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Valerie Bonebrake from Tompkins Associates; Outsourcing Logistics Success: A Relationship Saga
- 1. Achieving Success in Logistics
Outsourcing
How’s Your Chemistry With Your
Outsourcing Provider?
June 21, 2010
- 2. Discussion Outline
Session Objectives
The Environment Today
A Look at Outsourcing
Managing Performance Expectations
Governance Best Practices
Strategies for Success
Copyright © 2010 Tompkins Associates. All rights reserved.
2
- 3. Session Objectives
Examine the State of Outsourcing Today
Review Best...and Worst Practices
Share Ways to Get More Out of Your Outsourcing
Relationships
Have Fun!
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 4. The Environment Today
Impact of the Recession
– 2009 was the first year of negative growth for LSPs
– Companies need to shrink and grow at the same time
– Continued uncertainty
– Lack of talent
M&A Activity in the LSP Space
Globalization and Emerging Markets
Shippers’ Organization Structure and Strategy
Copyright © 2010 Tompkins Associates. All rights reserved.
4
- 5. Why Do Companies Outsource?
Reason for Outsourcing Importance to Them % of Respondents That
(1-5 scale) Favor Outsourcing for That
Reason
Flexibility to Grow Capacity 3.9 83%
Improved Service 3.8 78%
Peak Season / Overflow 3.8 79%
Capacity
Lower Cost / Rate Structure 3.6 61%
Reduced Capital Investment 3.3 79%
Workforce Issues 2.9 62%
Initial Entry into Market 2.8 64%
Access to Skills Not Available 2.6 52%
Internally
Access to Technology Not 2.2 64%
Available Internally
Local Regulatory 1.7 57%
Requirements
Source: Tompkins Supply Chain Consortium Copyright © 2010 Tompkins Associates. All rights reserved.
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- 6. They Need New Technology
Copyright © 2010 Tompkins Associates. All rights reserved.
Source: Supply Chain Digest
6
- 7. Understanding When to Outsource
Steps In Evaluating Outsourcing Decisions and
Outsourcing Partners
Core Competency Matrix
1. Outline Areas of Opportunity
» Current and Future
» Define Core versus Non-Core
2. Realistically Outline Your Strengths and Weaknesses
» Skill Set (distribution, compliance)
» Regional Expertise
» Existing Infrastructure
3. Define the Scope of Services
» Distribution Services
» Transportation Decisions
» Sourcing/Payment Control
4. Identify Providers Capable of Meeting Your Needs
» Experience, Infrastructure, Cost, References, etc.
5. Select a Partner, Not a Service Provider
» Outsource for expertise and flexibility
» A lower cost must come with improved service and commitment
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 8. Understanding When to Outsource
Some Key Benefits to Outsourcing?
Common Drivers for
– Focus on Core Competency
Outsourcing?
– Reduction in the Cost of Logistics Operations
• Desire to focus on your core
– Reduction in Head Count
strengths
– Improved Accuracy • Inefficient and costly operations
– Flexibility and Wider Range of Services • Failing to meet service requirements
• Evolving market dynamic (i.e. shift
– Access to Global Networks and Superior
from manufacturer to importer)
Technology
• Outdated technology requiring
– Improved Service upgrades
– Improved Quality • Require flexibility in capabilities and
space
– Reduced Capital Investment and Increased Cash
Inflow • Entry into an emerging market
• Lack of internal expertise in
– Ability to Rapidly Expand and Handle Peaks markets/regions
– Ability to Tap into Transportation Synergies • Capital constraints
• Need for rapid expansion
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 9. Create Your Outsourcing Plan
Define Customer
Service
Requirements
Perform A Market Map Current
Evaluation of Key Functions
Service Providers or Processes
Identify Total
Cost of Develop a Prepare
Operations Baseline Model RFI/RFQ
Identify an Service Level
Executive Set Objectives Quality and Delivery
Sponsor Requirements Requirements
Copyright © 2010 Tompkins Associates. All rights reserved.
9
- 10. Lack of Adequate Scope Definition
Copyright © 2010 Tompkins Associates. All rights reserved.
Source: Supply Chain Digest
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- 11. Determine Your Evaluation Criteria
Ability to demonstrate proven methods
Best-in-breed systems, easy to interface
Defined scope of work
Metrics and KPIs
Program management
Formal business review process
Continuous improvement and innovation
Cultural fit
Copyright © 2010 Tompkins Associates. All rights reserved.
11
- 12. Logistics Provider RFP & Solicitation Process
Suggested Performance Categories and Weightings (Example)
Cultural Fit Criteria
• Do they share your organization’s values?
• Have they been open during the process?
• Has working together been easy?
• Have your interactions been natural or forced?
• Are they excited about partnering with you and your company?
LSP Provider X - Final Evaluation
Category Category Maximum
Category Rating Weight Score Score
Financial Stability 5 15 75 75
Service Offerings 4 15 60 75
Culture 4 15 60 75
Customer Satisfaction 3 15 45 75
Operations 3 10 30 50
Technology 4 10 40 50
Cost 2 10 20 50
Flexibility 3 5 15 25
Control Systems 5 5 25 25
Total Rating 100 370 500
Copyright © 2010 Tompkins Associates. All rights reserved.
12
- 14. Gaps Still Exist between LSPs and Shippers
Percentages Reported By:
TOP SEVEN Continuing Problems
Shippers 3PLs
Lack of continuous, ongoing improvements and
46% 19%
achievements in offerings
Service level commitments not realized 46% 31%
Information technology capabilities not sufficient 43% 31%
Cost reductions not realized 36% 34%
Lack of project management skills 35% 17%
Unsatisfactory transition during implementation stage
31% 25%
Lack of global capabilities 30% 21%
Source: 2009 14th Annual Global Third Party Logistics Study
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 15. Incentives and Gain-Sharing
Penalties Incentives
Assessment on overall Bonus for exceeding
performance overall performance
Lost and damaged product – Service levels
– Quality, responsiveness
Contract specific metrics
– Delivery
Reduction in volume
stored, handled and Formal recognition
produced programs
Gain-sharing plans
Source: Tompkins Supply Chain Consortium Copyright © 2010 Tompkins Associates. All rights reserved.
15
- 16. Over Promising and Under-Delivering
Copyright © 2010 Tompkins Associates. All rights reserved.
Source: Supply Chain Digest
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- 18. Don’t End Up in Court!
Failure to Align Expectations
Failure to Provide the Reality of What is Needed
Secrecy
Lack of Transfer of Knowledge
Lack of Agreement on KPIs
Not Agreeing/Addressing Modifications Over Time
Not Turning over Responsibility but Expecting Different
Results
Unrealistic Implementation Schedule
Copyright © 2010 Tompkins Associates. All rights reserved.
18
- 19. Contract Negotiation
Steps to Success
Joint Operational and Legal team
Involve experienced legal counsel early in the process
Ensure that legal counsel understands the objectives in the outsourcing
initiative and the company’s negotiating position
Avoid heavy handedness, focus on mutual benefits
Maintain leverage (i.e. back-up option)
Key Questions to Ensure Counsel Is Up to Speed on:
What is driving the decision to outsource – commercial, financial, technological?
What departments are impacted and what are the consequences to each?
How can the objectives be utilized in negotiations with the provider?
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 21. Contract Negotiation
A good starting point for the negotiations is through a binding or non-binding
term sheet which establishes the terms of the deal without legalese.
Term sheets should address at minimum the following
areas:
Integrate commercial, legal, technical, and financial issues
Balance risk and reward
Balance certainty and flexibility
Service levels
Performance Metrics
Provide price predictability
Plan for exit
Copyright © 2010 Tompkins Associates. All rights reserved.
21
- 22. Global Standard Contract Components
Key Components of a “Global Standard" Distribution Site Contract:
Scope of services – transition, warehousing and/or transportation and value
add
Facility – address, size and general configuration
New equipment – statement of acquisition and ownership
Transition schedule – target dates and responsibilities
Lien waivers – it is important that the provider not be able to make any claim
against the client’s inventory
Service levels
– Critical service levels will have non-compliance penalties attached
– Key performance measures are meaningful metrics but do not accrue
penalties
– Measurement and monitoring tools
Copyright © 2010 Tompkins Associates. All rights reserved.
22
- 23. Global Standard Contract Components
Key Global Standard Components (continued)
– Pricing
– Staffing
– Ownership and confidentially of data
– Performance Incentives
– Business Recovery
– Audits – particularly important in a “cost plus” arrangement
– Termination – conditions for termination and termination transition period
– Dispute Resolution
– Other areas of note are: payment terms, tax responsibilities, insurance
responsibilities
– Master Agreement
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 24. Post Contract Relationship
Establishing the Relationship and Handing Over the Operation
Set initial expectations
Jointly identify resources up front
Establish operational baseline (current)
Fee Structures
Establish future goals and destination
• Fixed Cost
Plan for resistance
• Transaction Fee
Determining the Relationship Structure
Cost Plus
Metrics and reporting
• Activity Based
Communication plan • Management Fee
Problem resolution • Combined Structures
Change orders
Steering committee
Invoicing format
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 26. Keys to Success
Partnering
Perfect Relationship
– Joint goals Recipe
– Continuous improvement Shared Vision
Shared Values
Managing Shared Expectations
– Performance metrics Shared Commitment
Shared Confidence
– Two-way communication Shared Responsibility
A dash of Cooperation
Nurturing A pinch of Collaboration
– Ongoing involvement
– Celebrating mutual success
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 27. EQ Matters!
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 28. Relationships Matter
What’s Your EQ?
– Self-awareness
– Self-management
– Social awareness
– Relationship management
Leadership: Attitudes and Behaviors that Relate to
Humanity
“It’s About the People Stupid”
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 29. Begin with the End in Mind
HIGH VALUE HIGH VALUE
LOW DIFFICULTY LOW DIFFICULTY
LOW DIFFICULTY HIGH DIFFICULTY
LOW VALUE LOW VALUE
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 30. Don’t Get Out of Balance
COST
CHANGE ONE PARAMETER
AND THE OTHER TWO ARE
LIKELY TO CHANGE AS WELL
TIME SCOPE
Copyright © 2010 Tompkins Associates. All rights reserved.
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- 31. Don’t Be Like This Guy!
Stay Engaged
Copyright © 2010 Tompkins Associates. All rights reserved.
Source: Supply Chain Digest
31
- 32. Contact Information
Valerie Bonebrake
SUPPLY CHAIN EXCELLENCE
Senior Vice President
6870 Perry Creek Road
Raleigh, NC 27616
(913) 393-1051 Office
(913) 219-6768 Mobile
vbonebrake@tompkinsinc.com
www.tompkinsinc.com
Copyright © 2010 Tompkins Associates. All rights reserved.
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