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Keys to Success in Outsourcing Distribution

Capital outlays and technology investment are so great that many companies want to outsource their distribution, says Timothy Sheehan, a senior manager at Accenture. But several steps should be taken before they spin off that function, including a contract with terms, KPIs, pricing and penalties; a project plan; milestones and metrics; and a solid team.

It's also easier for many companies to get into global operations by working through a 3PL rather than going it alone. But whatever the reason, Sheehan advises, some upfront work needs to be done.

That means a contract has to be "solid" for both parties, otherwise it will be difficult for either to recoup losses.

"It's very critical that full-time resources from both the 3PL side and the company itself are dedicated to this effort," Sheehan says. "That includes a full-time project manager, subject matter experts from forward and reverse logistics operations, full-time dedication from the IT shop, and the highly critical component of making sure that the systems can talk to each other. Otherwise they will not be able to do the transactions."

A business-requirements plan is necessary as is process mapping, Sheehan says. The latter will help identify any gaps and determine what measures will be taken to fix any problems. The plan and mapping may not necessarily be spelled out in the contract, but it is useful that both parties understand requirements, gaps and remedies, and services to be performed.

All of the preparatory work may be for naught, however, without a contingency plan, Sheehan warns. That needs to be hammered out from the beginning.

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