By Clifford F. Lynch
Nothing lasts forever, and logistics outsourcing relationships are no
exception. The client moves its operations to Bangalore, the service provider
gets swallowed up by a conglomerate, someone fails to live up to expectations…whatever
the cause, the relationship comes to an end.
Trouble is, very few outsourcing partners anticipate the relationship’s
eventual dissolution at the outset. They draw up contracts that fail to address
the terms of exit. We’ve all seen the result: What should be a business-like
agreement between the parties to move ahead separately escalates into a bitter
struggle that, at best, disrupts both parties’ operations and, at worst, lands
them in court.
Clearly, one way to head off that kind of trouble is to make sure that your
outsourcing contracts contain specific provisions for terminating the
arrangement. Those provisions should address not only terminations arising from
routine events like the contract’s expiration, but also terminations triggered
by performance problems.
But breaking up is hard to do, as the popular song observed. In the case of
performance disputes, it’s not just hard to do, it can be downright ugly –
contract or no contract. Take the case of a recent breakup between a retail
chain and the logistics service provider that had handled its store
replenishment for years.
The relationship began to unravel when the client decided to move the
operations to another city. It asked the provider to move its replenishment
operation to the new location, and the provider agreed. The partners drew up a
plan for transferring activities from one building to another, and the
For reasons that remain unclear, however, the client decided to accelerate
the schedule in the middle of the process – a decision that had serious
consequences for its partner. Over the final weekend, more than 150 trailerloads
of merchandise poured into the new facility, which was scheduled to begin
shipping to stores the following Tuesday.
In its haste to get products off the trucks and into the building, the
provider paid little attention to details like product placement. Items were
dumped wherever space was available. In brief, everything was in the warehouse;
but no one was sure exactly where.
On Tuesday morning, the provider began shipping orders as scheduled, but
because workers couldn’t locate products, those first shipments were
incomplete. Complaints of out-of-stocks at stores soon began pouring in.
Customer satisfaction quickly deteriorated. With two weeks, the client invoked
the cancellation terms of the parties’ original contract – it rendered a
written warning of unacceptable performance and gave the provider three days to
correct the deficiencies. The provider struggled to correct the problems, but
three days weren’t enough. Despite the provider’s plea for extension, the
client terminated the agreement.
Both parties bear some of the blame. It was unreasonable of the client to
insist on the three-day correction timeframe, and the provider should not have
agreed to it. The client should not have insisted on such an aggressive
acceleration of the schedule; most certainly, the provider should not have
agreed. Still, the client’s unwillingness to accommodate its partner as it
struggled to recover from a disaster the client helped create suggests a serious
lack of commitment to its partner.
Clients aren’t always responsible for bad breakups, of course. Sometimes it’s
the provider that makes the termination difficult in spite of the client’s
best efforts. Frustrated, angry and disappointed, the provider may allow service
to deteriorate to the point where it’s hardly deserving of the name.
A true professional will take the high road, cooperating with its
soon-to-be-ex partner and making the best of a bad situation. The others? Well,
they probably deserve what they get.