So are you involved in any aspect of
logistics outsourcing maybe as a service provider or as the client you know I
sure I read somewhere that something like 85% of businesses around the world
now outsource some element of day logistics and supply chain so I’ve got a
question why does so many screw it up what I’d
like to share with you this week is four things that so many companies screw up
when they’re going through the outsourcing process coming right up okay in terms of logistics outsourcing
I’ve probably been helping companies for at least 23 years in a consulting
capacity helping them through the process of selecting appropriate service
providers and negotiating contracts and all kinds of things and I’ve seen the
trend for outsourcing grow in that time but I’ve also seen companies make the
same mistakes over and over and they’ve really silly mistakes to the extent that
very often my team and I are called in when things have kind of fallen apart
and we’ve got to fix up an outsourcing contract that was kind of doomed to
failure right from the start so look I could probably spend at least an hour
going through maybe a dozen things that people get wrong and that lead to a bad
outsourcing contract but let me just pick on four if you’d like to know more
comment below and I’ll happily share more maybe create some more videos about
this topic but let me just focus on the top 4 for now so number one and we’re
talking generally here in logistics outsourcing so it could relate to
Freight or warehousing number one they don’t allow enough time and companies
will come to us and say hey we’d like you to help us through the outsourcing
process we know that you’ve got a robust system for doing this and we’d like it
all done in the next two months and we have to say hmm that’s a bit of a push
you’ve probably got to allow a little bit more than more time than that and
obviously depending on what you’re outsourcing in the complexity but just
think about the timeframe for a moment you’ve got to put together a document
which the potential providers are going to bid against and that’s quite a
detailed document you’re going to outline all of the services that are
going to be provided the service levels you’re probably going to put in a draft
contract I always recommend that so that you know it’s the power of the draft you
also want to put in you know things around KPIs and how you’re going to
measure their performance you know lots and lots of detail have to go inside
this is not a three-page letter a request for tender document it’s hard to
put page numbers on it but it’s gonna run at least 20
pages if not 50 there’s got to be a lot of detail in there and a lot of
attachments because if you think about it you’ve got to provide enough
information for those potential service providers to really understand your
operation and how they’re going to resource it so time frame for something
simple three to four months at least more often not it’s going to be six
months because you’re putting out your documentation you’re going to allow them
four to six weeks minimum to respond to it again unless it’s something really
basic you’re then going to evaluate all of those responses and you’re going to
go and visit the various potential service providers and you’re going to
negotiate contracts and implementation so it is quite a time consuming things
so what I would say to you is that if you’re thinking of outsourcing or for
some reason you’re thinking of changing outsourcing partners think about the
time frame and get started soon just as an aside if you’re already outsourcing
and you’re thinking of changing partners I would ask you why it’s a very
disruptive thing to do for your business did that initial contract get upset set
up poorly is it is can you save it can it be renegotiated
because to go through the whole outsourcing thing again it’s very
disruptive to your business so number one was time make sure you got plenty of
time number two this is probably equal first
in terms of something that goes wrong data I have been involved in outsourcing
contracts both frightened and warehousing where we’ve looked at a
value of a contract for anything from a couple hundred thousand dollars up to 20
or 30 50 million dollars and the thing that people get wrong so often is not
providing enough data and I’ve spoken about this before I’m going to talk
about it again because it’s critical you need to provide very detailed
information as part of your request for tender process around the products you
know product master and weights and dimensions of products around the
customers where are they where products being dispatched to delivered
to around you know your existing performance transaction history you know
typically I’d be saying you want to provide 12 months of transaction history
here’s all the orders that went out the order lines you know because the service
providers have to analyze your business to that level of detail because they’re
going to design a solution to meet your business needs and if you can’t provide
that level of detail they’re going to make it up not not quite that I mean
they’re generally more professional than that but they’re going to have to take a
bit of a guess and they’re going to have to make some assumptions and they’re
going to have to put in some contingency and it’s going to end up costing you
more and of course if the cost is here when you start it’s very hard to peel it
back through the life of the contract so data is really important now you
might be thinking but what if I don’t have all the data okay well sometimes
you don’t but you really have to make a best guess at you know the profile of
the orders and so on and if you can’t even do that you need to make sure that
the people bidding on this work can actually get access maybe to your
facilities and so on to have a look because you really got to do everything
you can to help them understand the operation because otherwise they’re just
guessing about you know what resources to provide to help you in delivering
this service so we’ve had time and data clarity is the next one be very clear
about what you’re outsourcing and what you’re not and don’t hide things I have
seen outsourcing contracts go right down the toilet because the 3pl turned around
after about six months and said hey you didn’t tell us that you had 10% level of
returns or you didn’t tell us that we had to do kitting you know we had to put
Australian power cords in the packs you know with all the products and all of
that takes more work and more resource and more cost and if it wasn’t costed in
guess what’s going to happen they’re going to come to you and say hey we’re
doing things that we hadn’t budgeted for we need some more money and so don’t
don’t think that you’re going to get away with that kind of stuff I’m sure
you won’t be thinking like that but sometimes come
bunnies will think it’s hard to quantify that or we’re not quite sure you know we
don’t need to put it in the rft the request for tender you do you need to
put in everything that the service provider is going to have to resource
and if you’re lacking in some information well maybe you can sit down
with them and make some really good estimates
okay so we’ve had time data and clarity the last one is approaching the right
people so I have seen companies over the years kind of do a web search and say oh
we found you know 10 companies that seem to be a good fit for us let’s invite
them all I’d suggest that’s probably a little bit
too many I have seen companies really invite the wrong types of service
providers so let’s say for example we’re doing chilled food distribution and
you’re inviting a company that doesn’t do chilled food distribution they only
do ambient products they’re going to be wondering why they’ve been invited to
tender and I’d be questioning why are you asking them because they don’t have
the experience in the services that you need so be quite selective and be smart
about who you’re picking to participate in the tender process because if you
pick too many or if you pick some that are you know clearly not appropriate to
look after your business you’re basically undermining your own
credibility you’re demonstrating to the market that we don’t understand the
market enough to know who to talk to now there are some exceptions so I’ve been
involved in a lot of government contracts where they have to basically
go to open tender I understand that understand the reasons for us generally
what we do there is we’ll put an extra step in the process which is like an
expression of interest and then selected companies will go forward to the request
for tender the reason we do that is the expression of interest is just like a
filtering step it doesn’t require too much effort on part of it on the part of
the people bidding it gives them an opportunity to to demonstrate you know
if they’re capable of doing the work and so on but it doesn’t make them go
through that whole RFP process which can be lengthy and costly for someone
bidding on the contract so that’s another way if you
are obliged to actually go to a much broader market okay so as I mentioned
there could be at least a dozen things that I could share with you on why
logisitics outsourcing goes wrong for now just think about the time frame have
you left enough time think about the data are you providing enough
information for them to accurately resource and cost this contract think
about clarity about which services the service levels you require and think
about making sure that you’re approaching the right people okay so if
that’s helpful I’ll put some links below which will give you all I might actually
give you not a draft contract but actually a it’s a what do you call it
contents page of a draft rft which would really help you in understanding the
complexity involved if I can share that I’ll show that below but I’ll certainly
put some links below to other articles and videos which will help you and don’t
forget if you find this video of use please make sure you subscribe we have a
new video coming out every Wednesday if you’d like any more information about
logistics outsourcing or if you want to share some experiences please do comment
below and other than that we’ll see you next week with another topic on supply
chain logistics