Given the high-stakes nature of logistics outsourcing arrangements, itís no
surprise that so much has been written on the "rules of outsourcing."
Iíve done it myself, as have scores of others.
Most have approached the topic from the clientís perspective, offering
advice on how to work successfully with a logistics service provider (LSP). But
providers have rights and obligations as well, and itís high time we
concentrate on these. What follows is my attempt to do so by offering 10 basic
rules for service providers:
1. Encourage strategic thinking and planning. In their haste to hand
off responsibilities, clients oftentimes fail to think through their outsourcing
decisions. That haste has a price. When a client rushes through the process, the
result can be a badly flawed request for proposal (RFP) Ė one that overlooks
the most cost-effective and/or efficient procedures (or any unique services you
may offer). To prevent this from happening, try to become part of the process
from the beginning.
2. Know how you stack up in the marketplace. The sophisticated client
will conduct due diligence on all prospective partners, running background
checks, talking to existing customers, and assessing financial stability. As a
provider, you should be prepared to demonstrate not just you financial health
but also how you stack up against the competition with regard to management
depth, strategic direction, IT capabilities, and labor relations.
3. Set realist expectations. Weíve all heard stories about
outsourcing relationships that were derailed by unrealistic expectations.
Sometimes, the failure stems from the clientís inability to provide accurate
(or adequate) information on, say, the volume, size, and frequency of its
shipments. Other times, the fault lies with the provider Ė LSPs frequently
underestimate the cost of providing the service, especially in the IT area.
Either way, the result is the same: The provider ends up developing costing for
Ė and committing to Ė arrangements that donít reflect reality. Itís
worth spending the time up front to avert these kinds of disasters.
4. Develop an airtight contract. Be sure that all obligations,
expectations, and remedies are clearly spelled out. Include incentives for
improvements in operations and productivity, with both parties sharing the
5. Ask for the manual. Strongly urge the client to provide an
operating manual that contains all policies, procedures, and other information
necessary for the efficient execution of the outsourcing agreement. Ideally,
this manual will be developed jointly by the provider and client.
6. Identify potential friction points. Both parties usually have a
pretty good idea of the friction points that could cause trouble down the road.
Identify them in advance and agree on a procedure for resolving them.
7. Communicate. Failure to communicate is second only to poor planning
as a cause of outsourcing relationship failures. Communication of all aspects of
the operation must be frequent and two-way. Visit your key clients on a regular
8. Solicit feedback. When setting up the program, clearly identify and
agree upon standards of performance. Insist on regular performance reports so
you can address any problems on a timely basis Ė not when itís too late.
9. Motivate and reward your personnel. Ideally, this should be done by
the client. But if the customer declines to do so, take it upon yourself to
reward good performance. Compliments, recognition, awards, days off, and dinners
are all proven motivators. Do whatever works for your particular operation, but
10. Be a good partner. Never forget that your clientís ability to
service its own customers depends largely on your performance (or lack thereof).
Maintaining a high level of integrity and service in all your transactions will
ensure a high level of satisfaction.