Alignment is key in Vested Outsourcing. Companies like Jaguar and Unipart showed the importance of properly aligning when they created a shared vision more than a decade ago: it catapulted them to the top of the JD Powers charts.
And when I read through an excellent eyefortransport report on outsourcing logistics strategy I am reminded of the importance of alignment.
In the report, shippers were asked to outline the key reasons for not renewing contracts with 3PLs (third party logistics providers), and the 3PLs in turn were asked what they believed the reasons were. The results, charted to telling effect in the report, showed a marked disparity between the two: shippers identified cost creep, poor service, and competitors offering a better service as the main reasons for not renewing, while 3PLs said the primary reasons were competitors’ lower prices, poor service and relationship management issues. This illustrates a dramatic lack of alignment, something that has dogged the 3PL outsourcing industry for ages. If they were aligned, their answers to the renewal question would not be so at odds.
I highly recommend EFT’s report and especially the chart on page 5 that so starkly reveals the alignment issues uncovered by the survey. I can’t reproduce the chart here, but the above link will take you to a free download from EFT after registering.
I also want to recommend EFT’s coming 3PL Summit on June 18-20 in Chicago, where I’ll be leading a conference workshop on contracting. The workshop on June 18 will be “hands-on” and designed to take the guesswork out of structuring a 3PL relationship and contract. It will examine real service-level agreements, reveal the crucial dos and don’ts and describe the steps to building a trust-based relationship prior to the bid process.
There is a huge difference between simply hiring a service provider and establishing a Vested agreement. In a Vested relationship the service provider must have a vested interest in being a competent and efficient collaborator in the company’s success. The mind-set has to shift from an “us-versus-them” to a “we” philosophy.
Companies that recognize their service providers as essential partners in the success of the joint enterprise can achieve transformational results—and that occurs when interests and goals are truly aligned.
I want to thank and commend EFT for its good work on this topic and for inviting me to take part in the 3PL Summit, where I’m sure the subject of alignment will come up!