Executive Briefings

Logistics Outsourcing: Relationships That Create Value

In the past, buyers of logistics outsourcing services relied more on the stick model of achieving performance-compliance fines, penalties, and punitive action. Recently, we've seen outsourcing relationships begin to shift toward collaborative practices that focus more on the carrot, or joint-value creation. 

However, logistics service providers report that making the transition isn't straightforward and simple in practice, and there is certainly no one answer. Here we share a set of practices around relationship development that several providers and their customers have put into action and that have led to success.

Factors straining relationships

Here are the factors that providers and their clients report most commonly challenge outsourcing relationships. While doing this research, we found some form of the following scenarios at the heart of most strained outsourcing relationships. 

  • A quite prominent reason was that the 3PL did not perform according to expectations. There are several reasons for this, the most common of which are included here. In some of these cases, the provider overshot its competency and took on business that it was not particularly capable of providing. Sometimes aggressive 3PL sales representatives promise results that stretch the 3PL's operational and information system capabilities. This is good for no one. 
  • Another reason was the 3PL having too much of an inward focus-that is, customer satisfaction considerations and internal cost savings were not balanced. In these cases, the 3PL was not evaluating its performance from an outside-in or customer viewpoint, but was focused too intently on internal operations and increasing margins. Not that peak performance and efficiency aren't important to achieve, but they can't be achieved for the sole benefit of the 3PL without regard for the effect it has from the customer's point of view. 
  • Another scenario involved problems with the client company's culture, its communication practices, and its partner management maturity. In this scenario, client staff was characteristically quick to blame or point fingers when something went wrong. The expectations of the outsourcing arrangement were not usually communicated internally and the management practices over an outside party were immature. These relationships generally turn adversarial quickly as the provider is frequently assumed at fault or blamed for poor performance-most of the time when other factors affected performance. Interestingly, in these examples, both parties expressed the desire to terminate the relationship as quickly as possible.

For more information on this topic, or to read similar research, visit www.amrresearch.com.

In the past, buyers of logistics outsourcing services relied more on the stick model of achieving performance-compliance fines, penalties, and punitive action. Recently, we've seen outsourcing relationships begin to shift toward collaborative practices that focus more on the carrot, or joint-value creation. 

However, logistics service providers report that making the transition isn't straightforward and simple in practice, and there is certainly no one answer. Here we share a set of practices around relationship development that several providers and their customers have put into action and that have led to success.

Factors straining relationships

Here are the factors that providers and their clients report most commonly challenge outsourcing relationships. While doing this research, we found some form of the following scenarios at the heart of most strained outsourcing relationships. 

  • A quite prominent reason was that the 3PL did not perform according to expectations. There are several reasons for this, the most common of which are included here. In some of these cases, the provider overshot its competency and took on business that it was not particularly capable of providing. Sometimes aggressive 3PL sales representatives promise results that stretch the 3PL's operational and information system capabilities. This is good for no one. 
  • Another reason was the 3PL having too much of an inward focus-that is, customer satisfaction considerations and internal cost savings were not balanced. In these cases, the 3PL was not evaluating its performance from an outside-in or customer viewpoint, but was focused too intently on internal operations and increasing margins. Not that peak performance and efficiency aren't important to achieve, but they can't be achieved for the sole benefit of the 3PL without regard for the effect it has from the customer's point of view. 
  • Another scenario involved problems with the client company's culture, its communication practices, and its partner management maturity. In this scenario, client staff was characteristically quick to blame or point fingers when something went wrong. The expectations of the outsourcing arrangement were not usually communicated internally and the management practices over an outside party were immature. These relationships generally turn adversarial quickly as the provider is frequently assumed at fault or blamed for poor performance-most of the time when other factors affected performance. Interestingly, in these examples, both parties expressed the desire to terminate the relationship as quickly as possible.

For more information on this topic, or to read similar research, visit www.amrresearch.com.