DEAR SANTA,
This will be the first year in several that I have not asked you to nudge
Congress into doing something about the nation’s infrastructure. After
35 extensions of other extensions, Congress finally passed a long-term
highway bill the first week of December. This is particularly significant
since if it had waited much longer, the upcoming presidential election
would have brought meaningful activity on that front to a halt.
There are two other things, however, that I would appreciate your
giving us some help on. One of the most critical, in my view, is our
ability to effectively manage the continuing change in our industry.
We all agree that two of the most important influencers on our supply chains are technology and collaboration, but sometimes the two
are not compatible. Without new techniques and
technology, and people who understand them, a
supply chain manager’s task would be impossible.
The same is true of collaboration. But collaboration
requires a strong human element, and with the
increasing but necessary reliance on technology, we
have seen breakdowns in personal communication
as well as sensitivity to our colleagues and subordinates. I see this as a huge risk. What you can help
with is reminding educators and decision-makers
in the industry that the future belongs to the supply
chain manager who can master the technology as
well as the human relations part of the equation. For
that, technology will never be a substitute.
Another change we are seeing is a creep toward the commoditization
of logistics service provider (LSP) solutions. Change is great. We need
it, but with every change comes some element of risk, and I see a big
one here. Major outsourcing failures occur when the client outsources
an activity its own personnel do not totally comprehend, and when
the provider promises to meet requirements that have not been fully
defined, communicated, or understood. Major failures also occur
when the user company treats outsourcing as a commodity purchase
rather than the establishment of a strategic relationship.
Many outsourcing relationships have been developed by traditional
methods: The interested party prepares a request for proposal (RFP)
that outlines the tasks to be performed. It then presents the RFP 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 or, in an increasing
number of instances, comes back with the lowest bid.
BY CLIFFORD F. LYNCH fastlane
My annual letter to Santa Claus
The RFP makes providers’ proposals easier to
compare and evaluate, but it ignores the basic
issue of determining the most cost- and ser-vice-effective logistics process. Basing an outsourcing decision on cost alone overlooks the
real value that an LSP can provide. Surprisingly,
some companies have turned outsourcing
negotiations over to managers who have little,
if any, knowledge of the supply chain or the
LSPs being considered. This complicates the
negotiations even further and can lead to bad
decisions, usually based solely on cost. Not too
long ago, I was talking with
an LSP CEO who had just
lost a very long-term, prob-lem-free relationship, based
on cost alone. The client
negotiation had been turned
over to strangers. He noted
that one of the things that
hurt the most was being terminated by someone he had
never met. Please see if you
can bring some good judgment and experience back
into this process.
There are several other issues, but space does
not permit me to go into detail. For one, the
new Panama Canal is leaking. You might want
to drop off some Super Glue or Silly Putty
down there. And for gosh sake, watch out for
the drones. The last thing we need is Rudolph’s
red nose being clipped off.
Merry Christmas!
Cliff Lynch
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.
