Do you know? I think the global figure these days is that companies who
outsource some aspect of their logistics operations has risen to something like
85% Then why is it so many of those outsourcing relationships end up in
Divorce. And the last time I looked it was about 43% That's going to be the
topic for this week
So why do so many outsourcing relationships end in divorce? you know I
think sometimes people blame the 3PLs too much, the third party logistics
Companies. Oh they didn't do the service right and they didn't do that right I
reckon the blame actually falls pretty squarely on both sides of the
relationship. So what I'd love to share with you this week is some of the things
that can go wrong on both sides. So I've just got a presentation here that I've
been using in a seminar I'm going to run through this really quickly. So what are
some of the things that the customer gets wrong. Well first of all they need
to make sure they have clear outsourcing objectives.
why do you actually want to go through outsourcing maybe you're running your
warehousing and transport in-house then you actually want to go to the market
and have a third party to do it? Now when I asked people last week at a seminar
what's the main reason for outsourcing? there's always a few they put their
hands up and say to save money! That is really not a legitimate reason for
outsourcing and I'll tell you why. Because what you're doing is, you're
getting a company to do exactly what you're doing, in terms of warehousing and
transport and you're expecting them to do it more efficiently and make a profit.
That's not so easy, so actually there are far better reasons for outsourcing your
logistics operations and these tend to be things like being able to stick to
your core activities, maybe accessing investment in technologies and equipment
that the 3PLs have, maybe they are just a lot better at logistics than you
Are, so you're going to get a better service level. But if you're aiming for
cost reduction that doesn't really happen very often maybe in five to ten
percent of cases, your logistics would have to be really bad for you to be able
to save money purely through outsourcing. so that's number 1 mistake from the
Client. Number 2, be clear about what you're outsourcing. By that I mean, if
for example you've got a delivery operation and there are cash collections
and there are returns, be very clear about all the different aspects that
you're going to be outsourcing and make that really clear
in your request for tender as well. Number 3, approach suitable suppliers
Now I often see clients go into the market and they might have an open
tender or they might be asking 20 different companies to respond to an RFT
I have a bit of an issue with that. because the key Fault in doing that is
that you're really not looking like an informed buyer. You need to be selecting
companies and let's talk about warehousing mainly, you need to be
selecting companies that are well qualified and experienced to do your
warehousing in your industry. And if you go to some that are not appropriate for
your industry you're just gonna look like you really don't understand the
Market. So make sure you go to suitable Suppliers. Number 4 and this is the
one of the biggest failures. You've got to provide accurate data and a very
detailed specification of the service needs. It's a little bit like asking
someone to build you a house. Imagine you go to an architect and say give me a
design for a house please. They need to know how many people are going to live
in the house, do you watch lots of TV, do you want a separate TV room, do you want
a bathroom for every bedroom? You've got to give them all that kind of detail
otherwise they don't know how to design the house for you and it's just the same
with outsourcing contracts. You need to specify exactly every little function
that you want them to do and the service level to which you want them to do it.
And don't leave stuff out. I've seen people think Oh you know we get returns
but maybe we don't have to tell them about that? You do! You have to tell them
about every little aspect of the operation, because if you don't you know
what's going to happen, it'll come back to bite you and they'll be coming back
saying �hey we need more money because you didn't tell us that we had to do
this activity or that activity� so very detailed data.
next number 5. Make sure that you structure the RFT the request for tender,
in a very logical way and when we're doing this for our consulting clients
what we do is we structure the RFT and the evaluation matrix exactly the same
Way. So it's logically laid out it's very easy to evaluate. Then we come on to
Evaluation. Number 6 and this is where some people can make a few mistakes. What
I like to do is to engage senior members of the business right across different
functions and if they've got this simple evaluation matrix to work through it's
not too hard for them, because I want to get feedback from IT and HR and finance
and operations because they're all going to see different elements of the request
for tender. And they're all going to have different priorities in their head. I
think the most I've ever had involved was about twelve, but certainly four or
five executives from the client organization should be evaluating the
RFT and in case you're wondering. When we're helping clients, NO we don't
evaluate the RFPs. The clients do that. It's their operation, they need to
work with that partner. All we're doing is helping them through the process.
Next one implementation planning. Number 7. This is where things can really go
wrong so you need detailed implementation planning with the 3PL
implementation manager and I always want to see that implementation manager
before we make the final selection. So when they're presenting their solutions
and when we're going on site visits I want to meet that project manager and
see what experience they've got and do we have confidence in them? And then
number 8 manage the contract in line with the KPIs that you've got in your
RFT and Yes you should be putting them in the RFT. This is exactly the service
that we want. This is the service level and these are the KPIs that we're going
to measure you against. So there we go. 8 things that the client very often
gets wrong which can lead to a logistics outsourcing relationship ending in
Divorce. What about the other side, the 3PLs?
Well funnily enough I've got 8 of those too. First of all, very eager 3PLs
and maybe the smaller newer ones, can sometimes pitch for business that's
not appropriate for them. So you know the old adage not all business is good
Business. It's the same for 3PLs, so you know maybe a 3PL that's very
experienced in carting steel products shouldn't really be bidding on a
healthcare project? Next one, ensure your requirements match your capabilities. So
there we go, the same thing, if you're building up expertise in a certain
industry then that's great if you're new to an industry I'd suggest that you
bring in people into your team that have experience of that industry to help you
break into it. Next, Take a holistic view of the customer. So what do I mean by that,
well maybe you're bidding on one element of the operation maybe it's a warehouse
in a particular city or maybe it's just the warehousing but not the transport?
Have a look at the broader requirements for that client and it's always worth
suggesting that you can provide a broader range of services. Number 4 if
you've got any concerns whatsoever about data about the specifications of the
service ask the client right up front! Once you've won the contract and you're
six months into the contract it's really tricky to go back and say hey
we didn't really understand this data. And it's a little bit late then, and the
relationships gonna really start going sour. So just to give it an example of
that and the importance of really good data so for the 3PL if you're not
getting it ask for it! For the client just be aware that you've really got to
provide that very detailed data. I was working with a government department
a couple of years ago who were outsourcing their warehousing operations
and for various reasons their data wasn't very good and they were very
reluctant to allow the 3PLs to come into the warehouse to observe the
Operations, through you know, industrial relations issues and so on. What I said to
the client was look, these people are professional why not get them all to
just turn up one day, we only need half an hour and literally just walk them
through the warehouse starting at receipting walk them through.
They don't need to talk to any staff, through to dispatch and so on. Now if you
understand logistics operations you would know the value of that to the 3PLs
because they were walking through and they could see oh yeah look there's
there's small picking operation here and they're using carton live storage
and all that, and here there are full pallets going out. You know a picture
really is worth a thousand words, so if you can, let them have a look at the
Operation. I always advise clients to specify exactly the service framework
that they want in the solution. This is because when all the bids
come in, it makes it a lot easier to evaluate and you're comparing apples
with apples. So from the 3PL perspective always make sure that you put your best
foot forward on that conforming bid, then by all means have a non-conforming one.
And the clients probably going to be thankful that you've suggested other
ways of doing things and more innovative solutions. But they're going to do that
initial assessment on the conforming bids because they're easy to compare and
then when they get down to a shortlist they�ll probably engage and look
at some of those more innovative solutions. Number 6. if the client
hasn't already told you, ask what the evaluation criteria are. It's really
Important. now they might say oh we're putting a
30% weighting on cost. The reality is it's always about 60% so you do need to
sort of sharpen your pencil. Resource the implementation well. Again remember on
the client side I was saying how important it is to meet the 3PL
implementation manager. Make sure you're putting someone up that's appropriate
for that industry, appropriate for that client and has all of the relevant
Experience. Always raise potential concerns early and suggest solutions. So
through the RFT and selection process and in the early stages of the contract
as well. So there we�ve had a bit of a gallop through it's 8 All! 8
things for the client to watch out for 8 things for the 3PL to watch
out for. And if you focus on those you've got every opportunity to have a really
valuable long-lasting outsourcing relationship. And you haven�t become a
divorced statistic! Now you know how it works on this channel if you enjoyed the
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articles and so on, on our blog at logistics Bureau which cover this topic
So thank you for spending time with us this week and hopefully you've learned
something of value about logistics outsourcing. See you next week