HUSTLE & FLOW:
Why large 3pls and small businesses often don’t mix
In this post, we're shedding light on why many 3PLs avoid SMB clients. We'll discuss the unique challenges SMBs present and how technology holds the key to unlocking a mutually-beneficial partnership between 3PLs and SMB sellers.
The Power of Scale and Velocity
In the third-party logistics (3PL) space, 'scale' and 'velocity' are pivotal concepts. They represent the operational rhythm of a significant segment of our industry. Many 3PL providers structure their operations around catering to clients who ship millions of orders each year. These high-volume clients dictate the infrastructures and processes, optimizing for speed and efficiency.
However, as the lens shifts towards SMB clients, the operational dynamic transforms considerably. The high-velocity model that's optimized for large-scale operations doesn't seamlessly accommodate the unique needs and demands of SMBs.
Unpacking the SMB Paradox
Why is it that the existing logistics models aren't readily adaptable to SMBs? The answer isn't just about size but the intricacies tied to it.
SMB clients typically operate on a lower volume, which doesn't sync well with the velocity of larger operations. Managing a high number of smaller clients can also lead to strain on administrative tasks like billing and tracking activities. The possibility of errors increases, inefficiencies creep in, and the high-speed operational model begins to stutter. To explain this, let's draw a parallel with a hydroelectric dam, where the concept of "material flow" truly mirrors the operational dynamics of a 3PL.
The Hydroelectric Dam: Power THROUGH Scale and Velocity
Think of a hydroelectric dam. Its power lies in harnessing the energy from a rushing river, converting the material flow - the water - into electricity. Dynamos provide the magic transformation from mechanical to electrical energy. In a similar vein, many 3PL providers work in a similar way to hydroelectric dams, tapping into the power of volumetric flow from large-scale clients who move millions of shipments per year through the 3PL distribution center.
Just like the dam is built to handle the torrent of a river, a 3PL's systems, processes, and people manage this river of material, this massive volumetric flow of goods moving in and out.
The SMB Paradox: Small Streams in a World of Mighty Rivers
In this scenario, SMBs are akin to small streams compared to the large rivers that are the bigger clients. Just as a hydroelectric dam is not designed to be driven by a small stream, the high-speed operational model of many 3PLs isn't designed to adapt to the lower volume of SMBs. Managing these smaller flows is fruitless and there are frankly insufficient rewards for the risks – yes risks – that go with smaller clients. Trying to bring them in alongside the large clients who “turn the cranks” can produce turbulence and result in potential errors and inefficiencies.
Automation and Standardization: The Technological Reservoir
So, how can we channel the energy from these smaller streams effectively? This is where technology, particularly automation and standardization, steps in. Think of it as a reservoir that collects and regulates the flow from both large rivers and small streams, maintaining consistent output.
When we talk about automation, we're not specifically just suggest more physical robotics or conveyor belts. Instead, we're looking at the automation of processes - the digital transformation of provisioning, billing, and activity tracking. When you have properly abstracted all of your transactions and touchpoints, you universalize clients which creates a buffer, smoothing the interaction between often high-velocity operations amidst the smaller needs of SMB clients.
The SaaS Model: A Modern Canal System
By developing our platform around the SaaS (software-as-a-service) paradigm, Amplifier has created a figurative canal system that can manage the diverse flows of different-sized businesses. It standardizes and automates our services, allowing SMBs to access the same quality of services as larger clients but on a scale that suits their flow. We often hear from our much larger brethren that they sometimes face six weeks of onboarding work to bring online a new large client. (While bigger accounts do require bespoke configurations, delays of weeks or months speak to a failure of technological investment and executive insight.)
An historical pattern in SMB fulfillment
Every since Shipwire first declared they were “Enterprise logistics for Everyone” there have been VC-driven 3PLs hellbent on capturing the SMB fulfillment space. In the decade since then, entirely new waves of “ShipNouns” have arrived on much the same formula. Get a ton of VC funding. Spend millions on marketing. Grow as rapidly as possible. Then, after years of the formula, they realize profits matters. The final phase is to embark on a divestment campaign to shed the bottom 80% of clients who account for only 20% of shipments. This pattern recurs because it works for 3PLs. But tell that to the thousands of businesses who find that ShipNoun no longer cares to keep them.
The Future: A Confluence of Rivers
With the rapid advancements in technology, the potential to create a seamless convergence of these 'rivers' of different sizes is becoming increasingly feasible. Expectations need to be set realistically for smaller clients. Just as rivers of all sizes contribute to the water cycle, SMBs too play a crucial role in the economy. In the evolving landscape of 3PL, the prospect of harmoniously integrating these diverse streams presents an exciting and promising future.
Stay with us as we continue to navigate these currents, embracing the challenge of channeling the power of both the rivers and streams in our industry!