The term ‘logistics partner’ is much over used and, for many, is simply misleading. In many cases, the relationship between company and contractor can never be that of true partnership because risk and reward in the operation is not linked to its financial success. The logistics contractor expects to be paid for the services provided irrespective of the financial success of the customer.
Perhaps the reason the term is so widely used however, is that it recognises something in the relationship between customer and logistics contractor that goes much further than the simple customer/supplier relationship that is the hallmark of most other services.
Defining Your Logistics Provider Relationship
Particular features that define the relationship between company and logistics contractor include:
- The critical role that the logistics contractor plays in the success of its customers’ businesses
- The time and cost involved in selecting a new ‘partner’. This means that most companies will think long and hard about changing a logistics contractor within a ten year period
- The time and risk involved in transferring to a new provider
- The level of systems integration required. Almost all contract logistics operations rely on some form of systems interface for recording stock and receiving customer order requests
- The detailed knowledge that the contractor’s staff accumulate and their contribution to planning and problem solving
- The possible application of TUPE in the event that the operation transfers to another organisation
- The investment in leases and equipment by the contractor to support the customer’s operation
Viewed in this light, it is possible to see why the term ‘partner’ does have a certain legitimacy and why the selection of a logistics contractor has to be taken so seriously.
4 key criteria that make a good logistics ‘partner’
1. Ability To Add Value
The ability to add value goes way beyond the provision of resources at a competitive rate, as almost all logistics contractors can achieve this. In addition, it includes:
- A good understanding of what the customer has to do to achieve competitive advantage in their market place.
- Provision of IT support to improve the efficiency of the operation or the experience of the customer and the customer’s customer.
- Particular operational advantages that the contractor can offer, for example, flexible warehousing space, complementary services or the ability to offer other operational synergies that drive down cost and drive up service.
- Availability of expertise in the form of project management support necessary to maintain optimum levels of efficiency, deliver continuous improvements and plan for the future.
- Long term investment and commitment to the customer’s business sector
While most logistics contractors claim that they offer these services to their customers, few actually do.
2. Commitment To Service Standards
The achievement of high service standards is key to a successful ‘partnership’. The contractor must be prepared to contractually commit to the achievement of the agreed service specification and quality standards and be prepared to make additional resources available to achieve this objective. Reducing service quality to save money should not be an option unless approved by the customer.
3. Commitment To Unit Costs & Productivity
The costs of an operation are determined by the resources required and the cost of providing those resources. The level of resource is determined by the productivity achieved. A good logistics partner will be prepared to commit to productivity levels for each task within the operation and the unit costs of providing the necessary resources. What is not acceptable, is for the contractor to expect recovery for all the costs they incur irrespective of how well or badly they manage the operation. Expecting to be paid for a sub optimal service falls well short of being a good ‘logistics partner’ and should be avoided when agreeing any pricing system.
4. Supportive & Responsive Relationship
The logistics contractor’s senior account manager should be a key member of the customer’s management team, providing good representation on behalf of the logistics function, sound advice and challenging the customer’s functional teams when appropriate. Good businesses are made up of healthy tensions between departments, for example, sales staff must be made aware of the costs before agreeing to changes in service standards.
How we can help
A well structured tender process with a detailed requirements specification, full supporting data and a carefully prepared contractual agreement will help determine the level of commitment contractors are prepared to offer and whether they will justify the term ‘logistics partner’.