For the past three years, a lack of capacity, a lack of personnel, the Pandemic, and increasing sophistication of logistics service providers, particularly in the technology area, have resulted in a significant increase in the outsourcing of logistics services.
In many cases, the urgent need for services has caused us to short cut the basic rules of choosing a logistics service provider. Too often we have simply sought out a provider with capacity and the necessary technology and signed a contract.
Regardless of the circumstances, it is important to remember that the outsourcing of any logistics function requires careful planning, implementation, and management. Adherence to ten basic rules will go a long way toward ensuring a successful and mutually beneficial outsourcing relationship.
- Establish a rigorous provider selection process. Check industry sources, existing clients, and financial health. Carefully analyze management depth, strategic direction, technology capability, labor relations, and personal chemistry and compatibility.
- Develop a strategy for outsourcing. Outsourcing should always be carefully thought out and measured against an in-house solution. This will help identify relative strengths and weaknesses for each alternative. Include the provider in the process from the beginning. While RFPs make potential agreements easier to evaluate, they can ignore the analysis of the most cost and service effective processes. Keep in mind, while cost is important, it should not be the decisive factor in choosing a provider.
- Clearly define your expectations. A number of outsourcing relationships have been unsuccessful because of unrealistic expectations. Providers often are asked to submit bids based on inadequate information and volume, size, and frequency of shipments. Some companies simply lack accurate or detailed knowledge of their own logistics activity. In addition, the cost of providing the service, especially in the technology area, often is underestimated or misunderstood. Such inaccuracies result in providers developing costing for and committing to arrangements that do not reflect reality.
- Develop a good, fairly priced contract. Provide incentives to improve operations and productivity with both parties sharing the benefits. Clearly spell out obligations, expectations, and remedies.
- Establish sound policies and procedures. Give the service provider an operating manual. Ideally, the manual will be developed jointly and contain all policies, procedures, and other information necessary for the efficient operation of the outsourcing arrangement.
- Identify and avoid potential friction points. Parties are usually aware of friction points that may arise. Identify them in advance and develop a procedure for dealing with them.
- Communicate effectively with your logistics partner. Poor communication is second only to poor planning as a cause of outsourcing relationship failure. Communication on all aspects of the operation must be frequent and two-way.
- Measure performance, communicate results. When establishing a relationship, clearly identify, agree upon, and communicate standards of performance. Measure performance regularly.
- Motivate and reward providers. Reward good performance; do not take it for granted.
- Be a good partner. Good partnerships are mutually beneficial. Bad ones are not. Your logistics provider’s ability to serve you and your customers often can hinge on your own performance or lack thereof.