Crisis: An opportunity to expand a business

Monday, December 14, 2020
Crisis: An opportunity to expand a business

Making hard things simple, streamlining resources on the way from point A to point B, providing clients with quality service — are the three big pillars the logistics business rests on.

The general partner in the field of logistics company GTInvest 3PL-operator of the international market, the company "Logistic Plus" is one of the largest logistics providers in Ukraine. Clients and partners of the company are multinational manufacturers and giants: Unilever, Biesterfeld, Ferrero, Bacardi, Sony, Humana, Ariston, Subaru, and many other world-famous companies.

Alexey Prokhorenko met the CEO of the company, Valery Goretsky, and spoke about the prospects for business development during the crisis and how to invest hundreds of thousands of dollars by email when you want to demonstrate your trust to a client.

- Valery, how has the crisis affected your business and customer relations? What is happening on the market now and what are the main trends for 2021?

- Our company comprises different directions. Some of them stumbled more, while others did less. In general, we saw a 15% drawdown in April-May and then all the metrics got back to baseline both for us and our clients.

On top of that, we bought another logistics company in July. Opened a new warehouse, adding +30% to our warehouse area. Therefore, I observe the trend that the market will consolidate and scale.

I perceive the crisis as an opportunity to expand the business faster and make critical decisions. In our business, in stable times, clients do not really want to change anything. Logistics is quite complicated in terms of getting customers due to the large costs of changing the logistics provider. And, accordingly, clients are reluctant to do this when everything is operating consistently.

But when a crisis hits, companies start looking around how to save money, they analyze and compare. During this turbulent period, it is much easier to appeal to the logic of making a decision. You can get across fresh ideas to your clients, squeeze out or buy out weak players.

The demand for the segment of warehouse logistics has remained, and it did not suffer during the quarantine. There is also a growing trend in online commerce, and it will require more space to process orders. Retail is growing.

Even though the quarantine measures have greatly affected businesses and many markets have closed, people continue to consume goods. It's just those markets are being redistributed, sales volumes are being transferred to chains. The market is undergoing transformation, new platforms and niche products are emerging. Next year will go under the sign of total digitalization.

- How much harder or easier has it become to maintain leadership in the market now?

- During the ongoing crisis we have gained quite a solid experience. Now the market is being redistributed and small companies are leaving. There are about eight logistics operators left in Ukraine, who play at a normal level. Logistic Plus grows 20 to 30% year-to-year. During what periods do we sign more contracts? There is not much of a difference, but it appears that in a crisis it is easier to grow. Although the crisis can be weathered financially harder, for me this is a time for new solutions and discoveries. In a rocky period, you can get more by buying a new company, as we did. Additionally, many companies are reconsidering their attitude towards outsourcing, which at a stable time was not very popular.

Indeed, for many Ukrainian companies, outsourcing is emotionally difficult. Our people are used to working according to the principle: "We know better how to do it ourselves". But instability urges you to calculate your costs more thoroughly. And then a potential client concludes that outsourcing is more cost-effective than maintaining completely its own logistics service. You do not invest in non-core assets for yourself but invest directly in your business. Since there are fewer resources available in a crisis, you have to choose and properly prioritize to avoid wasting extra money and time.

- What should an entrepreneur pay attention to when he orders your services, chooses a logistics operator?

- I must say that logistics is not a story when you start from the price. Indeed, in our market, the prices are roughly the same and do not differ significantly. I would recommend looking into the reputation of the company, the duration of contracts with other customers. Try to find out if customers abandon the services of the logistics provider. Of course, I would definitely visit the facilities, warehouses, see how the operational processes are organized, and talk to the management. And I would choose a larger provider since small firms cannot keep up with updates. Technology, IT support — all this is quite expensive. It is necessary to look comprehensively so that the company can provide more services for the client. The more services the provider delivers, the less time is dedicated to communications.

In general, competent logistics implies building long-term relationships for 5–10 years, therefore your business partner must think in the same way. You need to trust people. Without logistics, your goods stop moving, your business does not sell anything, so the partnership is a very serious step.

My philosophy is a long-term play. We have various services for different categories of business, and we provide a whole array of services for the client. From international transport and customs clearance of goods to domestic delivery and storage.

- Tell us, what was the most non-typical project you had and what is it notable for?

Our portfolio of projects is quite diverse. But I want to tell you about a project with Unilever. The project involved the launch of a tea sorting factory in Ukraine. Production and warehouse were supposed to coexist on one site. Unilever chose the site, but at the last moment, when they were about to sign a lease, the owner of the building changed the terms and the contract fell through. They started looking for a new warehouse urgently, and found a site that fit their criteria, but significantly exceeded the required area: 10,000 m2 (100,000 sq ft) instead of 2,500 m2 (27,000 sq ft). When they approached us with this project, we implemented it in a short time (less than six months). Along with the on-site production, we set up a warehouse that served both raw materials and finished products. By the way, the whole process was based on trust and personal agreements: hundreds of thousands of dollars were spent by email. We agreed to settle accounts upon arrival. And although the client needed only 20% of the declared area, we subleased the rest of the premises to other customers. By this, I want to say that we are ready for increased risks in situations where we need to help partners today and now. Ready to make more commitments.

We are very flexible when necessary. So, we have auto parts clients for whom we stock everything from windshields and bumper to small parts. We are responsible for a diverse product that differs significantly in size.

- How long does it take to estimate a new project and fully implement it?

- In practice, it happens in different ways: from a month to six months. Negotiations in this business do not always immediately lead to transactions and, accordingly, do not always immediately reach the point of estimation. After all, the reason for changing a logistics partner should be notable, and this is a difficult step for a company. But if the client is ready for this transition, then a lot depends on the scale of the business and the availability of space in the warehouse. Why so long? Drawing up and agreeing on a contract takes a couple of weeks, whereafter you need to synchronize the systems. Business involves the integration of our and client's accounting systems. It takes from a few days to several months, as was the case with our major European partner. The preparatory stage is one of the main ones in this business. How well you do the preparatory work depends on how the business will work afterward.

- Tell us about the automation of business processes in your company? What IT solutions do you use?

- In Logistic Plus there are several information systems for warehouse and transport management, a goods accounting system, as well as a CRM system, where customer contacts and leads are stored. We have a full-time IT department that updates both our and client systems. We make improvements for customers now and then, according to changes in warehouse business processes. Recently we redesigned the algorithm for one of our clients. It increased the efficiency of the process and reduced the number of errors. Logistics follows the path not of revolution, but evolution. Today, a logistics provider's own IT staff is a basic need to meet their needs and respond quickly to customer requests.

- How have eco-trends influenced your business niche?

- For many years we have been recycling the waste in our production. We use led lamps in warehouses and try to use electricity as economically as possible. Some of the forklifts run on helium batteries, which do not create evaporation, unlike acid batteries.

- What rules of life help you go forward and what are your company's plans for the near future?

- I pay a lot of attention to developing the relationship with our customers so that the partnership brings both financial and emotional reward. We work with many clients on an open-book basis, where they see all our costs, know how much we earn on the project. The focus on long-term cooperation is our main principle, and it implies transparency, trust, integrity, and well-coordinated professional work of the entire team.

Also, our clients appreciate the speed of decision-making. As a business owner, I make decisions quickly and authorize many points in a couple of days, which can take a couple of months for other companies.

Our goal is to get into the TOP-3 companies in terms of turnover soon. For us, this means a growth of about 50–60%. Therefore, it is necessary to continue our 4-year trend and grow 20–25% annually. We are not just meeting these goals, but exceeding them.

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