IN ONE OF HIS BRUSHES WITH RE-ENGINEERING, THE COMIC
strip anti-hero Dilbert pleaded, “If you let me keep my job, I will do the
work of 10 people. Specifically, it will be the 10 people in our strategic
planning department. They don’t do anything.”
When it comes to strategic planning for logistics outsourcing, it’s
conceivable that Dilbert could do the work of 20 people. In spite of its
growth, increased sophistication, and impact on a business’s supply
chain operations, a surprising number of companies still undertake
outsourcing and provider selection with little regard for overall logis-
tics strategy.
That’s a downright risky way to proceed. A sure recipe for disaster is
to embark on a program that is not suitable, is not understood clearly,
Outsourcing should always be carefully thought
out and measured against the alternative of doing
the job in house. To be sure, the analysis process will
be tedious and in some cases, downright unpleas-
ant. Collecting data will consume valuable time
and resources, and the entire process will require
patience, perseverance, and persuasion in dealing
with other internal functional groups. This will
be necessary, however, to identify the merits and drawbacks of each
course of action.
It’s also important to include the potential provider in the process
from the beginning. But wait. What if the provider hasn’t been selected
yet? Then, in my opinion, you have the cart before the horse.
In this age of supply chain enlightenment, it’s surprising how many
companies still buy outsourcing services by traditional methods, that
is, essentially the same way they buy pig iron or corrugate. All too often,
they assign “professional” buyers with little supply chain knowledge or
experience to negotiate for the lowest rate. For these organizations, the
usual process is to prepare a request for proposal (RFP) that outlines
the task(s) to be performed and lays out requirements for submitting
the proposal itself. The RFP is presented to three or more providers,
who are asked to submit bids to perform precise tasks in precise ways.
The contract is then awarded to the provider who demonstrates the
best cost-benefit ratio.
The RFP makes providers’ proposals easier to compare and evaluate,
BY CLIFFORD F. LYNCH fastlane
Making sense of outsourcing
but it ignores the basic issue of determining
the most cost- and service-effective logistics
process. For that reason, I strongly recommend
a different approach—one that begins not with
the RFP but with the RFI (request for information). Rather than starting out by drawing up
an itemized list of tasks, a company will first
gather information about potential providers
that are known to have experience in the client
industry.
Among other advantages, this exercise will
help identify a qualified provider to include
in the planning process,
where it can provide valuable input and collaborate
with the client in the analysis and resolution of the
logistics objective. Although
this method requires the
qualifying of logistics service providers (LSPs) before
the cost of their services is
known, this will be offset by
the advantages of bringing
the provider into the process early. Almost always, the
pricing can be resolved to the parties’ mutual
satisfaction. Today’s LSPs, for the most part,
have developed sophisticated technology and
analytical capabilities and are well equipped
to participate in a collaborative design-based
effort to meet the client’s needs.
If you’re going to enter into an outsourcing
relationship, it makes infinitely good sense to
leverage the provider’s knowledge and expertise
early in the process. After all, isn’t that what
outsourcing is all about?
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.
