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Breaking Up Is Hard to Do

By Clifford F. Lynch

DC Velocity, February 2006

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 transition began.

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.

 

 

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