Worley Blog


Posted on: July 22nd, 2019 by Clifford F. Lynch

Or so said Neil Sedaka in his 1962 song by that name. And he was correct. A number of times in the course of my consulting work, I have been asked to testify in cases where outsourcing relationships have gone bad. There are a number of good reasons for ending outsourcing relationships, i.e. mergers, acquisitions, discontinuance of products, etc. and most of the time, these are handled professionally. One of the most difficult tasks in logistics management however, is the termination of a logistics service provider for a breakdown in service. While neither party wants to be placed in that position, sometimes customer service deteriorates to the point that it is necessary. When a provider’s performance is unsatisfactory, you would think they would be well aware of it. Often, they are. Unfortunately, however, many clients fail to communicate the extent of their displeasure; and while the LSP realizes there are problems, they do not realize until too late that the problems are terminal. It is important then, for the relationship manager to keep the provider well informed about problem areas and the consequences of not getting them resolved. By the time a probationary period is declared, it should come as no surprise to anyone.
The contract should be clear as to how the notice of dissatisfaction should be rendered and allow a reasonable time for the correction of the deficiencies. If they are not corrected within a certain time frame, it will be necessary to give the provider a notice of termination.
Ending a relationship in this matter is much more difficult than simply failing to renew a contract. An early cancellation constitutes a rejection of the provider, its management, and operations; and in many cases, this will be resented. Resentment usually does not foster cooperation, and the client should be prepared for any contingency. A well designed transition plan will be an absolute necessity.
While each situation will be different, there are seven basic principles that should be remembered when terminating a relationship early for cause.
First and foremost, be honest with yourself and your provider. Do not try to make poor performance a reason for making a change if in fact is does not exist.
Do not act impulsively. Before the first notice of unsatisfactory performance is rendered, a contingency plan should have been developed and communicated to appropriate managers within the client firm. Do not become so frustrated that an arrangement is terminated before its replacement is ready.
Include the new provider Include the in the planning process. If the operation being terminated is being transferred to another provider, it is important to involve the new provider early in the planning process. Timetables for the assumption of various aspects of the operations should be developed. Include a timeframe for an orderly transition, but also, as part of the plan, determine exactly how much volume could be transferred on shorter notice. Ideally, the two providers will work together on the transition, but be prepared for that not to happen. At best, the cooperation, if it is present at all will probably be minimal and uninspired.
Develop alternative distribution points. If for some reason a total breakdown occurs before the new provider is ready, there should be additional shipping alternatives available. Other distribution centers can handle additional volume over the short term, and contingency plans should be developed for doing so. Be sure that adequate labor, equipment, and inventories are available.
Communicate internally. Keep marketing, sales, and other managers informed of developments. Often they can help minimize customer and other issues if they are kept abreast of the developments in the transition. No one likes to admit to mistakes, but it is important for logistics management to acknowledge that a relationship has gone bad, but that appropriate contingent and corrective action is being taken.
Try not to become emotional. By this time, frustration levels will be high, tempers will be frayed, and general unpleasantness will surround the entire situation. The client manager should try to maintain as much equilibrium in the relationship as possible and handle the myriad of details in a professional manner. He or she will find that client behavior, more often than not, is mirrored by the provider.
Finally, break clean. When it’s over, it’s over. Do not spend an inordinate amount of time relying on past issues as excuses for later mistakes. At this time, nothing is to be gained by continuing recriminations or second guessing. Learn from the mistakes that were made, and carry on, determined to make the new relationship successful where the other failed.