Outsourcing Transportation

Outsourcing Transportation and Trucking Relationships

As 3rd party logistics providers gain more expertise, their level of service brings more value to the buyer. Because of this outsourcing transportation has become more prevalent. To insure success in the relationship, you must apply sound project management skills to your decision. Working through these due diligence steps with the right provider will bring you closer to your organization’s strategic goals.

1. Map The Current Process, How Do You Currently Handle Logistics?

  • In order to determine if 3rd party logistics is right for you, you must first have a baseline for comparison. What are your logistics operations costing you now? How are you doing business today?

  • Know what you want to achieve. Having clear goals lets you know what success looks like. Tie the 3PL’s financial success to achieving these goals. If you don’t have a clear picture you won’t be able to measure your 3PL’s success.

  • Data is critical because that’s where you start to focus on continuous improvement

2. Define A Master Plan As It Relates To Inventory Levels, Customer Service Requirements, Information Systems, ROI

  • The master plan must be integrated into your company’s strategic plan

  • A master plan will provide you with a baseline for future years and support your decision making process when considering alternatives and improvements

  • The master plan should include a baseline of not only costs but qualitative measures as well (on-time percentage, order turn around time, safety inventory levels)

3. Consider Alternatives To Your Current Thinking

  • Once alternatives are developed collect data on how each alternative will impact service factors and costs

    • – Consider such things as should we consolidate vendor shipments

    • – How will we hedge against market conditions

4. Draw Up A Phased Plan For Implementation

  • Determine what functions will be migrated to your 3PL and on what time table

  • Determine members of the transition team

5. Bring Together Those Staff Members Affected By The Change

  • Many persons are affected by logistics operations. Each needs to help the other understand what is involved in his area.

  • Your staff can sabotage the process. Giving up control to a 3rd party is very difficult for most organizations. Employees are often resistant to someone else taking responsibility for their legacy tasks, such as making sure inbound materials get to your manufacturing line on time

6. Develop A Scope Of Work Document

  • The tasks performed and the level of performance must be clearly defined.

  • Issues around safety and quality must be included.

  • Compile a list of expected reports.

    • – On-time performance

    • – Saving trend

    • – Increase in customer satisfaction (internal customers)

    • – Trends – Seasonality: Are we above or below where we were last year and what’s driving that?

7. Design The Contract And Compensation Arrangement

  • The goals of the 3rd party provider must be clearly set and a time for accomplishing those goals defined. New goals may be established once the original ones are met and a reward system is an effective way of managing the relationship.

  • Risk sharing is important. If both parties share risks they are likely to invest equally in the success of the partnership.

  • Compile a list of expected reports.

    • – Management fees are an appropriate way of setting the fee and tying into fluctuations in volume. Setting the appropriate fee may be a problem.

    • – Gain-sharing for meeting and exceeding stretch targets is a must for continuous improvement of the relationship.

    • – Depending on the relationship cost-plus agreements can reward both parties when the 3PL is successful at achieving its goals.

    • – Possible ways of compensation are a unit rate with underlying volume guarantees.

    • – Many times companies decide that it’s most effective to create a combination of compensation types.

8. Managing The Relationship

  • Pave the way for making your 3PL successful, set up a continuous improvement team with internal and 3PL personnel that work together to improve the operation.

  • Involve your 3PL in planning. Keep them in the loop. Admit that you have supply chain problems and allow your 3PL to do what it does best – provide solutions.

  • Provide plenty of time for the transition of the operation, then get your hands off micromanaging the operations.

  • Accountability ultimately rests with the buyer, own up to and work through mistakes by establishing Standard Operating Procedures based on Continuous Improvement.

"Logistics partnerships only work if you are willing to let another entity control the process for your benefit. Company management (preferably a C-level executive) must back your decision to outsource.)"
 

*Planning Your Way Into a Successful Outsourcing Relationship was compiled by Pam Hassevoort, CEO of Foreway Management a logistics management firm.
 

It is based on her firm’s experience of the components that create win/win for both parties. Pam can be reached at pamh@foreway.com

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