Time To Review Your Outsourced Operations?

Following driver shortages, warehousing shortages and increasing labour costs most companies have been faced with significant price increases for their outsourced logistics operations.  Perhaps now is therefore a good time to review your outsourced operations with regards to both cost and service.

The advantages of outsourcing are well understood; the avoidance of investment in non-core activities and the perceived benefits of using service providers that are specialist within their field.  When it works well, companies can benefit from reduced costs, improved supply chain performance and the ability to concentrate on activities that create real competitive advantage.  Unfortunately, on too many occasions, outsourcing fails to live up to the initial promise.  The reasons are many and can include, poor choice of contractor(s), poorly written contracts, failure to manage the relationship or failure by the company to properly engage with the contractor’s management team; it is not always the contractor’s fault that an operation fails to achieve its potential.

Many companies, whilst dissatisfied with their contractor’s performance and increasing costs will simply wait until the appropriate time to retender the operation.  The disadvantage of such an approach is that in addition to the delay in addressing underlying issues, the same weaknesses in the commercial relationship are repeated. 

By addressing the issues early, companies may gain the benefits more quickly and, in the event, that the operation is retendered, will ensure that the outcome is better suited to their needs with regards to the choice of contractors and the structure of the commercial relationship.

Each Contractor Review undertaken by Davies & Robson is tailored to the particular operation but is based on the following: 

10 Key Questions

• Have price increases been fully justified?
• Do you know how your service delivery performance compares with your key competitors?
• Is the operational method of your logistics operation the most cost effective to deliver the required service standard?
• Do your contractors offer the optimum mix of resources and services to meet the required service standard?
• Is the contractual agreement fit for purpose particularly with regards to service description, KPI’s and management reporting?
• Are there clear productivity standards that are regularly benchmarked?
• Does the pricing mechanism drive the right type of behaviour?
• Is there a fair allocation of financial recovery for service failure and lost or damaged goods?
• Is there a programme of continuous improvement aimed at improving service and reducing cost even within a ‘closed book relationship’?  This should be a joint responsibility.
• Are both parties incentivised to deliver ongoing improvements?  Often costs can be reduced without reducing the contractors margin.

The outcome of the review will be a recommended action plan with the aim of achieving immediate cost and service benefits. 

Davies & Robson has unparalleled experience in determining optimum supply chain solutions, performance improvement, tendering, contract preparation and contractor management across a wide range of industries and service providers.  Details of our full range of activities and case studies can be found on or website www.daviesrobson.co.uk

If you would like to learn more as to how a Contractor Performance Review would benefit your operation, please call us on 01327 349090 or email btemplar@daviesrobson.co.uk.  We will be pleased to arrange a meeting to understand your particular requirements and to recommend how best to structure a review of your operation.