Logistics Services Agreement
The criticism most frequently made by users of contract logistics is that the reality of the service, once operational, does not live up to the sales promise. The expectation of innovation, continuous improvement and the energy created by the contractor’s business development team fails to materialise once the operation goes live, leaving clients uncertain whether the operational solution and service levels still represent value for money. For many clients, the time and effort involved in running a tender, and the perceived risks, mean that they will continue a relationship without enthusiasm until the tender process starts all over again.
But does it have to be like that?
Clearly the contractor bears responsibility for creating expectations that they fail to fulfil. It is relatively easy to provide fine words and clever diagrams in well-crafted, colour sales proposals, but far more difficult to deliver in the real world.
Equally, the client can also contribute significantly to expectations being unfulfilled. If we assume the client is prepared to provide the necessary resources to the contractor, what else can they do to ensure the contractor continues to deliver on their promises?
Avoid Unfulfilled Contracts
The first point to recognise is that operational reviews and innovation require a team with specialist skills and expertise. These skills often reside outside of the team managing the day-to-day operation. Given the intense pressure on margins, this type of resource is usually in short supply and inevitably prioritises winning new business or operations under constant threat from the competition. The real challenge therefore is how to ensure that such resource is directed at your operation without having to go out to tender.
The solution lies in ensuring that the requirement for detailed and thorough operational reviews is included in the service specification attached to the contractual agreement. By specifying what is required and how frequently, the contractor is left in no doubt what is expected of them.
Clients that do include this requirement in the service specification during the tendering process, should also check that the necessary support is available outside of the business development team. If this service is required, it should form a key part of the selection process. Making this clear gives contractors a choice as to how to cost it into their proposal: do they charge for the service separately or take it out of their margin?
Logistics Contract Specification
The required specification should be clearly set out and might include:
- A REVIEW of the warehouse layout in the light of distribution profile changes
- EVALUATION of automation and mechanisation
- A REVIEW of the optimal mix of dedicated versus shared-user transport resources
- PROCESS improvements
- THE USE of IT support for planning or operational control
If contractors increase the price to include the cost of regular reviews, the client can choose to pay for it, forgo the service, or even source it from a third party. Either way, clarity at the contract stage can avoid client disappointment and prevent contractors from struggling to live up to expectations.
Your Logistics Contractor Solution
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