Does Size Matter? Tier II 3PLs Find Their Niche

Does Size Matter? Tier II 3PLs Find Their Niche

3PLs, like shippers, come in many shapes and sizes. The “not-too-big and not-too-small” size of Tier II 3PLs makes them just right for many shippers.

Bigger isn’t always better. Just ask the satisfied customers of third-party logistics providers (3PLs) who aren’t the biggest fish in the pond.

"As a small, family-owned company, we felt an immediate synergy with our provider, LeSaint Logistics, because of our shared mentality," says Jim Mackowiak, director of customer demand management for car-care company Turtle Wax. "We felt our business was important to them, and that we weren’t just another customer on their list."

So-called Tier II 3PLs such as LeSaint generally bring in revenue of less than $250 million annually, and often offer some specialization—in mode, vertical, region, or technology—that allows them to carve out their own niche. Rather than competing with larger 3PLs, Tier II companies often specialize in serving the plethora of small to mid-size businesses in need of supply chain, logistics, and transportation expertise.

"Many Tier II providers excel in specific industry niches. They provide customers with direct, hands-on expertise, with the benefit of a larger platform," says Robert A. Voltmann, president and CEO of the Transportation Intermediaries Association. 

"These companies have the financial, technological, and personnel resources to service any need of mid-market shippers, yet they do so with a small-business mentality where customers can pick up the phone and talk to the CEO or owner," he adds.

Why choose a Tier II 3PL? While large 3PLs often bring the advantages of deep pockets, robust staff, and plentiful IT resources, some shippers opt for providers whose smaller size allows them to offer more flexibility, customization, and personalized service. Tier II 3PLs pride themselves on being able to extend many of the same services and capabilities as the larger players, while maintaining the appeal of a more intimate shipper-provider relationship.

"Large providers can be distant," says Rick Rodell, CEO of Cornerstone Systems, a Memphis-based Tier II 3PL. "They offer pockets of highly concentrated service, but a company grows that big by creating systems and functionalities, then getting the customer to fit into them."

Tier II providers have more freedom and flexibility to design systems and processes around their clients, and go to great lengths in the name of customer service. "We move empties from New Jersey all the way to Los Angeles—at our own expense—to take care of a customer," Rodell explains. "We may incur out-of-pocket costs, but our willingness and ability to go the extra mile is part of what we offer shippers."

Ultimately, outsourcing is a service industry, where "the market, human nature, and supply chain needs bring companies together," says Voltmann. But the relationships Tier II providers build with their customers are often among their biggest selling points. Here are three examples of shipper-3PL relationships that are just the right size.

Lansdale Warehouse & RockTenn: Location+Experience+Technology=A Perfect Fit

Regional and vertical specialization are two hallmarks of Tier II 3PLs. Lansdale Warehouse’s ability to offer both was the key reason it was selected as a partner to Norcross, Ga.-based RockTenn, one of North America’s leading paper and corrugated cardboard producers. RockTenn, which operates more than 245 facilities in the United States, Canada, Mexico, Chile, Argentina, and China, needed a provider that understood both its business and its customers in the New York/New Jersey/Pennsylvania market area. Pennsylvania-based Lansdale proved a perfect fit, and the partnership has been in place for 10 years.

"When we select warehouse providers, we look for companies familiar with handling our product. Moving large rolls of paper requires special skills and specialized clamp trucks, and operators need to be familiar with safely loading and unloading rail and truck shipments," explains Scott Gamble, manager, demand and inventory, supply chain operations for RockTenn.

"Lansdale was accustomed to working with other integrated paper companies and had demonstrated the ability to handle our products with care," he says. "And it is well-positioned geographically to serve our customers in that region."

Lansdale’s electronic data interchange (EDI) capabilities were "icing on the cake," notes Gamble. The provider—which operates five facilities in Pennsylvania and serves the paper, lumber, consumer products, food and beverage, and chemical verticals—provides vendor managed and strategic general inventory services for RockTenn, with EDI as the primary means of processing transactions.

"Multiple paper mills ship product into Lansdale to serve unique customer requirements in the area," Gamble explains. "The EDI connectivity allows RockTenn and Lansdale to exchange a variety of transaction sets, including shipment information, receipt confirmations, and purchase orders. All data flows back and forth electronically each day, allowing us to be more productive and ensure data integrity."

If questions about shipments or receipts arise, RockTenn is able to access its account information by logging into Lansdale’s system. The provider also offers transportation services with its own fleet of trucks, which RockTenn uses when fulfilling customer orders in the immediate geographic area.

Sound Investments

Possessing the right operational and technological capabilities is no accident on Lansdale’s part. "We invested in technology, customer service, and quality processes to support our value promises to customers and to keep our commitment to continuous improvement," says Paul Delp, president, Lansdale Warehouse.

In addition, Lansdale’s Tier II size means it can be flexible and nimble in meeting RockTenn’s needs. "Proactive customer service is a trait of the Tier II category," Delp explains. "We strive to understand our customers’ business, and because we derive 80 percent of our revenue from 20 percent of our customers, we are very close to those key accounts."

Gamble concurs. "I think of Lansdale’s staff as fellow employees," he says. "They are responsive to our needs and always focused on delivering superior customer service."

LeSaint Logistics & Turtle Wax: The Third Time’s the Charm

Partnering with three 3PLs in 10 years is not something that Jim Mackowiak, director of customer demand management for Westmont, Ill.-based car-care company Turtle Wax Inc., is proud of. But sometimes it takes time to find the right partner. Having previously worked with larger 3PLs, Turtle Wax selected a Tier II provider when it contracted with Chicago-based LeSaint Logistics in mid-2009.

LeSaint manages three legs of freight for Turtle Wax out of its Chicago-area DC: inbound freight going to Turtle Wax’s Midwest manufacturing facilities; finished goods transferring from the manufacturing plants to LeSaint’s DC; and finished goods moving outbound for delivery to Turtle Wax customers, which include big-box stores such as Walmart, Target, and Lowe’s, and major auto chains including Advance Auto Parts, Auto Zone, and PepBoys.

LeSaint and Turtle Wax are Chicago neighbors, and share a similar small- to mid-sized business mindset.

"Because of its size, LeSaint can provide an overall nimbleness, flexibility, and attention to detail that I felt was missing from our previous 3PL relationships," Mackowiak says.

LeSaint prides itself on these qualities. "From the beginning of our relationship with a customer, we respond quickly with options. We don’t try to make customers fit into a specific set of offerings," says Dino Moler, executive vice president of sales and marketing for LeSaint. "We ensure our values and culture are in line with our customers’ values and cultures."

Instant Access

For Mackowiak, the ability to pick up the phone and get through to Moler quickly has been critical. The two confer on issues as they arise, rather than meeting only quarterly for a review.

"Even though it’s summer, we’re already talking about next year’s budgets," says Mackowiak. "We looked at high-level numbers and trends, and tried to develop targets for 2012. That conversation would be harder to have with many larger 3PLs."

Mackowiak also appreciates what Moler characterizes as LeSaint’s "flatness."

"If an issue comes up, Moler doesn’t have to go back through a hierarchy of five people to give me an answer," Mackowiak says. "He wears many hats because it’s a small company, and that benefits us."

Meeting Customer Requirements

Turtle Wax makes and distributes about 6.5 million cases of product annually, all of which LeSaint handles. The auto chains have some unusual requirements, which LeSaint employees have to tackle. The auto stores, for example, ask for pallets to be delivered at a height that does not exceed 40 inches, but a full pallet of Turtle Wax product rises to more than 60 inches.

To meet the auto store requirements, LeSaint must manually insert an additional wooden pallet between layers of product so the chains can separate the shipment into individual rack locations at their DCs. LeSaint and Turtle Wax worked together to address this additional effort and cost, and have begun utilizing a new piece of equipment to improve efficiencies and reduce overall costs in these situations.

"Because the auto chains have tough requirements from an operational perspective, we ask a lot of LeSaint," Mackowiak says. "Its ability to be nimble and flexible in managing those requirements gives us an upper hand as we try to manage costs and bring value to our customers."

Cornerstone Systems & Southern Wine and Spirits: Delivering Liquor With Service and Savings

As the largest liquor wholesaler in the United States, Southern Wine and Spirits (SWS) works with a variety of logistics partners, large and small. But among the Miami-based company’s 250 freight vendors, Cornerstone Systems stands out. The Tier II provider, based in Memphis, is considered one of SWS’ core partners—and ranks as high as many of the larger carriers SWS contracts with.

"We count on Cornerstone because they provide us with great service and the flexibility to expedite or slow our supply chain as needed," says Ward Chaplin, senior director of supply chain management, SWS. "That they don’t expect us to fit into their mold, but instead are willing to adjust their style and work with us, helps create a higher-level process that suits us both and provides better results."

That is the 3PL’s typical approach, says Rick Rodell, Cornerstone’s CEO. "Although logistics and transportation are transaction-based, we are not a transaction-based company," he explains. "We’re not looking to just amass large volumes at a low price. We strive to develop shipper relationships that require a hands-on approach."

For SWS—which operates 41 warehouses across the country and supplies customers ranging from mom-and-pop liquor stores to convention centers—that hands-on approach is apparent in the way Cornerstone manages the thousands of cases it transports for SWS each week.

Cornerstone provides intermodal, over-the-road, and boxcar service for SWS, taking care to transition between modes based on the time constraints and the economics of each shipment—a process that Chaplin says has saved SWS "in the six figures" since the partnership began in 2003.

"Boxcar is the cheapest way to transport our product, for example, but it is also the slowest," Chaplin explains. "If we have to move 4,000 cases quickly, Cornerstone may recommend that we move one-third of the shipment by truck, and put the other two-thirds in intermodal trailers. It offers this multimodal flexibility seamlessly, and helps us reduce costs and move goods efficiently."

Tailor-made solutions

Similarly, Cornerstone helps SWS choose the most cost- and time-effective method for routing its shipments. "If we request pickup at locations A, B, and C, they’ll let us know that if we pick up at B, C, then A, we’ll save 100 miles and pay less per mile," Chaplin says.

Chaplin believes Cornerstone’s dedication to offering tailor-made solutions is a reflection not just of the 3PL’s Tier II size, but of the company’s internal culture.

"No matter how large Cornerstone grows, I believe its processes will remain the same," he says. "Sometimes when working with larger providers, we struggle to find that one person whom we can depend on. But with Cornerstone, we know whoever answers the phone will be able to provide us the service we need."

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