SMB Logistics: Small is the New Big

Major transportation management software providers are eagerly returning Don Granholm’s calls. That’s significant because his company, $270-million converted paper and labeling products manufacturer Nashua Corp., spends only $10 to $12 million each year on transportation—a drop in the bucket to transportation suppliers.

“As we grow the business, and broaden our customer base, we have to simultaneously broaden our supply chain capabilities,” says Granholm, vice president of supply chain management for Nashua.

“Fortunately, we can find a broader portfolio of software providers’ services for smaller companies like Nashua, and with web-based services, our options extend even farther.”

The rise of the supply chain as a competitive tool has increased pressure on companies of all sizes. As one company finds a way to step up to the next level of speed, accuracy, visibility, flexibility, and cost efficiency, it sets new levels of expectation for other companies, regardless of their size and resources.

In the past, small and mid-size businesses (SMBs)—companies with 1,000 or fewer employees and/or revenues of $500 million or less—found themselves at an inherent disadvantage when it came to moving their goods; large enterprises could always outdo them with their scale, buying power, resources, and expertise.

Today, however, SMB logistics is in the spotlight. Just as the needs of smaller companies are growing more demanding, supply chain enablers such as software developers, third-party logistics providers, and consultants have targeted SMBs as their next big market opportunity.

The array of available SMB resources has never been wider, particularly for those companies seeking to leverage the supply chain as a path to growth.

Surprisingly, SMBs possess a number of inherent advantages when it comes to operating a supply chain.

“Small companies often possess better knowledge of their customers’ marketplace because of their size and proximity to it,” notes Edward Huller, chairman of the board, Council of Supply Chain Management Professionals (CSCMP).

“Small companies often are real product and process innovators. They’re nimble because they do not have to deal with a lot of bureaucracy, and they usually have low overhead issues, eliminating major cost barriers. Their processes can be more simple and more streamlined than larger companies.”

SMBs’ inability to heavily invest in IT can also work to their advantage: with no significant legacy infrastructure to worry about, they can take advantage of newer technology without concern for heavy integration or reconfiguration to fit existing business processes. Instead, they can tap the best practices built into many solutions and services.

“SMBs are in growth mode—investing in the future, and looking for the most efficient ways to manage their supply chains,” says Michael Wohlwend, senior director, Manhattan Associates, a supply chain planning and execution solutions provider.

SMBs can draw from more training and networking resources than ever, through associations such as CSCMP, the Institute for Supply Management, and the Association for Operations Management.

In addition, many veteran supply chain professionals have hung out their “consultant” shingles, specializing in helping SMBs elevate their supply chains. And SMBs can even leverage larger trading partners for help and education.

SMBs can also tap services such as FirstIndex, an online bidding platform that enables buyers and suppliers to establish global relationships from their desktops. Once an SMB determines its sourcing needs, FirstIndex evaluates the global market to find qualifying sources, using engineers to fully audit suppliers.

For example, one FirstIndex user, Heil Trailer International, a leading tank trailer manufacturer, taps the service to identify qualified metal fabrication companies and suppliers of fittings and castings in select, low-cost countries.

It’s also getting easier for SMBs to attract in-house supply chain talent. “Logistics professionals are considering quality-of-life issues when they make career decisions,” says Chris Norek, senior partner, Chain Connectors, an Atlanta-based supply chain consulting, education, and training company that focuses on SMBs.

“SMBs are now an attractive career option because logistics professionals at smaller companies tend to be charged with wide-ranging supply chain responsibilities.”

Small Companies, Large Problems

Plenty of forces work against SMBs’ parity with larger enterprises—stemming from their comparatively meager internal resources and buying power.

Despite the arsenal of available solutions, they’re still subject to the whims of larger trading partners who often dictate technologies and processes to smaller suppliers, and impose penalties for non-compliance.

Luxury goods distributor Revman International, for example, was often forced to pay late delivery and incomplete information chargebacks to its large retailers because it lacked visibility into inventory and product movement—particularly for orders shipped directly from manufacturers to retailers.

The $140-million, Spartanburg, S.C.-based SMB addressed the issue with technology, investing in a Manhattan Associates warehouse management system and Microsoft Dynamics business solutions.

Today, Revman allocates inventory more efficiently to meet requested delivery times and fill rates, avoiding costly chargebacks and keeping its large customers happy.

Wresting supply chain control while accommodating the needs of multiple large trading partners poses a real challenge for SMBs. David Caruso, principal of consulting firm David Caruso and Associates, Boston, helps his SMB clients gain that control by finding “points of commonality.”

“We identify similar processes—such as the way loads are tendered,” he explains. “Those answers then shape new supply chain processes—the stepping stones to selecting the appropriate technology solution or service provider.”

Affordable, flexible technology and outsourcing solutions help SMBs satisfy requirements and earn high ratings in large partners’ supplier benchmarking. In surveys assessing supply chain execution, “there is no difference between the performance levels of SMBs compared to larger companies, especially warehouses,” notes Karl Manrodt, associate professor at Georgia Southern University.

SCM: The Road to Success

For SMBs with growth plans, “supply chain management is one way to achieve that growth,” says Chain Connector’s Norek, by relying on partners and third-party services rather than significant capital investment.

“The Internet is a huge equalizer for SMBs,” adds CSCMP’s Huller. “It helps them increase their size and scope, and identify like-minded organizations to source from. The Internet also helps SMBs reach out to new customers and marketplaces at little or no cost.”

Third-party logistics companies, once laser-focused on large enterprises, are now targeting the SMB market, joining earlier players who have built their businesses on serving this group.

“More and more 3PLs are realizing the potential of the SMB market and now think differently about their service offerings,” says Joe Dagnese, vice president for consumer and industrial markets for 3PL Menlo Logistics.

Menlo began targeting SMBs five years ago with multi-client facilities across the world, offering the buying power and best practices it honed with large shippers. “SMBs get the benefit of our experience without having to ramp up internal investments,” he says.

SMBs turn to 3PLs for a host of reasons, including scale, buying power, technology, infrastructure, carrier relationships, import/export expertise, and network design. Benefits may include transportation cost savings, administrative savings, enhanced service such as improved on-time pickup and delivery performance, more visibility, and greater access to information.

Partnering with a 3PL can net savings ranging from five percent to 20 percent, estimates Tom Sanderson, president and CEO of Transplace, a 3PL and technology company.

Getting Closer to Customers

“SMBs expect 3PLs to offer solutions that help them compete,” says Steve Cook, vice president marketing and business development for 3PL Saddle Creek, Lakeland, Fla.

“By establishing forward DCs with a 3PL, for example, SMBs can get products closer to their customer, helping them respond more quickly,” says Cook. “They also realize cost savings because 3PLs can consolidate their shipments with those of other small companies.”

Outsourcing, however, can mean tradeoffs. “For outsourcing to be price effective, an SMB’s needs must fall within the 3PL’s standard operating procedures. That’s the quickest, fastest, least expensive way,” Dagnese says. “One-off solutions and services are costly.”

Not all SMBs, however, are willing to toss hard-won internal business processes aside, and some seek to avoid being a small fish in the big 3PL sea. Due diligence is essential for SMBs to select a 3PL that meshes with their service needs and business culture.

A Selective Shopper

Privately held leather goods importer Buxton Co., Springfield, Mass., wasn’t about to risk its 108-year reputation by trusting just any third-party provider. But when business from its office superstore channel tripled, the company realized it needed help, and made its first foray into outsourcing.

“We needed to feel comfortable that the 3PL we used would be a strong partner, understand our corporate culture, and our need to fulfill customer orders,” says Joanne Berwald, vice president, operations for Buxton Co. “Some 3PLs want to be everything to everybody, but that’s not what we wanted.”

Buxton prides itself on its ability to meet customer expectations while developing strong merchant/supplier relationships that accommodate each other’s limitations.

“I traveled the country to visit many 3PLs in the last five years in anticipation of our business growth,” Berwald says. “Not one was able to convince me that their operation was fluid enough to handle the demands of our customers with our required level of service.”

That changed when she met with Weber Distribution, a Los Angeles 3PL. The relationship works because “Weber has a dedicated staff and understands retailer demands logistically,” says Berwald. “Weber also leverages both technology and people.”

Indeed, some SMBs find a better match in like-sized 3PLs. “Because we’re small, we have a more intimate, customer-focused feel, just like the companies we serve,” says Joel Sutherland, vice president, strategy for Priority Distribution Inc., a smaller 3PL specializing in transportation and logistics solutions.

Best of Both Worlds

The members of Associated Warehouses Inc. (AWI), a network of 50 regional 3PLs, take the same approach. Each 3PL operates separately, but the members work cooperatively to meet customer needs that fall outside their regional reach.

“AWI offers the best of both worlds for SMB outsourcers,” says Mark Richards, vice president. “We can provide more responsive service, personal attention, and creativity than larger 3PLs. Together, AWI members offer a local presence and a large scale, coordinating services to satisfy customer requirements.”

Like their SMB customers, smaller 3PLs can’t always compete on price, “but our costs may end up lower than the larger 3PLs because we customize solutions to the customer,” says Tim Barrett, COO of Barrett Distribution, an AWI member company based in Franklin, Mass. “The end result is, SMBs get the service they want, but tailored so it’s cost-effective.”

Clear communication is essential to a successful SMB/3PL relationship. “SMBs and their 3PLs should agree on the scope of services up front,” advises Transplace’s Sanderson. “Establish a good set of performance metrics to hold the 3PL accountable to, and agree on common terms, such as the definition of on-time delivery.”

For their part, SMBs should be able to deliver accurate data about shipments in advance, and pay invoices on time.

“SMBs turn to 3PLs initially to reduce transportation costs, but they stay for the value-added services, such as reduced inventory and damage, shorter cycle times, and greater levels of visibility and flexibility,” says PDI’s Sutherland.

Delivering products on time to demanding customers can present a challenge to SMBs that don’t have the buying clout to win the attention of carriers. These transportation needs grow even more acute when global logistics are added to the mix.

Through a combination of creative strategy and tapping into the growing array of SMB-focused services, though, smaller companies are finding a way to meet global customer demands cost efficiently.

When it comes to moving goods across the ocean, even large enterprises often find it more effective to outsource than to build expertise internally.

“Partnering with a customs broker costs more than managing transportation in-house, but it’s less expensive than making mistakes and angering customers,” notes Georgia Southern’s Manrodt.

Some 3PLs operate consolidation centers in low-cost sourcing locations, pooling SMB freight for full container shipping, or even fulfilling orders directly from those locations to SMBs’ U.S. customers.

Jeremiah Company, a Jackson, Tenn.-based wholesaler that imports lighting fixtures, literally would not exist without the ability to leverage supply chain transportation services. Company founder Cindy Overton sold her lighting store three years ago, then flew to China to find factories to supply her new business.

At first, Jeremiah tapped a 3PL to move its 200-plus containers each year, but that company’s true specialty was exporting. Then Jeremiah discovered Expeditors International of Washington Inc., a global logistics company headquartered in Seattle, whose focus on importing saves about $1,000 per container.

“We didn’t know better,” admits Glenn Perry, operations director for Jeremiah, about its first 3PL choice. “But today, Expeditors picks up the products at the Chinese factories, and they arrive at my dock 26 days later. It is very easy.”

The Power of O.N.E.

Outbound, Jeremiah uses O.N.E. Portal—a web-based transportation management system offered by 3PL and LTL carrier Averitt Express—to locate LTL and long-distance carriers, leveraging its Tennessee location to provide next-day delivery to approximately half of its customer base.

“The challenge is integrating more carriers into the system so it would be easier to make comparisons,” says Perry, who sought a system that would also talk to its ERP.

While O.N.E. Portal is not as comprehensive as the $1,000-per-month TMS tools he originally considered, “I can quickly input PRO numbers and pick the best carriers, for a low transaction fee,” Perry says. Jeremiah adds a shipping charge to its invoices, but waives it for quick payment because actual transportation costs are built into product prices.

For Groupe SEB USA, a manufacturer and distributor of housewares brands including Krups, T-fal, Rowenta, and Wearever, turning over domestic transportation to 3PL Priority Distribution Inc., “gives us one point of contact and one source for all our transportation needs,” says Ray Dudek, director of distribution. “We save on logistics costs, and have no need for a traffic manager to handle distribution.”

Groupe SEB is preparing to shift to PDI’s transportation management software to further enhance cost savings. The application will help the company build optimized loads, pooling a retailer’s orders across brands to qualify for full truckload rates.

Sharing capacity with other small shippers is a cost-saving strategy that has long been discussed but seldom successfully executed. During the dot-com era, online marketplaces that attempted to match shippers sprung up, but failed to thrive. The idea is being revived today, with 3PLs seeking to pool clients’ freight, and SMBs themselves seeking out compatible partners.

“Small shippers are making contact with other shippers,” says Peter Moore, vice president logistics and transportation for CapGemini. “They are making bilateral deals with similar shippers, and even competitors, to help fill warehouses or trucks.”

“Many small companies want to share information, but they are afraid,” says PDI’s Sutherland. “They have to learn to trust their 3PL to integrate their data with another company’s data. But technology enables 3PLs to look across companies’ supply chains, and aggregate—but segregate—information.”

Another successful sharing tactic is for SMBs to join a buying group to pool transportation spend. The group yields greater purchasing power as a single entity than they would as individual companies.

Leveraging SMB-Focused Technology

Enterprise-class supply chain technology is now available to SMBs, thanks to newfound attention by the major developers. They join the host of smaller providers already focused on small and mid-size shippers.

“Even big players such as Oracle and SAP are focusing on the SMB market,” notes Moore.

Using “lite” versions of complete applications is successful for some SMBs, but developers have discovered that simply removing functionality doesn’t always make the grade; while SMBs’ freight volumes are smaller than large companies, their supply chain needs can be equally complex.

That has led to the creation of new financing and delivery methods to make supply chain technology more affordable for the SMB market.

SaaS: An Attractive Model

For some SMBs, traditional software licensing makes sense because it provides control and flexibility. Others find the best approach is to leverage the technology investments of 3PL partners.

But many are discovering that they can best obtain at least some supply chain functionality via on-demand application service providers or software-as-a-service (SaaS) models.

The SaaS model “is scaleable both up and down,” notes Bill Lyons, vice president sales and marketing for Glovia Services, which markets an SaaS ERP system for SMB manufacturers. “An SMB may need to scale up for a big production run, then scale down in the non-peak season.”

One common misstep SMBs make is failing to budget for the infrastructure required to support future plans, he says, making SaaS financing essential to their survival and growth. And, without a costly infrastructure investment, SaaS makes it easier to add or modify technology as the business changes.

But it’s easy for SMBs to get caught up in what technology can do rather than focusing on what they need to succeed.

“SMBs have to define where in the supply chain they live and what they have to excel at to keep existing customers and attract new ones,” says David Caruso. He advocates focusing on supply chain business processes that create value, rather than back-end ERP systems.

“SMBs need to determine which supply chain processes generate a profit,” he says.

It is also not advisable for SMBs to mimic the processes of larger companies. “SMBs should map out their own processes, then find software applications to enable them,” recommends CSCMP’s Huller.

Essential supply chain technology for SMBs includes order management, procurement, inventory management, warehouse management, and, once complexity and freight volumes warrant it, transportation management.

“Supply chain visibility is tantamount to success,” says Caruso. “It enables SMBs to make good decisions, detect trends, and analyze costs.”

Nashua Corp. is facing those technology decisions; it is currently shopping for a transportation management solution to move its supply chain one step ahead.

“We need a TMS that provides better visibility of our transportation data, making it easier to analyze lanes, optimize routes, and determine which carriers offer the best rates and transit times,” says Don Granholm.

SMBs Empowered by the Web

Nashua is evaluating licensed software and 3PL-provided applications, as well as web-based tools.

“The Internet offers an optimal way for SMBs to take advantage of tools that increase efficiency; it also provides access to visibility and decision support that were formerly available only to large companies,” Granholm says.

SMBs are under significant pressure to act like big companies, yet they still operate with the resources of small ones. Fortunately, today’s myriad supply chain technology and 3PL service offerings are helping to level the playing field, enabling SMBs to accentuate and deliver on their strengths.