Is bigger always better in logistics? Logistics Manager’s exclusive survey on small and medium logistics companies highlights some robust attitudes. But Malory Davies finds there is recognition that SMEs can claim some real advantages.
Small and medium sized companies play a key role in the logistics market both as competitors to big players and as suppliers. Just how important is revealed by Logistics Manager’s exclusive market survey which shows that over 70 per cent of retailers, manufacturers and wholesalers use SMEs for some or all of their logistics requirement.
And more than half say that their primary third party logistics providers sub-contract some services to SMEs.
It’s not surprising that Bibby Financial Services found SMEs in the transport and haulage sector had achieved growth of four per cent in the second quarter of 2013. A third of businesses said that lapsed customers have returned over recent months.
Edward Winterton, commercial director at Bibby Financial Services, says: “Our research shows that this growth in the SME transport sector is due to an increase in new customers and subsequently new orders.”
The Logistics Manager survey covered 167 companies. As well as end users, we also asked large 3PLs about their attitudes to the SME market, and we asked SMEs for their views on their customers.
End users fell into three main categories – consumer products, retailer and e-tail, and manufacturing. Automotive, aerospace and defence was also well represented as were the hi-tech and communications, and energy sectors.
Over 35 per cent spend more than £10m a year on 3PL services while 28 per cent spent between £1m and £10m a year. The other 37 per cent spent under £1m a year.
Some 14 per cent only use small and medium logistics providers while 57.5 per cent use them for at least part of their logistics requirement.
And 53.4 per cent know that their principal 3PLs sub-contract work to SMEs. Perhaps more surprising, 22 per cent didn’t know if their 3PL was doing so.
Large 3PLs are significant buyers of services from small and medium companies. Although the sample was relatively small, over 90 per cent said they used SMEs and 45 per cent said they spent more than £1m a year on SME services.
Satisfaction levels were quite high among both end users and large 3PLs. Only some ten per cent said they were dissatisfied with the service they were getting. Among end users 30 per cent said they were very satisfied compared to 20 per cent of large 3PLs. The differences between these two groups really showed up when we asked what they thought were the strengths and weaknesses of their SMEs.
Agility and flexibility were right at the top of the list for end users. For the large 3PLs price competitiveness was the dominant factor. The fact that the SME is a specialist in a niche market was also more important to the 3PLs than end users.
Some of the comments in the survey highlighted differences between end users. One commented: “They respond to our requests in the knowledge that an alternative SME from our portfolio of operators is always ready to step in.”
But another said: “The relationship is managed by our 3PL. I feel SMEs are picking and choosing who they work with.”
When we asked SMEs who they target in their sales efforts, specific niche markets came out top with 67 per cent followed by the manufacturing sector at 54 per cent.
The survey revealed an element of power politics in the relationship – some 16 per cent of end users said that one of the reasons they chose SMEs was that “they need me more than I need them”.
Both groups thought the biggest weakness of SMEs was that they lacked the sophisticated IT systems used by large organisations. Concerns over financial stability was also an issue for both groups.
Again the comments from end users highlighted some of these points. “It is about a service provider that is big enough to work with us and be flexible in approach,” said one. And another said: “Limited fleet sizes mean that when delayed on previous jobs, the risk of collection failures to us increases.”
When we asked SMEs what they thought were their strengths, agility came out top with 88 per cent, while customer focus and willingness to invest also came high up the list.
One highlighted the fact that the customer contact point typically stays the same person for longer than in large 3PLs with faster career development.
We also asked SMEs what they thought potential customers saw as their weaknesses. Top of the list, at 57 per cent, was that they only wanted to deal with big companies. This tied with concerns over financial stability.
One SME commented: “Generally, if sold properly you equate your ability to the size of work being offered. If you cannot do it, don’t grow into it – it’s dangerous.”
We also asked SMEs how they countered some of these issues. One said: “There is no need to counter them as they are not true. When we speak to the customers we can reassure them of this.”
Another said: “We demonstrate that our IT and processes are fit for purpose. We have been around for a long time, 30 years, with customers as long. So we have references from our customers.”
What is clear is that SMEs will continue to have an important role to play in the logistics market for a long time to come. More than 85 per cent of the end users in our survey said they would consider SMEs when they next renewed their logistics contracts.