Friday 30th Sep 2016 - Logistics Manager

SME Special: Strategies for logistics success

Competing in the third party logistics market is never easy, but SMEs can point to a number of advantages, says Malory Davies.

This article appears in the January 2016 issue of Logistics Manager

This article appears in the January 2016 issue of Logistics Manager

Third party logistics is a challenging market for small and medium sized companies with stiff competition from large organisations and customers that are ever more demanding. Nevertheless, entrepreneurial spirit is thriving and smaller organisations can offer their own advantages.

Adam Shuter, managing director of Exact Logistics, has experience of working for large organisations as well as running his own business. He spent 16 years with TNT before joining Acumen in 1998. And he was European development director at Palletways from 2005 to 2009 when he left to set up Exact on the outskirts of Rugby.

Shuter is clearly enjoying the experience of running his own business, nevertheless, he says it can be tough. It is nothing new for small companies to be squeezed by larger competitors, but Shuter points out that they are also squeezed by customer expectations.

“The average credit period is 45 days,” he says, “but there are some customers who are pushing for 90 days.”

But, he points out: “A lot of SMEs know their customer base better than bigger competitors, and so they are more realistic with their pricing.”

“There is no blurring of boundaries. If you are not going to make money, then why do it.”

That focus can get blurred in larger organisations, he argues, as it is possible for there to be different agendas in different parts of the organisation.

William Walker, sales and marketing director of Walker Logistics, the Berkshire-based specialist supply chain services operator, says: “Close collaboration between a 3PL and its client is the key to any successful contract and the motivation for such a close partnership is often strongest with a smaller 3PL, where the value of the contract and potential gains mean proportionately more.

“The same is true with regards to risk sharing. A smaller 3PL is far more likely to invest to win or retain a contract – it is all part of the entrepreneurial spirit and drive inherent in smaller organisations.”

Walker highlights the fact that there is over-capacity in the logistics market, and argues that many of the larger multinational providers operating in the arena are adding to the challenges the industry faces with aggressive pricing policies.

“However, companies should be aware that while many of the bigger 3PL operators are great at moving pallets around, they’re not interested in things like breaking down cartons and other aspects of a contract where lots of transactional activity is involved and they often struggle to provide the sort of value-added services that, for example, retailers – particularly internet retailers – need,” says Walker.

Adam Shuter says that finding a good niche market can be key to success for a small operator. “We compete by looking for specific niches that other people have either not thought of or don’t want.”

One such niche for Exact is a final mile service for a number of German customers. German paper mills have been moving to serve customers direct from Germany. Exact provides a one-off service for smaller consignments. It receives full trailer loads and holds stock to provide one and two pallet deliveries around the UK.

“We have built the business around this strategy,” says Shuter. “It is one way we can compete against the big boys.

“If you had a turnover of £100m, would you be interested in our markets? Possibly not,” he says.

Walker says: “It is certainly true that a smaller 3PL is far more likely to be agile and able to respond swiftly and more flexibly to a client’s changing requirements than some of the biggest operators.”

“For example, one of Walker Logistics’ oldest clients is a US-based producer of a popular brand of natural personal care products. When it first started to market its range in the UK and Europe, the company opted to work with one of the biggest names in the logistics industry.

“But, just a few months into the contract, it became clear that the 3PL couldn’t cope with the company’s quirky requirements, and the firm had to seek another supply chain partner.

“I think it’s fair to say that some of the people involved in the original decision to outsource to one of the biggest 3PLs in the sector were dazzled by the logistics company’s client list but, in this case, the 3PL clearly lacked the agility to respond to the client’s needs,” says Walker.

Shuter points out that Exact is small but specialist. “We don’t have any big customers. Our customers tell us they are more comfortable working with us because we are all family-owned businesses.”

And he emphasises the importance of personal relationships, and providing personal attention and service.

For Exact, the future is all about growing and developing its business in its niche markets, he says.

 

 

Get ahead – get a network

 

Network operations, notably for pallets and parcels, have become core for many small logistics operators.

Each of the seven major pallet networks has between 70 and 120 member companies – that means some 700 companies are part of the networks. There are some larger organisations that contribute to pallet networks but for the most part, memberships are made up of SMEs.

Exact is a member of the Pall-Ex network, and managing director Adam Shuter is clear: “We couldn’t do it without network membership.”

In fact, Exact moved over to Pall-Ex recently. Shuter highlights the fact that all the pallet networks are different, and his choice was driven by finding the network that suited his business best. He says he felt that his previous network was trying to move him in a direction that was not right for his business.

Generally, he says, companies are becoming more discerning about what they want to get out of the network and how they interact with the network.

He also detects a shift in the balance of power between the network and the member companies.

“The power is moving towards the members and it is up to the networks to pay regard to that,” he says.

He points out that big money is increasingly moving into the sector. Palletways has been owned by venture capital group Phoenix Equity Partners since 2004. And only a couple of months ago EmergeVest, the Hong Kong-based venture capital group, bought Palletforce in a £30m deal. EmergeVest also owns NFT Distribution.

Exact is a member of the German CTL network, and Shuter points out that it has invested in this German network as a shareholder along with over 200 German hauliers all sharing common quality standards and procedures. The ethos of the network is different, he says as it is run for the benefit of the members.

The past year has seen a significant number of moves among the pallet networks.

As well as Exact Logistics, Pall-Ex’s new members include Kench Transport in Fareham; and Richard Reed Transport, which is based at Longhope in the Forest of Dean. Bristol-based IC Express, together with Magnus Group of Ipswich and Howley Transport of Castleford, joined Pall-Ex following the demise of UK Pallets.

A total of 73 operators were affected by the decision to close UK Pallets at the beginning of 2015, and Pall-Ex was recommended as the network of choice for them.

Pall-Ex Group managing director Kevin Buchanan said at the time: “Through our meetings with UK Pallets members, it’s become clear that we’re best placed to offer consistency for the customer base of these hauliers. Not only are we able to grow our own network, with the addition of quality new members who share our vision of partnership and quality, but we can also help these businesses to thrive and grow in their own right.”

In other moves, Cambridgeshire-based Knowles Transport joined Palletforce, while Palletways recruits include: Widdowson, the Leicester based operator; Ge-Be Transport of Kings Lynn; Savatori of Canterbury; and S Walker of Redditch.

Palletline recruited Boughey Distribution, and also bought one of its members, Kent-based S&S Distribution. Palletline managing director Graham Leitch said: “Together with our subsidiary, Palletline London Ltd, we will be able to further strength our market position in delivering excellent service in London and the South East.”

 

Finance: Finding the right source

 

Businesses in the transport sector are likely to consider a wide range of options when seeking finance or information to expand their business, including turning to friends and family, according to a survey for Business Banking Insight, a project commissioned by chancellor George Osborne to support small businesses.

An ICM poll of 5,000 SMEs across the UK found that 21 per cent of businesses in the transport sector would consider approaching acquaintances and relations for business investment and 41 per cent of businesses would turn to their friends and family for guidance around finance.

In addition, 24 per cent of companies in the sector would consider peer-to-peer lending if they wanted to expand their business, compared with a national average of 23 per cent. Transport businesses are also more open when it comes to considering using different sources of guidance when financing their companies.

Some 26 per cent would use a mentor, 63 per cent would turn to their bank and 33 per cent would seek out financial advice web sites. This compares to national averages of 37 per cent consulting a mentor, 70 per cent their bank and 41 per cent looking at financial advice websites.

Mike Cherry, Federation of Small Businesses policy director and spokesperson for the BBI, says: “Accessing the best product for your business is critical to growth and future investment. The BBI should be part of that journey to allow you to see what other businesses like yours have found useful and which providers might be right for your needs.”

 

 

Parcels: The franchise option

 

Buying a franchise is a one way a small business person can quickly become part of a successful organisation and maintain a level of autonomy.

Interlink Express one of the best known examples of a franchise operation. It was launched in 1979, and now, as part of the DPD group, it operates a parcels collection and delivery service with more than 100 franchises.

The trunking and hub operations are managed centrally, and it is the depot operations that are franchised.

What does an Interlink franchise cost? There is a franchise fee of £17,500 plus VAT, and the company suggests that a potential franchisee will also need at least £75,000 liquid capital.

However, the franchise will have a resale value. Depending on the size of the franchise this can vary between £250,000 and more than £1m.

And there are lots of advantages. The franchisee becomes part of a large organisation – the ultimate owner is La Poste, the French post office, with sales of some £200m and 3,000 employees.

Support for franchisees comes in a number of different ways. Interlink uses DPD’s “Predict” technology which gives customers a one-hour delivery window.

There is central management of collection of all monies, due so that the franchisee is not responsible for customer debt. Monthly payments for parcel collections and deliveries enable franchisees to plan and control cash flow.

And there is a comprehensive training scheme and operational support programme.

Other franchise businesses in the sector include: courier company Diamond Logistics; InXpress, which provides shipping services to customers globally. Mail Boxes Etc. which provides business, communication and postal services; PACK & SEND, a packaging and shipping management franchise; Speedy Freight a 24-hour, same-day courier and express freight service; and World Options, a parcel delivery and courier service.