HOW TO BE SUCCESSFUL WITH YOUR LSP?
Avoid a tender every 3 years
We are convinced that the performance of your logistics service provider (LSP) is largely in your own hands and that each company gets the LSP it deserves. Besides the customer, also the LSP could raise the question: how can we avoid that frequent tendering and change our transactional contracts into long term sustainable partnerships?
What is the real performance and what is driving it?
The opening question is how good or bad the service really is. The only way to answer this question in our view is based on longer term performance and productivity data that is shared between the LSP and its customer. A certain level of transparency is needed (not referring to open-book). What is the score on KPI’s and cost and what should that score realistically be? Is it structurally below expectations? More importantly: is it clear to the LSP what these expectations are? Do you have at least 6 months of reliable data to show the status?
When it comes to cost, it is important understand what is driving the cost and who can do what to reduce it. The company and LSP can both influence important drivers. One example is the order-pattern (number of lines per order and units per line). This is usually a topic between the company and its customers and the LSP has limited influence. On the other hand, it’s a key driver of picking cost. Execution of the picking by its turn, is a typical area where the expertise of the LSP should come in.
By working together in a transparent way, there are almost always opportunities to reduce cost. By sharing the gain, both the LSP and company can improve their satisfaction with the partnership.
Is active supplier-management in place?
Good supplier management is depending on the scale of your operation, but should at least consist of a weekly operational meeting to discuss service level and productivity KPI’s and a weekly or monthly continuous improvement meeting to discuss projects (see below). Finally, a quarterly business review where the high-level performance and developments are discussed in the presence of senior management of both sides. Without this supplier management, we do not believe that any customer-supplier relation and mutual understanding can develop in a sustainable manner.
Do you have continuous improvement and gain sharing in place?
A continuous improvement program means that on a regular basis, improvement ideas are generated and listed and that by joint decision making the priority ideas (impact vs effort) are selected. The team members report frequently the progress and take ownership and accountability for successful implementation. Each employee (no matter which level), should feel engaged with this program. This program should ensure that performance on KPI’s and cost are improved year on year.
Is there a deep mutual understanding of how the business of the company and the LSP work or should work, and what is driving success?
Many companies that have outsourced their logistics have falsely concluded that logistics was no longer their “business” because it was outsourced. This is a mistake because you cannot leave it all to the LSP. Likewise, the LSP should show a genuine interest in what is important to the company. Is it first performance and then cost?
Active partnership and understanding is the way to make the relationship successful. To be a valuable counterpart to the LSP, the company needs to understand what is driving the success of a logistics operation. This means that you need to understand in detail what is happening inside warehouses and the transportation network. Each company with a significant logistics operation, should have at least one experience logistics manager with thorough shop-floor understanding within their team.
In conclusion: what you do not measure, you cannot control. Once all the above is in place, but the conclusion is that the cooperation is not successful? Maybe it is time for a tender.
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