Be Careful What You Ask For
Outsourcing logistics processes is all the rage today. However, some firms are electing to outsource significant portions of their supply chain without completing all of the proper preparation. It is rarely good business practice to follow others just because it is trendy.
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THERE IS AN ENTIRE RAINBOW of logistics relationships — ranging from the simple transaction, such as a single spot buy for a point-to-point truckload movement, to the pot of gold relationships needed for totally outsourced supply chains.The closer you intend to get to total outsourcing,the more preparation is necessary to achieve long-term success. The cost of errors in this type of arrangement can lead to losses of both careers and millions.
There are several steps that we regularly see omitted.The first and most frequently omitted step is taking into account self-knowledge regarding your own firm. Not every partner is perfect for you, and getting an appropriate one requires that you know the culture of your own company.
Is yours an authoritarian culture,one of command and control? If so, a service provider who prefers a consultative relationship will have substantial overhead you do not require, and its managers are going to be disappointed and less than enthusiastic about the working relationship.Your best bet is a command and control partner.
How does your management respond to errors? What happens when a competitor launches a new service? If innovation and flexibility are important issues for your firm, research suggests that mid-sized privately owned partners would best fit your needs.
The strategic direction of your firm is one of the major factors that must be considered. Is there an acquisition or divestiture in your immediate future? If so, your partners must be able to respond to the changing requirements, and your contracts must allow for some flexibility. The strategic direction dictates the tasks that must be done, and your company culture combined with that of your partners determine how successful you will be in completing those tasks.
A good analogy is to examine how well you are suited for your job. Is your psychological makeup important? You bet it is! My high school guidance counselor used my good math scores to direct me to a career in mechanical engineering. My ADHD-type personality made that a disaster. The continual drive for better, faster, cheaper in logistics is a better fit. But then who knew what logistics was in the middle of the previous century?
The cafeteria list of services you receive in response to your standard request for information is inadequate for a complicated outsourcing project. You need to apply a business-type Myers-Briggs personality indicator test to your partners if you expect to live happily ever after. Well, at least for the three to five years of the contract. The personality fit between the two firms is a critical and often overlooked piece of the outsourcing program. Ethics, willingness to invest in relationships, attitudes toward continuous improvement programs and ability to act if the unexpected happens are among the areas that need to be understood beforehand.
This advice to examine your potential partner applies to the service provider side of the relationship as well. No matter how hard the capital partner is pushing for top line growth, not every client is a good client. While the requests for proposals are flowing and the fever is high, it is easy to get carried away with visions of unending double-digit growth rates. However, a significant number of those potential clients do not fit your profile range of acceptable clients and are, therefore, disasters waiting to happen.
While we are waiting for a collaboration guru to develop the business Myers-Briggs, we recommend the following. Pick some of the critical things that have happened or could happen in your supply chain operations and describe your firm’s (likely) reaction to them. Form those issues into questions that you ask potential partners as a part of your request for information process and then review how their responses would be received in your company.
If the service provider’s responses would not be acceptable in your environment, move on. You just saved both firms from the risk of a large lawsuit. If no one gives you acceptable answers, the problem may reside close to home, or you may have a set of circumstances where outsourcing will not provide the appropriate solution. If you do get responses you could work with, then they need to be drafted into the agreement you reach with the selected supplier.