A matter of trust

Outsourcing to a logistics service provider can offer certain advantages for those considering the option. There is access to advanced technology, and the ability to tap into space and manpower, for example. There is also the increased flexibility that such service providers can offer.

Outsourcing is also not without such risks as the possibility for increased operating costs, and the negative impact on customer service that can occur if not enough attention is paid to that aspect of the business. There is an integration of technology that may take place, as well as the consideration of company culture.

There is a great deal of consideration that needs to go into such a decision and for Joe Sullivan, principal and regional director, Canada, for Tompkins Associates, the outsourcing process is about relationship building.

“Are your companies aligned? Who is going to conduct the project?” asked Sullivan, speaking at a recent SCL-CITA event. “It’s a symphony to be conducted.”

In the outsourcing relationship, roles become important.

The company looking to outsource should appoint a “relationship manager” in the process, who has to be just as comfortable in the boardroom as in day-to-day operations.

“This person will be the key liaison with your new outsourcing partner. How do you make the selection? If you don’t understand your business, you will not be able to convey your needs to a provider,” said Sullivan.

In terms of data you may need to both understand your needs and convey them to a prospective provider, include the most recent year’s detailed information (fiscal or calendar), product, inventory, receiving, order and transportation files, as well as your projections, three to five years out, noted Sullivan.

“Aim for a list of five to 10 candidates. Develop the list from personal experience and contacts, internal resources, plus external resources (such as customers, suppliers, and publications). Prepare interview questions that cover key requirements like company size, locations, industry experience, and IT offerings. Interview to determine candidate interest and the depth and breadth of services offered,” said Sullivan.

Developing the RFP

In the RFP process with the prospective outsourcing firm, you’ll need to set up a legal disclaimer to make sure “they’re not going to give away any of your secrets and you’re not going to give away any of theirs. An introduction can be fairly important or not important at all, depending on who you are as a company. You need to make sure they understand who you are, and that you’re attracting the right calibre of provider,” said Sullivan.

This means informing them about your expectations, or the “rules of engagement.”

The operational overview is “hugely important,” said Sullivan, in terms of defining what it is you’re doing today and what you’re expecting the company to do going forward.

“What are your service expectations, your KPIs? Do you expect them to hit a certain level of accuracy in delivery service, for example? What are your integration expectations for trading files? What’s your costing format? We recommend a cost + costing model to do an apples-to-apples comparison,” said Sullivan.

In the appendices, meanwhile, you’re going to ask them for things to do your due diligence: contacts, financials, capabilities, references, managerial experience and commitment, etc.

When issuing the RFP, it’s time for document control, making sure you’re keeping a lot of the back-and-forth conversations,
e-mails, and all interactions with any and all respondents.

“Ensure that all respondents get the same information,” said Sullivan.

Managing the response

As soon as is appropriate, arrange a site visit to the 3PL, during which time you can expect to be fielding a lot of questions.

“Maintain a master question and answer log. It’s usually best to provide all answers to all respondents (some may be proprietary so treat accordingly),” said Sullivan.

The weighting and rating matrix

Develop an evaluation and cost comparison matrix during the period you are issuing and assessing the RFP.

During the decision-making process, make sure you have the opportunity to sit down with the key providers and the evaluation team. Shortlisted respondents should be invited to make an individual formal presentation of their solution, usually included at their location and including a site tour.

“During this time, you’re doing your telephone reference checks,” said Sullivan.

From the onset to completion of the outsourcing process, a 12-week time frame is typical and doable, he said, “but we’ve seen this go way beyond, depending on the complexity of the operation. Any less time is rushed,” noted Sullivan.

Contract negotiation

“Go in with the lead contender, but keep the runner-up warm on the backburner. It is preferable to have an agreement in place prior to beginning implementation and avoid a letter of intent. Establish the negotiation team with the necessary technical and
operational expertise.

Understand and refine negotiations and objectives.

Implementation

The actual implementation process is highly collaborative, and requires considerable effort from both parties.

The best approach is to develop a project plan both sides can follow.

The relationship is all-important in the outsourcing “life cycle,” reiterated Sullivan.

“Celebrate the successes along the way: at the decision-making process, at the contract stage, and at several month intervals. Companies tend to struggle the most with the part of the process where they’re required to ‘know themselves’ and to determine how their operations work. The same thing goes for implementation – someone needs to manage the day-to-day interaction of the outsourcing after the fact,” he said. CT&L