The logistics of buying and storing materials, fulfilling orders and shipping products to customers is an essential part of doing business. Managing your supply chain efficiently is key to keeping costs under control while growing your business.
The logistics sector includes the planning, coordination and execution of transportation, warehousing, storage, customs clearances and more. The UK logistics sector contributed £124 billion to the UK economy in 2018. Globally, the sector is valued at $4.7 trillion and is expected to achieve a 4.9 per cent compound annual growth rate over the next five years.
Locally focused SMEs sometimes handle logistics on their own. A local takeaway, for example, may decide to hire a driver and buy a motorbike to take care of picking up supplies and making deliveries itself. The business owner might not even consider this ‘logistics,’ but it is. As the business grows and opens new locations, scaling up to multiple locations, keeping every location supplied and able to process orders and complete deliveries becomes more complicated.
Now, consider an SME entering a new market overseas. It’s an exciting opportunity. The upside is that growing into new markets can give a small business an advantage over its competitors at home. Only a quarter of companies in continental Europe export outside their home countries’ borders. But things can quickly get out of control and cost a business dearly, as there are many potential pitfalls.
There are complications of scale, as we saw above with the takeaway business. But there are also local customs to consider, possible language barriers and local regulations. Every company must consider what the rules are around doing business. What are the taxes and customs charges? If they import parts and assemble them in the new country, are there tax and customs savings? Are there local suppliers? Can warehousing and delivery be outsourced? Can assembly or manufacturing be outsourced to a local partner? How are orders processed? Is there an in-house order system or is it outsourced to a third party? How are deliveries and returns processed?
The good news is SMEs need not do all this on their own.
Meeting the challenge
To meet the logistics challenges that come with growth, whether domestic or international, choosing the right partner is key. You must consider what parts of the supply chain you wish to keep internal (such as order processing or billing) and which parts you are willing to outsource to partners. The partner must fit well with your organisation and be able to integrate into your way of doing business. The wise SME will consider several points to determine what to outsource and which partner is best:
- Your own capabilities: There may be logistical elements that you excel at and want to keep in house. Don’t be pushed into relinquishing control of these.
- Need: Do you actually need to set up a full logistics network? If, for example, you produce small consumer goods, it may be possible to use services such as fulfilment by Amazon to sell your product in new markets and increase your reach with minimal investment.
- Flexibility: When entering a new market, you may need some time to get established, meaning you’ll have fluctuating needs. A logistics arrangement should allow for this, rather than forcing you to pay for capabilities you aren’t using.
- Familiarity: Every business sector is different, and the right partner will understand your business and its specific needs. You can benefit from the lessons they’ve learned serving other companies in your sector.
- Expertise: A good logistics partner will also understand the local business environment and offer valuable advice. If you have your own people on the ground, you may not need this, but it’s nice to have.
- Scalability: Consider whether the partner will be able to grow with you. If you outgrow your partner’s capabilities, you may find yourself having to source a new partner in a year or two.
- Location: A partner located in an area with good transportation links will provide better service to your customers. It will also make future growth easier as your business develops in that region.
- Links: Selecting a partner that operates across multiple countries means you can expand your agreement with them as you expand your business. If you’ve selected a local logistics partner without such connections, you may incur additional costs and complexity to ship into other countries.
The good news for SMEs is that there are logistics providers that can reduce the cost and risk of growing the business, whether domestically or internationally. This means you don’t need to have that expertise in house. But you must still do your homework to determine what you need, what you can afford and who can provide it. There’s a world of opportunities waiting for companies that get it right.