Why Size Matters – Choosing an e-Commerce or 3PL Logistics Vendor

Bullet-proofing your Supply Chain – Why Size Matters in the Choosing of your e-Commerce Logistics Vendor

If your supply chain and logistics channel is strategic to your business, then the selection of the right size vendor may be a critical selection criteria.

I am not saying that large or small vendors are inherently good or bad; it is simply that they have different risk profiles associated with them and that these should be considered as part of the qualifying and selection of a strategic vendor of logistics services.

The logistics industry is populated with many small owner operator businesses.  The strength of these businesses is that they were able to set up a business typically around one customer or small niche.  Customer service is typically outstanding with the vendor saying how high when the customer asks them to jump or go above and beyond the contract terms. However smaller businesses usually have other off-setting risks associated with them. 

The first and highest risk in the writer’s opinion is that of sole person risk.  If something happens to the owner’s health, or if the person suddenly wants to exit the business then the customer ‘s supply chain and potentially their entire business may be at risk.  I have witnessed this many times where large businesses take very large risks with their supply chain.  In some cases they learned some very hard lessons, in others they got lucky however there was no underlying savings for those great risks.  Other risks with the smaller provider include potentially riskier balance sheets and financial position in general.  The recent economy bore witness to many such cases.

At the other end of the spectrum are the very large providers, typically global logistic giants.  These companies typically have very large infrastructures, large management organizations and business succession that greatly reduce or virtually eliminate sole person risk.   However sometimes customers feel that these large corporations may not be as flexible or as reactive to your special needs or special requests. It is the worry of the small fish in the large pond syndrome.

As both an asset based and non-asset based provider we purchase many logistical services and without question the risk profile of the size and structure of our strategic providers are very important to our organization’s success.  As a result we looks for organizations that do not have sole person risk, have good financial stability and that value our volumes to give us the special attention we need in the servicing of our customers. In short we look for providers that have the best attributes of both the large player and the small owner operator.  In many cases we find this with a very solid middle market provider.

So before you select your next strategic vendor of logistic services ask yourself what are the risks you are prepared to take and then ensure that this assessment is part of the vendor qualifying and selection process.