Outsourcing for Newbies, and a Refresher for All
While Fortune 500 companies routinely outsource everything from distribution centers and transportation management to packaging, freight audit/payment and other functions, your up-and-coming company may only need to outsource a single function of its operations, perhaps a combination. It's rarely an easy decision process, but the objective is always clear.
Growing companies need access to better technology, engineering and IT staff. To preserve working capital and promote flexibility, many choose to leverage the capabilities of a third-party-logistics (3PL) provider for carrier spend, facility occupancy and more.
To help you get the most out of this experience, I offer a few points to ponder as you move forward.
Choose Carefully— As you evaluate the pool of available providers, look for one that matches up well with your own company's culture and size. Global companies tend to use global providers, so take a clue and look at doing business with those that have the resources to fill in the gaps in your company, not duplicate them.
After the sales effort ends and the real business begins, you want a provider who views your operation as a critical revenue stream. This commitment is most often reflected in the availability of extra truck capacity and staffing during peak periods.
There is plenty of advice out there about making sure the 3PL is financially stable and has the right capabilities to fit your needs. However, I encourage going beyond in your evaluation by engaging the senior management team and getting to know them. Make sure they are in your foxhole and truly committed. If the service provider is a public company or owned by a private equity firm, they require growth to satisfy investors—not a bad thing; just be sure you are more than someone's sales quota.
Plan, Plan, Execute— Once you have the right partner, don't shortchange the planning process. Engage in a collaborative project plan that breaks out all the elements, assigns responsibilities for both parties, and makes firm time commitments, all of which drive accountability. Take more time than you think you will need in the planning phase, and make sure the technology links are well designed and tested. That way, you can begin operations with confidence, knowing good data is flowing in both directions.
Commitment and Resource Allocation— Be sure everyone on the project is truly committed to the outsourcing decision. Hurt feelings, a sense of lost control, authority, or simply feeling like the job should be kept "in house" can derail an implementation. Often, strong leadership is required to overcome emotion. If these feelings pervade within your management team, then don't outsource.
Don't skimp on the talent allocation to implement, either. People get stressed when an implementation is added to their plate of regular tasks, particularly in the IT arena. Create realistic, reasonable timelines to ensure both sides are engaged and committed to meeting the established milestones.
What Does Success Look Like?— Don't go overboard on the metrics at first. Simply select six areas to measure and track. These key performance indicators (KPIs) are your friends. They will drive your continuous process improvement effort, provide discussion topics for cost reduction, and establish expectations. People like to know when they are winning, so make a scorecard.
Strive for Mutual Success— Include a "no-surprise" policy and create an atmosphere of openness between you and your 3PL provider. Share your sales plan so the provider can staff up when you know orders will peak. Are more space, truck capacity, or other resources needed to ensure your customers are satisfied? Like most of the above items, this goes both ways. You have the right to hear straight talk if your provider sees anything that might hamper performance.
The decision to outsource any aspect of your operation is rarely easy, but sticking to these fundamental guidelines will foster not only a better experience, but also more thorough execution. By selecting the right partner and implementation team, setting expectations, and aligning culture, you have a formula for a successful project. Whether it is a multi-channel fulfillment operation, transportation management program, or plant materials management program, I can tell you it's a formula that works.