Several years ago, I developed what I felt were ten sound principles for the outsourcing of logistics services. I certainly was not the first to do so, nor have I been the last. Recently however, some of the suggestions I have read seem to place more responsibility on the providers than on the outsourcers themselves. Outsourcing is a two way street, and for the arrangements to be successful, the client must bear a significant part of the burden. Certainly conditions have changed dramatically in the industry, but in reviewing my earlier document, I have concluded that the suggestions I made then bear repeating.
Adherence to these ten basic rules will go a long way toward ensuring a successful and mutually beneficial outsourcing relationship.
- 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 RFP’s (Requests for Proposal) make potential agreements easier to evaluate, they can ignore the analysis of the most cost- and service-effective processes.
- Establish a rigorous provider selection process. Check industry sources, existing clients, and financial health. Carefully analyze management depth, strategic direction, information technology capability, labor relations, and personal chemistry and compatibility.
- Clearly define your expectations. A number of outsourcing relationships have been unsuccessful because of unrealistic expectations. Providers are often asked to submit bids based on inadequate information about volume, size, and frequency of shipments. Companies simply lack accurate or detailed knowledge of their own logistics activity. In addition, the cost of providing the service, especially in the information technology area, often is underestimated and/or misunderstood. Such inaccuracies result in providers developing costing for and committing to arrangements that don’t reflect reality.
- Develop a good 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 with the provider and contain all policies, procedures, and other information necessary for the efficient operation of the outsourcing arrangement.
- Identify and avoid potential friction points. Both 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 setting up a relationship, clearly identify, agree upon, and communicate standards of performance. Measure performance regularly.
- Motivate and reward providers. Reward good performance; don’t take it for granted. Compliments, recognition, awards, trophies, and dinners are all proven motivators. Do whatever works for your particular circumstances, but do something.
- 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.
While following these ten steps will set the right course for your outsourcing relationship, for it to truly succeed, it must be based on mutual trust and respect. A high level of integrity will ensure a high level of service and satisfaction.