for the best smaller operators, says Danby.
“Customers quite rightly want to feel important and dealing with a faceless company where a piece of business represents a tiny fraction of the 3PL’s turnover is understandably not always an attractive proposition.”
He adds: “The very fact that they are chasing turnover and scale means that they are moving further and further away from the smaller companies’ customer base. I don’t think they’re too interested in accounts less than £1m/year, in fact we’ve managed to take accounts worth considerably more than this from some of the large 3PLs without them putting up much of a fight.”
Organic growth rather than acquisition seems to be higher on the agenda for some SMEs though. Torque, formerly The Elite Group, rebranded itself earlier this year following a strategic review and is now actively marketing itself and targeting new business.
The company’s main focus is on fashion logistics and it counts names such as women’s sportswear brand Sweaty Betty and Scottish knitwear company Pringle among its clients.
Tim Howarth, chairman, Torque, says: “You can’t stand still. Our aim is growth, but organic growth. The rebranding has given us a new lease of life and we’re ready to push forward. From a staff point of view it’s a statement of commitment and it’s motivating at a time when elsewhere things aren’t necessarily positive [because of the economic downturn].”
Stewart Firth, director, head of operations, Torque, adds: “People are ready for change. The sales team is getting lots of enquiries because of the recession, because companies can’t be blinkered any more. They’ve got to review processes and improve wherever possible.”
Paul Smith, managing director of Harlequin Logistics, agrees: “One of the big things that has changed in the last three years is that buyers in the big corporations are beginning to think more outside the box. There was a time when a big corporation would only buy from a big corporation. Those days are gone. Companies are a lot less risk averse than before the recession.”
In the current climate, Simon Reed, managing director of Simarco, reckons resource management is critical as customers are becoming more focused on price and operation costs are increasing. He says: “Investment is key in our industry and companies which are unable to source external funding or manage what resources they have in-house will not survive.”
When it comes to choosing a small or medium 3PL the most common fear is that the company either won’t be able to fulfil what it has been contracted to, or that it isn’t financially stable.
It’s the same with any business agreement though, says Martin. “If a buyer doesn’t do their research then of course there is a very large risk.”
To mitigate this risk he advises companies to take the proper precautions. He says: “A company will always check out the credit rating of a client, and the same should be done with suppliers. There should be diligence both ways. If a company – large or small – is not financially secure then of course there is a risk.”
Spatial’s marvellous medicine
Being able to get hold of the correct medication when going on holiday may seem like an easy task, but when it’s time-critical, life-saving medication for kidney patients on dialysis, if there’s a chance it won’t be in the right place at the right time it could mean the patient isn’t able to travel abroad.
Logistics firm Spatial operates a specialist service to ensure that doesn’t happen It delivers medication to holiday destinations such as resorts, campsites, cruise ships, hotels and villas all across the world, and provides confirmation that the medication has both arrived and is in good condition before the patient leaves the UK.
Spatial works closely with local partners on import permits, licences and customs declarations, and has to be able to deliver directly to holiday hotspots rather than conventional terminals, ports and commercial centres.
“The main problem is the lack of infrastructure for handling palletised freight,” says freight manager Rachel Morley. “Gone are the simple pleasures of a receiving dock, a forklift truck or a warehouse team with telephones. Sometimes there’s not even a proper road to where the patient is staying.”
The global movement of pharmaceuticals was another issue, so Spatial had to gather knowledge from medical professionals, register products with food and drug administrations globally and create a tailored database of criteria for each delivery.
Cruise ships pose a particular problem as vessels are usually only at a port for a few hours, plus there are very high levels of security, particularly in the US, and getting an agent quayside ready to load what can be a high volume of product can be a challenge.
“For longer stays the amount of medication needed can run to several pallets per holiday. Convincing local customs authorities that this is a personal prescription for an individual who is also not allowed to depart from the UK until delivery is completed, is no mean feat,” adds Morley.
Since the service began more than a decade ago, Spatial has arranged holiday deliveries for over 2,000 patients to 54 countries around the world.
It has also evolved the service to include deliveries of parenteral and enteral nutritional care, and it is also responsible for transporting “Sleepsafe” dialysis machines for some patients.