Small-businesses can pack a big punch – but daunting pressures can hold them back. Alexandra Leonards explores the challenges faced by SMEs when competing against their larger counterparts.
They say that good things come in small packages. And smaller, independent retailers are often synonymous with quality, and uniqueness – they tap into our innate desire for at least a little bit of rarity in an environment where it’s often hard to find something original.
Like a swan gliding on the water, small businesses often appear poised – sailing along with ease. Hardly ever hitting the headlines like big companies do when something goes terribly wrong in the supply chain. But underneath, legs are fiercely kicking away.
For Arvato, a big company that provides supply chain services for a number of small businesses, the problems it is trying to solve for SMEs doesn’t differ much from the issues that crop up when supporting a larger company.
“In both cases, we have to take account of needs and demands that require complex tailor-made solutions including high IT and regulatory requirements,” says Marcel Spieler, vice president global business development high-tech & entertainment at Arvato.
However, he says that the speed at which SMEs need to move up to the next level is sometimes higher than that of a large business. “Here, our carrier-independent freight management in combination with our customs and trade solutions enables SMEs to grow globally,” says Spieler.
A challenge that is faced by almost all smaller businesses is identifying ways to effectively manage a limited budget and cash flow.
“SMEs don’t have the budgets that bigger operators do,” says Mike Hill, CEO of Indigo Software. “They may have a smaller number of workers, but they have the same infrastructure requirements and need similar functionality from their IT systems.”
Lower budgets see SMEs searching for more and more flexible operations with affordable price tags.
“For instance, they may favour an IT solution that is priced according to numbers of transactions processed rather than numbers of users, which gives them the chance to manage their cost base more effectively and increase expenditure as they scale the business, rather than make big upfront commitments,” says Hill.
Limited availability of different resources is also common in the market. This is because smaller companies may not have big numbers when it comes to managerial and operational staff.
“SMEs function on a much smaller scale, and often with limited resource when compared to their larger competitors,” says Kiel Harkness, UPS’ marketing director (UK, Ireland and Nordic Countries).“This gap in available resource provides SMEs with challenges which can prevent them from tapping into international markets.”
He says that managing export regulations and procedures often curbs the appetite for expansion.
“…These are challenges which larger organisations can easily mitigate with resource that SMEs may not typically have,” says Harkness. “That’s why it’s vital for SMEs to partner with a trusted logistics company to provide the necessary expertise and tailored logistics solutions to access new markets and navigate complex regulations.
“ SMEs are the backbone of the European economy and a key driver for economic recovery and growth, so it’s important they are given the support to achieve growth objectives.”
However, small businesses can still gain advantage over their larger equals. Particularly in their ability to deliver agile operations.
“SMEs have agility, and can react quickly to shifting market needs such as an influx of orders during a busy shopping period with quick delivery times required,” says Harkness. “There are some 23 million SMEs in the EU – five million of them in the UK – each with the ability to be more flexible than larger organisations who have ingrained process that are difficult to alter or change.”
Hill says that SMEs are always aiming to implement projects very quickly.
“… To serve this requirement Indigo can achieve ‘go lives’ within 45 days for customers,” says Hill. “In turn, this helps the customer by minimising the capital outlay required for the project implementation phase and enables them to return to business as usual more quickly.”
There’s a growing buzz around online shopping, omni-channel retailing and cross border e-commerce. More and more SMEs want a piece of the action – and smaller logistics providers are emerging to support these attractive multi-channel operations.
“Logistics service providers such as these have immediate requirements to improve their warehouse processes, stock accuracy, visibility and fulfilment times, which are reliant upon the implementation of technology,” says Hill.
For Choice Shops, a retailer encompassing both healthcare and horticulture brands, the main challenge is more external than operational. Penny Sayce, company stock controller for Choice Shops, and head of mentoring at Women in Logistics, thinks that exchange rate and shipping line costs have increased, which has impacted landing costs.
“Due to Hanjin Shipping going into administration and contributing to a rise in shipping rates, the overall freight costs to bring goods from the Far East to China have increased,” says Sayce. “This is further impacted by the increases due to the less favourable current exchange rate of the pound against the dollar.”
Sayce says that landing costs must be carefully monitored to ensure it’s still viable for the company to import and offer good value products to its customers.
UPS’ Harkness says that identifying effective pricing is a big challenge for the market.
“While for businesses of all sizes this is a core concern, SMEs often operate with smaller budgets and less room for flexibility in their finances,” says Harkness. “Ensuring that products can be competitively priced is key, along with keeping customers happy and freeing up capital to be used elsewhere in the business.”
There are many ways an SME can keep costs to a minimum, for example, matching the delivery method with the product type and customer need.
Smaller companies may be looking for the same infrastructure and functionality as large supermarkets or massive fashion companies – but what they offer to customers must be different. How do they differentiate themselves to attract and retain loyal customers?
At Choice Shops it develops its own label products to sell alongside well-known brands. Importing helps the business do this competitively.
“We have developed our own label of incontinence and mobility products called Viva-medi and Viva-brite to set us apart from the competition and give us a point of difference,” says Sayce. “Being able to import has allowed us to enter the market with our own label at this pricing level so freight forwarding played a vital part in this part of the company strategy.”
Little and large
Plenty of pint-sized vendors opt for bigger partners to handle their supply chains. But does the phrase “pick on someone your own size” ring true when it comes to logistics? It’s not entirely implausible to think that a large logistics provider might struggle to tap into the ethos of a smaller business. And understanding the ins and outs of a company shouldn’t be hit and miss – it’s crucial to achieving a unified operation.
Arvato is a huge company – it has 70,000 employees across the world in more than 40 countries. But it still manages to maintain a strong and close relationship with the SMEs it serves.
“The key factor in achieving this is the close relation that our key account management has with the SMEs,” says Arvato’s Marcel Spieler. “Ideally located at close proximity to the SMEs’ headquarters, this enables a close cooperation.
“Our long-term partnerships and the positive feedback we are getting have proven the model to be successful – both for the SMEs and for Arvato.”
The harmonious balance at an Arvato warehouse servicing SME ‘Firebox’ is testimony to the remarkable relationships that can be achieved between little and large companies.
“UPS itself was once a small start-up; overcoming the concerns and challenges of SMEs is built into our heritage,” says UPS’ Harkness. “Two original founders started a business based on a gap in the market and wanted to take advantage of a customer need.”
Harkness talks about the business’ origins, when messengers ran errands and delivered packages from department stores directly to customer doors, carried notes, baggage and trays of food from restaurants on foot or on bicycles.
APC Overnight’s CEO Jonathan Smith says that it takes great pride in servicing SMEs.
“We often decline work from larger companies to remain true to our SME customers and remain focused on providing the attention and service they deserve,” he says. “As such, we view their diverse requirements as an opportunity to excel, not as challenges.”
He says that the company’s unique model provides the perfect insight for SMES.
“We are made up of 114 of them [(SMEs)],” says Smith. “The APC Overnight network consists of a large portfolio of depots, all of which are SMEs themselves.
“Not only does this ensure that we provide our customers with unrivalled local guidance, but also necessitates an empathy that is priceless in delivering quality customer service – a principle that is at the heart of our organisation.”
Smaller logistics partners are still the preferred choice for many retailers. Including Choice Shops, which has picked a fellow SME to run its logistics operation. Paramount Global co-ordinates consolidated shipments for the company to improve its stock turn.
“We work closely with Paramount global who specialise in consolidated shipments,” says Sayce. “This mean we can ship smaller orders over to improve stock turn and cash flow, but by combining with other orders from suppliers at that consolidation point, we can keep shipping costs down.”
The company assists Choice Shops in identifying which consolidation point its suppliers are clustered around; which has helped to develop the procurement strategy for category expansion.
“They provide full visibility of the supply chain while taking care of co-ordinating all the collections,” says Sayce.
But why use an external partner at all? An internal logistics team might have a closer relationship with the brand and its goods.
Spieler says that external logistics providers are able to offer increased proactivity and faster implementation of new innovations. “Combined with shorter ramp-up times, this leads both to a significant reduction in total turnaround time and a better scaling capability to handle peaks,” he says.
Third party providers are outward looking – their eyes are scanning the entire market. Mike Hill from Indigo Software agrees that external providers can bring best practice and strategic insight into the warehouse.
“…Because they have the breadth of experience gained from working with dozens of other companies, both within and outside of the customer’s immediate industry,” he says. “They will have consultants who have come from industry and implemented dozens of systems, which they can bring to each project.”
Hill thinks that in-house operations are only ever as good as the last project. These internal operators cannot offer the same level of insight and value, simply because they don’t usually have the same breath of experience, he says.
“External providers are also constantly evolving their solution to keep pace with the latest technology trends and processes, driven in part by the demands of their large customer base,” says Hill.
External logistics providers can also help simplify export regulations, and provide expert market insight.
“ One such example is the UPS Export Toolkit which provides insight into fast-growing international markets, helping SMEs ship confidently widen their customer base, and help drive more sales,” says Harkness.
What is driving the market?
Arvato highlights two key drivers in the market – technology driven and market-driven trends. “The digital transformation is definitely affecting the existing business of most of the SMEs,” says Marcel Spieler of Arvato.
- Mike Hill from Indigo Software says that, in the past, there was a lot of hype around cloud computing. Now there is a real movement towards it. “Especially for smaller warehouse operations, which can be observed across every sector of the industry,” he says. “The WMS sector has traditionally lagged behind the rest of the industry when it comes to adopting cloud technology, now there is a growing demand from SMEs who want to implement off premise solutions.”
- APC Overnight says it is seeing increased confidence in technology across the SME market. “…More firms [are] realising the benefits of having an online presence,” says APC Overnight’s Jonathon Smith. “This is allowing them to tailor their products and services to their consumers more specifically, which naturally boosts business.”
- APC has also noticed that, dispatching products overseas has increased steadily over the last 12 months. “Since the introduction of our international service in conjunction with Air Menzies International earlier this year, we have seen an increase in shipments abroad of 48 per cent,” says Smith.
- A move towards more mainstream mobile technology in the warehouse is also becoming more tangible. Bring your own, or choose your own device is also gaining traction. According to Hill, this is especially prevalent among SMEs. “There are multiple sides to this trend, from an analytics point of view for the administration and management of the warehouse and also from an operational point of view – inside the warehouse,” says Hill. “Previously warehouse operations like barcode scanning and stock management would have been done with rugged devices like RDTs, but now mobile phones and voice based technologies are starting to become more prevalent.” According to him, businesses are providing protective sleeves and holsters to prevent damage and make them suitable for warehouse environments. “This is a significant emerging trend for SMEs because smaller companies tend to be younger and they have a different mind-set, which is more mobile focussed,” he says.
- The “Uberisation” of the supply chain is a concept that seems to crop up time after time. “The rise in the so-called ‘gig economy’ is having a huge impact on logistics operations and the workforces within logistics service providers especially,” says Hill. “This makes operational technology more important than ever, because these temporary resources need to be accountable for the services they are providing and they need to have clear instructions to meet service level expectations.”
Small business Fullers Logistics provides tailored storage, handling and distribution services for The Library of Fragrance, a fellow SME selling a unique range of colognes. Fullers covers the retailer’s goods in, storage, picking, packing and despatching.
The Library of Fragrance is a rather complex brand – it imports from the US and produces more than 100 different fragrances in a range of sizes. The product is sold from both its e-commerce platform, and at a number of high street retailers, including Urban Outfitters and Boots. This makes it particularly difficult to manage when it comes to logistics.
Fullers uses a warehouse management system which gives the retailer 24-hour access to reports about stock, movement and availability – which is crucial for this particular brand. The system is integrated with The Library of Fragrance’s back office systems – which enables the retailer to access accurate visibility of stock levels and movements across its multiple sales channels. Of course, Fullers also actively reviews all of the operations on behalf of the retailer to pin point areas of potential improvement in productivity, efficiency and cost.
When Fuller first became a logistics partner for the brand, it soon realised that the company’s packaging was far too big to fit through letter boxes. And so, the logistics company completely re-designed the packaging – this immediately resulted in a big saving on postal costs. A recommendation by Fullers to send packages via the “signed for” service has completely diminished the 10 per cent failed delivery rate.
“With such a unique brand, we kept coming up against fairly unique logistics challenges that required lateral thinking and a degree of operational ﬂexibility to solve,” says Clare Rees, at Bell & Whistle, the UK distributor for The Library of Fragrance. “We needed to ﬁnd a partner that could help us address these problems – that’s when we found Fullers.
“Fullers provide an efficient service that offers our business good value. Our team at Fullers work productively & transparently and are always willing to explore new processes that are tailored to the specific requirements of the brand.”
The operation runs out of one of Fuller’s multi-user warehouse sites, where the space has been configured to meet the needs of the retailer. The specialised warehouse also provides The Library of Fragrance with flexible storage space that is easily scalable as the business grows, or during peak seasons.
But Fullers doesn’t just manage operations for smaller businesses. The small company has also recently won a five-year contract extension with BMW Group. The company developed a dedicated warehouse operation for the receipt, put-away, pick/pack and same day despatch of up to 1,500 lines per day of automotive components and fast moving spare parts for BMW and MINI retailers in the South of England and South Wales.
BMW retailers can order parts and receive multiple deliveries on a same day service, with some outlets receiving up to three deliveries a day from the centre. This means that retail centres across the region can complete work in the quickest time possible.
Time for smaller retailers to strut their stuff
Peak seasons, like the recent Black Friday Week over the Christmas period, and no doubt during this month’s January sales, is a great time for smaller retailers to strut their stuff.
According to chief executive of CitySprint, Patrick Gallagher, by partnering with bigger logistics experts, independent brands are able to use convenience to their advantage. Smaller businesses are able to offer tailored and flexible deliveries for example. Smooth deliveries can set retailers apart from their larger counterparts.
“Whether you’re a retail giant or a small independent, two heads will always be better than one when peak season hits,” he says.
However, according to UPS’ Kiel Harkness, while the global popularity of shopping is growing and branching out into different countries through the advent of online shopping, there are still some smaller retailers that don’t get involved because they are worried about the strain on operations.
“…Smaller retailers who are worried about the logistical strain on fulfilment that an influx of orders in such a short space of time could drive,” he says. “However, by doing this they miss out on potential sales.
“ To help ease both the strain and worry, UPS provides support and advice for smaller retailers selling both within the UK and abroad, such as tools that automate the shipping process, reducing the time SMEs spend on generating paperwork and tracking packages as well as tips for dealing with customs brokerage issues.”