How Small Distributors Can Compete with Larger Players through Efficient Logistics
Written by Nate Schwandt, director of marketing at Sheer Logistics, this article explores how third-party logistics (3PL) companies can help your supply chain operate more efficiently and cost-effectively while empowering you to focus on your core competencies.
 |
| Small distributors can benefit from working with third-part logistics companies to make supply chain operations more efficient. |
Surviving and even thriving as a business often means competing with companies that have an advantage when it comes to financial, technological, and human resources and infrastructure. However, there are solutions to help smaller distributors compete and win in an increasingly competitive marketplace
Struggling to Get Off the Ground
Being a small distributor can come with benefits, like flexibility in operations, personalized customer service, and the ability to quickly adapt to market changes. However, small distributors also face unique challenges to growth. Limited resources combined with the pressure of fierce competition from larger players make it difficult to carve out a place in the industry and keep it long-term.
For up-and-coming distributors, infrastructure is a huge barrier to growth. Facilities must be appointed with modern equipment and systems, well-trained staff, and efficient processes to operate at all, let alone operate efficiently. Few small businesses can afford to pay substantial capital investments for these resources upfront. That puts them at an immediate disadvantage with respect to their competitors - having to do more with less for any hope of getting ahead.
The complexity of managing a distribution network is another major hurdle. A lack of sophisticated infrastructure, and insufficient industry expertise and connections make running day-to-day operations more challenging. Performance in inventory control, order fulfillment, customer service, and other aspects of the business are further put at risk when resources are stretched thin. The result is often inefficient and ultimately, stunted growth.
Empowering Small Distributors
Despite the challenges, becoming successful as a small distributor isn't impossible. Those that fail usually do so because they try to do everything on their own. Outsourcing work to a third-party logistics (3PL) company is the most realistic, cost-effective way of lessening the barriers to entry.
3PLs offer a range of services that can be tailored to meet the specific needs of small distributors - mainly including warehousing, transportation management, and order fulfillment. Beyond those core competencies, some companies specialize in value-added services like packaging and labeling.
The value of working with a 3PL lies in the economies of scale. These external service providers essentially allow small distributors to shortcut the investments they'd need to make to operate at their competitors' level.
Instead of investing in warehouses, transportation fleets, and inventory management systems on their own - and often having to make compromises as a result - small distributors can get the same or even better resources on an as-needed basis. The pay-as-you-go model provides both flexibility and scalability in the face of business growth and seasonal fluctuations in demand.
That's appealing to everyone. Several larger companies are only where they are today because of help from outside service providers. Not to mention that even when they attain significant scale, larger companies continue to work with 3PLs and 4PLs.
Supply chain management market research and consulting group Armstrong & Associates claims that 90 percent of Domestic Fortune 500 companies currently work with a 3PL partner. Another 20-year-old report by that same firm shows that Walmart has used at least 30 3PLs since 2004.
In this case, a high quantity of partners doesn't necessarily mean a lack of internal capacity. Large, profitable companies simply realize that outsourcing certain logistics functions can lead to improved efficiency and cost savings. The use of multiple 3PLs allows companies like Walmart to tap into specialized expertise for various aspects of their supply chain.
Small distributors likely will not require the services of dozens of 3PLs. They may find that their needs can be met by partnering with a transportation-focused 3PL and a 3PL that provides warehouse and distribution services. As they grow, they may look to a 4PL to oversee and orchestrate the activities of the various 3PLs in their supply chain.
Smart Inventory Management Tactics
There are ways that 3PLs can support more efficient and cost-effective inventory management and distribution. Here are examples of strategies and services 3PLs can implement to help improve your supply chain operations.
- Cross-Docking: Traditional warehouse receiving involves unloading goods, storing them in the warehouse, and then picking and packing them for outbound shipments. It's a time-consuming and labor-intensive process requiring significant storage space. Cross-docking reduces costs and creates efficiencies with the direct transfer of goods from incoming to outgoing vehicles.
- Vendor-Managed Inventory (VMI): In a Vendor-Managed Inventory (VMI) system, suppliers take responsibility for maintaining optimal inventory levels at the distributor's location. This arrangement can reduce the burden on small distributors, freeing up resources and ensuring better stock availability. It also fosters closer supplier relationships, potentially leading to better terms and improved service levels.
- Just-In-Time (JIT) Inventory Management: Just-In-Time (JIT) aims to reduce storage costs and minimize waste by aligning production and delivery schedules with customer demand. While it can be challenging to implement, requiring precise forecasting and coordination with suppliers, the potential benefits in terms of cost savings and improved efficiency are more than worthwhile.
- SKU Rationalization: SKU rationalization refers to the practice of evaluating Stock Keeping Units (SKUs) based on metrics such as sales volume, profitability, and strategic importance. Systematic reviews position distributors to identify underperforming or redundant items, thereby streamlining their inventory management, reducing storage costs, and improving overall operational efficiency.
- Maximizing Efficiency Through Technology: In the past, distributors were limited to a handful of traditional best practices and strategies for improving efficiency. Thanks to advancements in logistics technology, today’s start-up companies have more options at their disposal. Technology has revolutionized the logistics industry by fostering unprecedented levels of visibility, control, and optimization across the entire supply chain.
One of the most promising emerging technologies is artificial intelligence (AI). AI and Machine Learning (ML) have proven their ability to exceed the accuracy of human analysis at scale. The more popular and mainstream these technologies become, the more accessible they are to small distributors. AI-powered systems are now within reach for businesses of all sizes, touting the ability to analyze vast amounts of data to predict demand patterns, improve inventory levels, and streamline routing decisions at the level of industry leaders.
Integrating AI with other emerging technologies amplifies the impact. When combined with Internet of Things (IoT) sensors, for instance, AI can provide predictive maintenance for vehicles and equipment, potentially saving small distributors from costly breakdowns and service interruptions. Internet of Things (IoT) devices have a similar ability to proactively address potential issues before they escalate by tracking assets in real time through embedded sensors.
Small distributors may naturally face barriers to growth, yet they're far from doomed to failure. 3PL partnerships, along with the smart inventory management strategies mentioned in this article, can make a dramatic difference. The key lies in recognizing that success doesn't always mean doing everything in-house. Strategically using available resources and expertise to create a lean, efficient, and scalable operation is the only way to compete in today's dynamic market.
CONTRACTOR SUPPLY MAGAZINE
The October/November 2024 of Contractor Supply magazine is here!
Our cover story, A Rewarding Passion - Dale Hahs II, third-generation of Denver's AIS Industrial & Construction Supply, is STAFDA's incoming 2025 president.
A Special STAFDA section featuring a welcome address, an agenda, session previewss by presenters and much more. Also in this issue are our Industry Updates on: Lifting, Moving and Material Handling; Lasers, Levels and Measurement; Hand Tools; Cordless Power Tools; Drill Bits and Cutting Tools; and Toolboxes, Bags and Belts.
This digital edition, sponsored by BECK AMERICA Inc., is fully searchable and contains live links to every advertiser and new product listing. Click away!
| Read the Articles Read the Digital Edition |
