fastlane
Breaking up (with an LSP)
is hard to do
IN MY CAPACITY AS A CONSULTANT, I’VE BEEN ASKED FROM
time to time to serve as an expert witness in legal disputes involving
outsourcing arrangements. Many, if not most, of the cases arose from
performance disputes. Somewhere along the line, the client became
dissatisfied with the service being provided and decided to terminate
the arrangement for cause. The logistics service provider (LSP) challenged the decision, arguing that it had fulfilled the terms of the
agreement. The hostilities escalated into a bitter struggle that eventually landed them in court.
Not all contract cancellations result in litigation,
of course. But as any shipper who’s been in this
position knows, terminations for cause have enormous potential to disrupt operations. It’s not hard
to see why. An early cancellation is a rejection of
the provider, its management, and its operations,
and it’s bound to create hard feelings. And a resentful partner is unlikely to be a cooperative partner
when you go to work out an exit strategy.
While these situations may never be easy, there
are things managers can do to minimize the disruption of an early contract cancellation. What follows are six guidelines for managing the process:
1. Avoid acting impulsively. No matter how often you’ve been told to
act swiftly and decisively, that advice doesn’t hold here. Before rendering the first notice of unsatisfactory performance, you should have
already developed a contingency plan and shared it with the appropriate managers in your company. Don’t allow yourself to become so
frustrated that you terminate the arrangement before a replacement
is ready.
2. Hope for the best; prepare for the worst. If the operations are being
transferred to another provider, set realistic expectations for the
handoff. Ideally, the outgoing LSP will make every effort to ensure a
seamless transition, working with its successor to bring it up to speed
on critical activities like order processing. But you can’t assume things
will work out that way. To head off trouble, sit down with your new
provider and develop two separate timelines for the transfer of
responsibilities—a plan for an orderly transition and a contingency
plan for making the switch on short notice.
3. Identify alternative distribution points. If DCs are involved, you
don’t want to be caught short if a total breakdown occurs before the
new provider is ready to take over. As part of your
contingency planning, identify other DCs that
could be used in a pinch and make the necessary
arrangements. That includes ensuring that adequate labor, equipment, and inventories are available at the alternate sites.
4. Maintain good internal communications. No
one likes to admit that a relationship has failed,
be expected. But no matter how bad things get,
try to maintain a professional demeanor. More
often than not, the provider will take its cues
from you.
6. Make a clean break. When it’s over, it’s over.
Don’t spend too much time dwelling on the past.
There’s nothing to be gained from recriminations
and second guessing. Learn from your mistakes
and move on.
The good news is that most responsible LSPs
will cooperate, but inevitably there will be some
slippage. As the Boy Scouts say, be prepared.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing –
A Management Guide and co-author of The Role of Transportation in the
Supply Chain. He can be reached at cliff@cflynch.com.
