January 2002 | Commentary | 3PL Line

Outsourcing from the Buyer's Side of the Table

Tags: 3PL

Since as long as I have been in the business, experts have debated the pros and cons of outsourcing logistics services as well as strategies for successful outsourcing. With logistics service providers claiming they can cure everything but world hunger, it is important to remember these 10 fundamental rules when you are on the buying side of the table:

1. On-site management is the key to success. All logistics are local. No matter how impressive the corporate executives who sell the services are, the program's success depends on the local project manager's skill and dedication. Make sure the project manager fits with your organization and can hire, train, and motivate great drivers in the morning and thrill your CFO with feedback in the afternoon.

2. Institute rigorously honest analysis. Workers' compensation is not a negligible cost, nor do you have the same risk exposure for drivers as you do office staff. A quality provider will talk to you about the real costs and liabilities associated with a project so you can make rational decisions. If a provider cannot help you develop this balanced analysis, then find someone with a real understanding of your business.

3. Who do you trust? Outsourcing is an important, yet risky decision that impacts your customers. Choose the provider that works hardest to understand your operation and your reasons for considering outsourcing. Is this person someone you would want working at the desk next to you? If not, then move on. Making a mistake here will cost your company more than money. This business isn't about trucks or systems; it is about the hardworking people who surround you.

4. Safety and turnover count. Evaluate the provider's safety record at its other operations. Also, determine its driver turnover statistics and look at recent management changes. If it can't keep its drivers and managers happy, odds are it won't be able to keep you satisfied. The single biggest complaint I hear from outsourced logistics customers is that the project manager keeps changing.

5. Get the CEO's home phone number. If you cannot find a senior level executive who will be your patron saint, then walk. If the outsourcing provider's senior management is not calling on you before you close the deal then yours may be just another contract in the hopper. Make the provider show top management commitment or find someone who will.

6. References, references, references. Talk to as many customers, past and present, as you can. Did the partner deliver on its promises and honor the pricing in its contract? When parting ways, did it exit amicably? Character and professionalism count big time in this game.

7. Greater fool pricing theory. When you find a provider who will do it for significantly less than others, chances are you will get what you pay for. Your price range should generally be within three to five percent. Also, don't be afraid to pay a premium if you believe the provider will do a better job.

8. The immutable theory of startup time allowed. The number of times your phone will ring is inversely proportional to the amount of time you allow for the transition. Ask the provider to start in a week and the result will be bad. Give a provider six to eight weeks of lead time, and you will enjoy a smooth, efficient transition.

9. The advantage of a clean slate. Use the transition to make both internal and external changes. If you employ folks who do not understand the need to be safe and hug customers, make the changes now. You now have more, not less, control over the operation. Use it wisely.

10. Do you have internal commitment? You need support of the outsourcing decision up and down your own hierarchy. Have your senior executives on board whether or not they understand logistics. They need to support the decision. Also, is the region manager among the converted?

Outsourcing requires a leap of faith. You need a provider that can demonstrate operational due diligence, honesty, and a concern for your customers. You can narrow your liability risk by choosing a decently priced provider that has thrilled its customer base, managers, and drivers.

Before you leap, make sure that both your people and your outsourcing partner's senior executives are on board for the ride.