Logistics Tool Kit
Outsourcing, It ’s a Learned Skill
The truth is outsourcing is a skill frequently learned after much disappointment and many hard knocks. This may sound strange coming from someone who is responsible for several businesses that have at their core outsourcing of logistics services. However, I have learned through the years that the key to a positive outsourcing relationship is very much like the key to other successful partnerships in life, communication, commitment and information.
At Nadiscorp we talk the talk on outsourcing and we also walk the walk. We believe that there are services that we cannot provide for ourselves as capably as others can, hence, we attempt to find the best at a certain discipline and work at establishing a relationship using our own business principles.
One of the most successful outsourcing partnerships we have is with CGI. They host all of our systems and provide disaster recovery services for all Nadiscorp’s daily transactions. This allows us to have scalable capacity and access to the talent of that organization to advance our technology requirements.
The results speak for themselves; a system up time that is above 99.8%, and through structured and continuous information exchange with CGI, we have reduced our costs and added many enhancements throughout our relationship. We understand each other because we are speaking the same language – outsourceese.
The greatest opportunities for our company do not come from taking business from our competitors (something we are not reluctant to do), but from working with potential clients to develop a solution that works for everyone. There are several market place analyses that indicate the non–transportation logistics outsourcing opportunities in North America represent greater than 75% of the total spend. That is business that is today not outsourced.
Our focus, as we go to market, is convincing organizations that we can improve their logistics results across the board and demonstrating that they will remain in control of their business. I believe this is the key to an outsourcing sell in almost any industry. Demonstrate competence and provide the client with tools that will keep them in control.
The first of the three cornerstones is communication. That means both organizations are speaking with each other and more importantly, they are both listening to what is being said. This communication needs to occur at several levels within both companies. I call it the zipper effect. If people at the different levels are communicating openly and factually many problems will come to the surface and be resolved at the early stages.
Assessing the culture of the other partner is a critical part of the communication activity. This needs to be done carefully and absent of personal bias. Both companies need to ask and answer blunt questions about the fit. You will be working together daily, potentially for many years and will depend on each other in many unforeseen ways. A question to ask is “Are they smart and do I like them?”
The second fundamental is commitment. This would seem to be easy from the outsourcing compan’s perspective – it’s more business. Like most things it is not that simple. The outsourcing service provider must be prepared to commit to many things as the relationship unfolds.
Many prospective clients have asked me through the years; ‘can you do the job’ and what they should be asking is ‘will you do the job?’ A subtle but very important distinction. What the later question implies is; does everyone in your organization understand our requirements and will they sacrifice to make it happen for us?
From the clients perspective it is essential to know that your outsourced service provider is committed to your business and that you have observed tangible evidence of that during the ‘engagement’ process.
• What capital investment are they making for your business?
• Quality and timeliness of responses to requests?
• The readiness of senior management people to be available and do they understand the proposition in front of them?
• Are the right people involved in the implementation project and do they dedicate the time required to get the job done?
It is important to read the signs and probe at depth on the questions that most certainly will arise.
Commitment is like most things – it goes both ways in outsourcing. The people throughout the client’s organization need to understand the strategic benefit to their company and aggressively support the decision that has been made – to outsource. My observation has been that many companies have a form of guerilla warfare going on around the decision to outsource.
A client that has one lone champion of the project supported benignly by the CEO is one to be concerned about. The chance of success diminishes greatly if there are a number of people in the company with hostility towards the partnership. This is not an experiment or a trial balloon; it is a very serious investment of finite resources and a reputation maker, or breaker.
The outsourced service provider must read the prospect clearly and ask questions of the people at every level. Do not listen for the answers you want to hear. If commitment is weak there are many ways to strengthen their resolve.
The key is a factual discussion with the leader of the organization about the complexity and long-term nature of what you are both doing. Then objectively assess that person’s determination and capability to make it happen. If the answer is on the negative side of “maybe,” a time – out is warranted prior to getting in deeper.
The third fundamental of outsourcing is information. There are many clichés about information and the times we live in ‘the information age’ and they are all representative of the needs of the partners contemplating an outsourcing alliance. You will never know enough and you have an absolute need to be sure that what you know is correct.
This is where the participants in this business relationship need to be accountable to each other. We have found that many companies do not have good information on the logistics activities they presently manage. Hence one of the reasons they are moving to the outsourced model. However, this is where you begin to walk through the minefield.
Everyone involved needs to demand rigor on getting the necessary information and challenging the assumptions no matter how insignificant they may seem at the time. Something as straightforward as the number of cartons that can be stacked on a pallet can have a huge impact on storage space and the monthly cost of services.
Be wary of using averages, most of the time they lead to flawed conclusions and surprises when the operation begins. This is a long-term business relationship and is worth the extra effort. There are instances when the information is just not available and a certain level of assessment will have to occur.
After the estimations have been made and challenged they need to be entered in the cost model. Then proceed with the completion of Standard Operating Procedures. Both items will become part of the contract. This does not need to mean a 56-page legal document but it needs to be enforceable and will guide the business relationship absent of factual information.
The relevant information about the key supply chain metrics that were used to develop the costs must be in that contract. Information such as; product weights and densities, number of SKU’s, number of orders and lines per week and per month, order size and one of the most important – turnover. Certain information will be more critical to the performance of each supply chain, but remember what got you here.
This is a long–term alliance that must work for all the partners. There has to be benefits for everyone involved. The supply chain needs to work more effectively and deliver cost savings to the client. The outsourcing company needs to make a profit and be incented to deliver savings on a consistent basis.