Valerie Bonebrake from Tompkins Associates; Outsourcing Logistics Success: A Relationship Saga
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Valerie Bonebrake from Tompkins Associates; Outsourcing Logistics Success: A Relationship Saga

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Valerie Bonebrake from Tompkins Associates; Outsourcing Logistics Success: A Relationship Saga Valerie Bonebrake from Tompkins Associates; Outsourcing Logistics Success: A Relationship Saga Presentation Transcript

  • Achieving Success in Logistics Outsourcing How’s Your Chemistry With Your Outsourcing Provider? June 21, 2010
  • 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
  • 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. 3 View slide
  • 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 View slide
  • 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% RequirementsSource: Tompkins Supply Chain Consortium Copyright © 2010 Tompkins Associates. All rights reserved. 5
  • They Need New Technology Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 6
  • Understanding When to OutsourceSteps In Evaluating Outsourcing Decisions andOutsourcing 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. 7
  • 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. 8
  • 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/RFQIdentify an Service Level Executive Set Objectives Quality and Delivery Sponsor Requirements Requirements Copyright © 2010 Tompkins Associates. All rights reserved. 9
  • Lack of Adequate Scope Definition Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 10
  • 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
  • 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
  • ManagingPerformance Expectations 13
  • Gaps Still Exist between LSPs and Shippers Percentages Reported By: TOP SEVEN Continuing Problems Shippers 3PLsLack of continuous, ongoing improvements and 46% 19%achievements in offeringsService 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. 14
  • Incentives and Gain-SharingPenalties 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
  • Over Promising and Under-Delivering Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 16
  • Governance Best Practices 17
  • 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
  • Contract NegotiationSteps 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. 19
  • Unrealistic Expectations Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 20
  • Contract NegotiationA good starting point for the negotiations is through a binding or non-bindingterm sheet which establishes the terms of the deal without legalese.Term sheets should address at minimum the followingareas:  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
  • Global Standard Contract ComponentsKey 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
  • 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. 23
  • Post Contract RelationshipEstablishing 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 FeeDetermining 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. 24
  • Strategies for Success 25
  • 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. 26
  • EQ Matters! Copyright © 2010 Tompkins Associates. All rights reserved. 27
  • 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. 28
  • 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. 29
  • 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. 30
  • Don’t Be Like This Guy! Stay Engaged Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 31
  • 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. 32