Achieving Success in Logistics                 Outsourcing    How’s Your Chemistry With Your        Outsourcing Provider? ...
Discussion Outline Session Objectives The Environment Today A Look at Outsourcing Managing Performance Expectations G...
Session Objectives Examine the State of Outsourcing Today Review Best...and Worst Practices Share Ways to Get More Out ...
The Environment Today Impact of the Recession   – 2009 was the first year of negative growth for LSPs   – Companies need ...
Why Do Companies Outsource?          Reason for Outsourcing           Importance to Them              % of Respondents Tha...
They Need New Technology                                  Copyright © 2010 Tompkins Associates. All rights reserved.Source...
Understanding When to OutsourceSteps In Evaluating Outsourcing Decisions andOutsourcing Partners                          ...
Understanding When to Outsource   Some Key Benefits to Outsourcing?                                                      ...
Create Your Outsourcing Plan                                                            Define Customer                   ...
Lack of Adequate Scope Definition                                     Copyright © 2010 Tompkins Associates. All rights res...
Determine Your Evaluation Criteria Ability to demonstrate proven methods Best-in-breed systems, easy to interface Defin...
Logistics Provider RFP & Solicitation Process         Suggested Performance Categories and Weightings (Example)Cultural Fi...
ManagingPerformance Expectations                           13
Gaps Still Exist between LSPs and Shippers                                                                     Percentages...
Incentives and Gain-SharingPenalties                                   Incentives Assessment on overall                  ...
Over Promising and Under-Delivering                                       Copyright © 2010 Tompkins Associates. All rights...
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 ...
Contract NegotiationSteps to Success    Joint Operational and Legal team    Involve experienced legal counsel early in t...
Unrealistic Expectations                                         Copyright © 2010 Tompkins Associates. All rights reserved...
Contract NegotiationA good starting point for the negotiations is through a binding or non-bindingterm sheet which establi...
Global Standard Contract ComponentsKey Components of a “Global Standard" Distribution Site Contract:     Scope of service...
Global Standard Contract Components   Key Global Standard Components (continued)    – Pricing    – Staffing    – Ownershi...
Post Contract RelationshipEstablishing the Relationship and Handing Over the Operation   Set initial expectations   Join...
Strategies for Success                         25
Keys to Success Partnering                                 Perfect Relationship  – Joint goals                        Rec...
EQ Matters!              Copyright © 2010 Tompkins Associates. All rights reserved.                                       ...
Relationships Matter What’s Your EQ?   –   Self-awareness   – Self-management   – Social awareness   – Relationship manag...
Begin with the End in Mind    HIGH VALUE         HIGH VALUE  LOW DIFFICULTY      LOW DIFFICULTY  LOW DIFFICULTY      HIGH ...
Don’t Get Out of Balance                    COST             CHANGE ONE PARAMETER              AND THE OTHER TWO ARE      ...
Don’t Be Like This Guy!              Stay Engaged                                        Copyright © 2010 Tompkins Associa...
Contact Information                                     Valerie Bonebrake           SUPPLY CHAIN EXCELLENCE               ...
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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

  1. 1. Achieving Success in Logistics Outsourcing How’s Your Chemistry With Your Outsourcing Provider? June 21, 2010
  2. 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. 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. 3
  4. 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. 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% RequirementsSource: Tompkins Supply Chain Consortium Copyright © 2010 Tompkins Associates. All rights reserved. 5
  6. 6. They Need New Technology Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 6
  7. 7. 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
  8. 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. 8
  9. 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/RFQIdentify an Service Level Executive Set Objectives Quality and Delivery Sponsor Requirements Requirements Copyright © 2010 Tompkins Associates. All rights reserved. 9
  10. 10. Lack of Adequate Scope Definition Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 10
  11. 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. 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
  13. 13. ManagingPerformance Expectations 13
  14. 14. 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
  15. 15. 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
  16. 16. Over Promising and Under-Delivering Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 16
  17. 17. Governance Best Practices 17
  18. 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. 19. 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
  20. 20. Unrealistic Expectations Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 20
  21. 21. 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
  22. 22. 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
  23. 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. 23
  24. 24. 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
  25. 25. Strategies for Success 25
  26. 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. 26
  27. 27. EQ Matters! Copyright © 2010 Tompkins Associates. All rights reserved. 27
  28. 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. 28
  29. 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. 29
  30. 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. 30
  31. 31. Don’t Be Like This Guy! Stay Engaged Copyright © 2010 Tompkins Associates. All rights reserved.Source: Supply Chain Digest 31
  32. 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. 32

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