A Conversation with Joe Bento
President, CEVA Americas and Global Freight Management
and Bill Best Director of Global Logistics, Microsoft

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The questions for this CEO Executive Interview have been questions developed by members of LQ's Board: Graham Allen, Program Manager, BPS Supply Chain Secretariat, Ontario ministry of Finance; John Langley Jr., Ph.D., Professor of Supply Chain Management, Georgia Institute of Technology; Susan Promane, Director, Supply Chain, Whirlpool Canada; Kurt Ritcey, Partner, Deloitte

Joe Bento

LQ: How do you quickly build effective IT interfaces between your system and the client’s, given the incompatibility of IT systems in “talking” to each other? (Graham Allen)

Joe Bento: Customer systems interface has become the norm, not the exception, in the industry. CEVA understands clearly the critical nature information exchanges and to ensure we respond effectively, we have hired some of the best talent to deliver the solutions our customers need.
The key to building effective IT interfaces is to dedicate the right resources required to design, test and implement the systems long before they go live. For CEVA, it’s never about building the interfaces quickly, but rather taking the time to properly scope our customer’s requirements and developing solutions that fit. It can be a bit of a delicate balance, but we want to move with speed and accuracy. Our goal is about getting it right the first time, every time. To achieve this, we collaborate closely with the customers throughout the design, production and UAT phase. There has to be unwavering commitment to a pragmatic implementation process by both the customer and the 3PL.

LQ: What do you feel are some of the key issues and challenges in benchmarking the value of a 3PL–customer relationship? (John Langley Jr.)

Joe Bento: The fundamental scorecard is relatively easy to benchmark. The challenge comes as the relationship evolves. Over time the 3PL–customer relationship has evolved from a vendor relationship to a partnership, and from moving shipments from point A to B to strategically managing supply chains. As the customer’s supply chain becomes more complex, the expectation is for its 3PL partner to broaden its service offerings, to expand its network to be where the customer, its vendors and their customers are located, and to deliver competitive end-to-end solutions with the right visibility. Responding to these challenges requires not only financial investment but, even more, innovation, a mindset of continuous improvement, delivering operational excellence and hiring the best talent to execute.

LQ: Statistics show that the odds of successfully renewing a 3PL customer contract decline as you hit the third and fourth contractual term renewal. How do you keep a strong, successful 3PL–customer relationship in the long term—especially once the “honeymoon period” is over? Have you had partnerships fail? If so, what has been the root cause? (Susan Promane)

Joe Bento: At CEVA we achieve successful partnerships through responsiveness, relentless execution, continuous improvement and innovation delivered by a team of professional account managers, operations and solutions design specialists and senior management. We operate in a highly dynamic environment, as the needs of our customers change rapidly in order to maintain a competitive edge. As their needs change, we respond accordingly. There cannot be complacency in how we manage our customers’ businesses. We always look for ways to improve on our execution and develop new, innovative service offerings that add value.
We have experienced some churn with some agreements, but nothing I would consider extraordinary. The most important takeaway for us is to learn from our mistakes, to avoid having history repeat itself.

LQ: What is your perspective on the pros and cons of cost-plus contracts versus unit-price contracts for 3PL relationships? (Kurt Ritcey)

Joe Bento: No matter what pricing model is adopted, the expectation is for the 3PL to be competitive, especially in today’s economic climate. It is challenging to apply anything outside of unit pricing for new contracts, as it takes time to understand the complexities behind the customer’s supply chain; first you must physically manage it over a period of time. Only then can a 3PL deliver the efficiencies that drive cost down and add more value to the customer’s supply chain, and move from unit pricing to sustainable pricing models. Moving forward, the goal is to work collaboratively on gain-sharing initiatives that meet the customer’s objective of reducing cost. For the 3PL, this translates to having a long-term partnership with the customer while continuing to operate profitably, to enable them to continue to invest in whatever infrastructure, systems and resources are required to meet the ever-changing needs of the customer.
There are no pros and cons on unit-price versus cost-plus contracts. There is a time and a place for both. In all instances, both parties must derive value from the pricing arrangement. A low-cost solution that is not mutually compensatory cannot be sustained.

LQ: 3PL start-ups, especially with new 3PL–customer relationships, can be difficult. Have you experienced major difficulties during this critical phase? If so, what was the key reason? How do you really measure the success of a start-up? (Susan Promane)

Joe Bento: Time wisely invested during the implementation phase of any contract with a new 3PL customer makes all the difference in achieving a smooth program launch. At CEVA, implementation of new programs is managed by our Zero-Defect Start-up (ZDS) team. They are trained to scope the program, document processes, recruit and train the team required to manage the business going forward, and conduct trials prior to the program’s going live. Depending on the complexity of the program, this may take anywhere from 30 to 90 days. Even after the team signs off when the program goes live, they remain accessible to the account management and operations team until the program stabilizes.
We tend to experience challenges during the implementation of some new customer programs when there are gaps in the information provided during the initial stages. The systems interface may take a little longer than anticipated to deploy or test. Surprises can arise at any given time. The key is to have open and honest communication so that both parties are aware of the challenges at hand and work collaboratively to overcome them.

Bill Best

LQ: How do you quickly build effective IT interfaces between your system and the client’s, given the incompatibility of IT systems in “talking” to each other? (Graham Allen)

Bill Best: There are a few realities that have to be considered:

1. Every customer’s ERP system is going to be configured to some degree, making integration unique; there are no cut–and-paste solutions.

2. The other complexity is that the technology to integrate is broad. You have both 3PLs and customers working with varying levels of technology, from XML to passing spreadsheets via email. The skill set for the 3PL requires you to be a jack of all trades, and they have to be contemplating whether the emerging technologies can be justified by a business case. A successful 3PL is positioned as a functional expert and can’t make the mistake of jumping into technology prematurely.

3. It is essential for both parties to acknowledge and adequately prepare for an effective IT implementation. The 3PL must demonstrate leadership and understand that its ability to execute integration flawlessly and in a timely manner will differentiate it from the competition. LQ: What do you feel are some of the key issues and challenges in benchmarking the value of a 3PL–customer relationship? (John Langley Jr.)

Bill Best: The 3PL value proposition is no longer a linear equation. Customers have already realized the low-hanging fruit associated with negotiating good rates. The value now must be found in how we manage inventory throughout the supply chain to minimize our financial exposure. Visibility is not enough anymore; visibility is a cost of entry. For consideration to be a supply chain partner, the 3PL must enable exit points in that supply chain so that inventory decisions can deliver a demand-driven supply chain.

LQ: Statistics show that the odds of successfully renewing a 3PL customer contract decline as you hit the third and fourth contractual term renewal. How do you keep a strong, successful 3PL–customer relationship in the long term—especially once the “honeymoon period” is over? Have you had partnerships fail? If so, what has been the root cause? (Susan Promane)

Bill Best: First, the decision to outsource is part of a greater decision for an organization—to recognize where they are going to invest their own resources as compared to where they can leverage from a third party. More simply stated, outsourcing non-core competencies rationalizes the decision about who has the best demonstrated capabilities to address your business needs. The thing that causes those relationships to fail over time is the failure on the 3PL’s part to make investments and continuous improvements, whether it is in people, processes or systems, to mature along with capabilities in the marketplace. Nobody operates in a static environment. If we outsource to people who we expect to be experts or to have the capabilities to deliver services we choose not to do in-house, they must to evolve. Our requirements will change continuously, and if the value is lost in your ability to consult for us and to develop capabilities along with that, we will have to move to someone who is more entrepreneurially minded.

LQ: What is your perspective on the pros and cons of cost-plus contracts versus unit-price contracts for 3PL relationships? (Kurt Ritcey)

Bill Best: First, cost-plus as a business model is an interim solution; if it becomes a long-term solution then nobody wins. At times the urgency of the customer’s business need will not afford the 3PL an opportunity to demonstrate full competency. This hinders an entrepreneurial environment, where continuous improvement leading to gain sharing drives the relationship. Pricing at the per-unit level could yield a similar result if the contracted rate becomes the basis for the relationship. The cost model must drive the relationship to enable change and deliver the best of what the 3PL services can offer, understanding that investments need to be made on both sides of the relationship to yield value. Cost-plus is used as an expedient way to engage a new business relationship. The value of the 3PL relationship may not be borne solely by the per-unit cost. It can also help define a vendor relationship and can be an enabler to define a partnership.

LQ: 3PL start-ups, especially with new 3PL–customer relationships, can be difficult. Have you experienced major difficulties during this critical phase? If so, what was the key reason? How do you really measure the success of a start-up? (Susan Promane)

Bill Best: Often what happens is the customer wants to impose implementation on the 3PL and the customer makes limited investments at the front end. Everyone gets really excited about focusing within the four walls and we start filling up that box, but where investment is usually too light is in the upfront process mapping. Whatever methodology is used, whether Lean, Six Sigma or otherwise, we all profess to having very crisp process documentation and measures in our internal environment. But when you’re trying to leverage an external party, it may not match immediately and it requires some investment in understanding the vernacular. Nobody likes to invest a week in sorting that out, but fixing implementations that go badly is often exponential in both time and opportunity cost.

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