Small Business Logistics: Standing on the Shoulders of Giants
Small businesses level the playing field by getting a boost from big service providers.
When a large business needs to ship products, it can call upon massive land, sea, and air resources to move goods quickly and at the lowest possible cost. When a small business wants to ship products, it has to think smart and maneuver nimbly—or risk logistics spending spiraling out of sight.
Jim Woodside knows all about the challenges of small business logistics. As co-owner of Woodside USA, the parent company of Isabella Adams, a Tampa-based fashion accessories and home decor business, he has to find ways to ship products efficiently and cost effectively to keep pace with larger competitors.
Help Arrives Just in Time
To accomplish this goal, Isabella Adams forged a partnership with Transplace, a Frisco, Texas-based third party logistics provider. The small company leverages Transplace's global footprint, bargaining influence, and shipping optimization technologies to strike deals with carriers and other service providers that would be impossible to achieve on its own.
Isabella Adams' decision to take charge of its logistics destiny by joining with a larger partner is part of a small-business trend that spans multiple industries.
"One of the biggest challenges for small companies is that they are followers rather than leaders; they don't get to set mandates," says John Fontanella, vice president of supply chain research at AMR Research, a Boston-based technology market analysis firm.
Finding a big buddy is a simple way for many upstart businesses to level the playing field.
Serving more than 300 retail outlets worldwide, Isabella Adams works hard to outmaneuver its larger competitors by shipping seasonal clothing and decor just-in-time, shortly before the products are scheduled to reach the sales floor.
Isabella Adams' retail partners appreciate the company's nimbleness and ability to accurately read consumer preferences. But convincing traditional carriers to meet the company's rapid-fire scheduling demands was like a flea trying to catch an elephant's attention.
"Before our partnership with Transplace, we used some large, well-known, national freight forwarders, but we were just a cog in the wheel," Woodside says. "We were at their mercy for ocean capacity and contingent container arrangements."
Transplace, on the other hand, was flexible enough to understand Isabella Adams' intent and goals. "Transplace worked with us to execute this plan, build up and ship closer to the holiday season, then strategically move product to distribution centers for redistribution," Woodside says.
Transplace also helps the company untangle the various problems that inevitably knot the supply chain. "If products were held in Customs or bumped off a ship, the freight forwarders would tell us to sit and wait," Woodside says.
Transplace works to help the company overcome such obstacles. "When we have issues—such as strategic cargo displaced from ships during peak times—Transplace works with us to find alternatives," he says.
A Growing Trend
Isabella Adams isn't the only business that has sought a bigger ally to enhance supply chain flow. Enterprises in a variety of industries are beginning to understand that in order to swim with the big fish, they need to boost their logistics profile without piling on capital infrastructure or new employees.
"Using 3PLs can be very effective for small companies," says Peter Foley, a counselor for SCORE, a partnership program with the U.S. Small Business Administration that provides free business advice and training to small businesses. "Not having to deal with human resource issues or benefits can be inviting."
3PLs can supply small businesses with logistics insight, negotiating power, and technology tools that would otherwise be unaffordable.
"3PLs have the logistics experience, knowledge, and software a small company does not have, and they cost less than hiring employees with such expertise," Foley says. Service providers can also help small companies leverage their inherent ability to move quickly and decisively.
"3PLs can cut through red tape quickly to get a final answer, change a program, or massage a product," he adds. "While numerous committees in a large company ponder a decision, a small company can make a quick decision and get back to the customer."
But small businesses shouldn't expect all 3PLs they approach to eagerly provide sweeping solutions.
"3PLs are flexible on the volume of freight forwarding business they get from a small company," Fontanella says. "But contracting with a 3PL for warehousing or transportation is contingent on the size of the business."
Like all other businesses, 3PLs carefully examine their margins. "They've got limited manpower and resources so they want to enter profitable business relationships," Fontanella notes.
A rapidly growing small business with plenty of expansion potential is more likely to find a highly interested—and motivated—3PL partner than a company that's simply puttering along. 3PLs are looking for small companies with ideas that will lead to growth, providing steadily climbing revenue for both parties.
Getting a Leg Up
Leg Avenue considers itself a different kind of costume manufacturer.
"We design and manufacture lingerie, hosiery, adult costumes, party wear, and accessories," says Kunal Thakkar, the company's global supply chain director. "We introduced the concept that Halloween costumes don't have to be scary—they can be sexy or pretty."
Based in Los Angeles, Leg Avenue sells its provocative products to retailers nationwide, shipping some 1,500 packages daily. Leg Avenue's biggest challenge is delivering a large volume of small packages—the company's skimpy outfits hardly budge most scales—to retailers efficiently and cost effectively.
Rather than turn to a 3PL, the company has elected to work directly with a carrier. Leg Avenue says UPS, which currently transports about 95 percent of the company's shipments, is best able to handle its large shipping volume and, most importantly, effectively manage shipments during peak Halloween season.
UPS also helps with the Halloween rush by enabling Leg Avenue to stagger shipments at a manageable level. Most retailers want their Halloween costumes on site near July 15, not sooner or much later.
"But if we wait for July to pick and pack all our products, we have to pay for extra labor," Thakkar says.
To avoid this expense, Leg Avenue starts packing costume orders in May and June. UPS stores the shipments at its hubs; then, starting July 15, it starts to release the containers, one by one.
Year-round, UPS helps Leg Avenue ship products to overseas retailers and distributors, allowing the company to outsource complex and resource-sapping global trade paperwork.
Many small businesses turn down international orders simply because they are unable to handle the necessary documentation.
"About 67 percent of companies that receive international orders over the Internet abandon them because they don't want to ship across borders," says Dale Hayes, UPS vice president of customer relationship management.
Leg Avenue uses UPS' Quantum View tracking service, which issues an automatic email with the tracking number when a package is shipped so customers can follow the delivery's progress.
Leg Avenue's current arrangement with UPS isn't its first brush with the shipping giant. It partnered with UPS Professional Services in 2003 when it sought management system design support for its new 100,000-square-foot, state-of-the-art warehouse.
"UPS helped implement the system, which helps us manage inventory and track inbound and outbound shipments in real time," Thakkar says.
UPS partner SSA Global supplied the software, which enables Leg Avenue to forecast demand, take orders, give accurate promise dates, source and manufacture the right goods, and position inventory properly.
The software also helps the costume manufacturer pick, pack, and ship products efficiently while maintaining minimal finished goods inventory.
A partner's size isn't as important as its ability to deliver the goods. "By developing strong relationships with vendors and carriers who are willing to make things happen, we can meet last-minute orders by manufacturing them early and using expedited transportation," Thakkar says.
Making It Happen
Partnerships with service providers and vendors have been crucial to Leg Avenue's continued growth in the face of competition from larger firms with deeper logistics resources at their disposal.
"Our operations system is more optimized, resulting in lower operational costs, higher efficiencies, and greater productivity," Thakkar says. "We are able to meet our customers' needs by shipping merchandise within 24 to 48 hours, giving us an edge over competitors with longer shipping times."
Having a capable partner handling key logistics tasks has also allowed Isabella Adams to focus on core business issues. "That's what business is about—dealing with the unexpected and finding ways to make things happen that are in sync with your business requirements and customer commitments," Woodside says.
While Isabella Adams and Leg Avenue specialize in dry goods that ship to geographically dispersed customers, Fortune Fish Company represents the other side of the small business logistics coin.
Located in Bensenville, Ill., Fortune handles perishable food products that are sold to local businesses. Like its fashion-oriented counterparts, Fortune, a seafood distributor serving the Chicago area, must also arrange economical, timely deliveries.
But its schedule is focused on hours and days rather than weeks and months. The company makes an average 500 deliveries a day, six days a week from a single location, with 22 delivery trucks, notes Dominick Gattuso, Fortune's chief financial officer.
Fortune has turned to Software as a Service (SaaS) technology, which allows logistics tools to be delivered directly to users via the Web, instead of requiring businesses to install the software on site.
Over the past few years, several key factors have combined to make SaaS an increasingly popular choice for small businesses: more mature Web technologies, more sophisticated and feature-laden Web applications, and the appeal of lower up-front capital costs, streamlined maintenance, and easier scalability.
Using the Descartes Delivery Management Suite, from Waterloo, Ont.-based Descartes Systems Group, Fortune can now manage delivery times and monitor truck positions via GPS technology.
The software also provides an activity "report card" that helps the company monitor driver productivity and efficiency.
Small businesses that adopt SaaS applications can add new logistics capabilities and insight at a fraction of the cost of acquiring site-installed software, says John Fontanella, vice president of supply chain research at AMR Research, Boston.
"Most transportation software vendors say you need between $5 million and $10 million in transportation spend before you can realize a return on investment large enough to compensate for the cost of the software," he says. "With the introduction of Software as a Service, that number shrinks."
Using the system is easy, says Gattuso. "We invoice our routes, upload a file to Descartes, and they return it," he says. Destination information is then transmitted to each driver's mobile phone.
"Drivers can plan their routes, and we capture information such as stop times, pieces per stop, minutes for service time, and delivery start and finish times."
The technology, combined with a mobile networking package, saves Fortune at least $500 a week in missed deliveries and other logistics problems, Gattuso estimates. That figure should increase substantially once Fortune begins tapping the software's optimization capabilities.
Although Gattuso is generally satisfied with the software's performance, he would like to see traffic alerts bundled into the service, allowing drivers to circumvent tie-ups.
He also wants to use the software to plan exact routes, rather than leaving routing to driver discretion. But doing so will require building an extensive database, a time-consuming task.
"We're doing some trial runs on the optimization," Gattuso says. Yet he would rather delay the final deployment than create an error-laden system. "The last thing I want to do is optimize the route and discover it's not right because the information was not correct," he says.
The technology has met Gattuso's initial expectations. "If a customer asks when a delivery will arrive, we can look it up online and see where the driver is and when he will arrive at that customer's stop," he says.
Gatusso thinks this is the type of service people now expect from any company, regardless of its size.
"It shows that we're organized and confident," he says. "It gives us the ability to answer customer questions faster and more completely than many big companies."