Mistakes to avoid when outsourcing your fulfilment: No 2. Size Mismatch
All companies will tell you they deeply care about all their customers. They might even mean it at the time but, if your business represents only a rounding error on your third party logistics (3PL) provider’s profit, the simple fact of the matter is that they will not care about your business as much as a customer that provides 100 times the revenue.
There is a basic reality in any business that some customers are more valuable than others. If you are a very small customer then you have very little bargaining power. Now, “bargaining” power is not necessarily about getting a good price; more often than not customers will use their bargaining power to get a preferential service. With your 3pl provider there are a number of ways you might want to exercise your bargaining power:
1. To get that urgent order for the difficult customer to the top of the queue
2. To get a special couriered delivery to a customer
3. To prioritise a delivery project that has a tight deadline
4. To get them to work at the weekend to accept a large stocking delivery that was delayed by your importer …… and many more.
There are many situations that occur when you will want your 3PL provider to prioritise your business needs over and above their other customers. In these times you will want to have some bargaining power and the facts are that if your business only represents a very tiny fraction of their profits then this is unlikely to work. This is not because they don’t care but because they probably have other, much bigger, customers making the same demands for their attention. Ask yourself honestly what would you do in their situation? Prioritise the small customer wanting special treatment or the large customer? You know the answer.
BIG IS NOT NECESSARILY BEAUTIFUL
Now this is not to say that you can’t get a good service from the bigger provider. You absolutely can and, if everything runs smoothly, there are never any hiccups and you never need them to do anything special then things will be fine. But when there is a problem and you need someone to stop what they are doing and pay attention to your particular urgent issue, the reality is that if you are a minnow in a huge pond, you are at the back of the queue. And if anyone tells you differently it’s just sales spin, I’m afraid.
GOOD THINGS DON’T NECESSARILY COME IN SMALL PACKAGES
In the opposite way, you absolutely do not want to be with a provider where your account represents half their revenue. Sure, you will have a lot of clout and they will dance to your tune but this is not a healthy relationship and I’d question whether they are big enough to cope with your needs. If your 3PL supplier is not really big enough to cope with your needs then this will almost certainly result in a poor service at some point. If your provider is too small then the following issues might occur:
1. The volume discounts they get from the courier are unlikely to be much better than you can get
2. If your stock takes up half their warehouse it’s unlikely you are benefiting much from their economies of scale on the cost per m2 of warehouse space
3. If there is a big uptick in your business, how will they cope?
4. If there is a down-tick or strong seasonality in your business, how will they survive?!
THE GOLDILOCKS PRINCIPLE
So, while it might be tempting to be a whale in a small pond, the problems this might cause can be just as devastating as if you are a minnow. As with most things in life, it’s about getting the balance right. It’s about getting a company that is big enough to cope but small enough to care. You want a company that will value your business but will also be able to deal with any up-scaling or sudden influxes of business. It’s about getting it just right, we call this the “Goldilocks principle”. Not too big or not too small but just right!