Avoid the Risk-Shift Game

risk_gotcreditAmong the tried and true contract negotiation strategies, shifting risk is probably among the most ubiquitous and actively used—and best-rewarded when successfully accomplished.

, mainly because it typically happens after you have a “deal.” Have you ever heard this: “Great! I’ll take it. How about 90 day payment terms?” or “Perfect…how about a two-year warranty instead of a one-year warranty?” For many buyers, contractual risk-shifting is a way to get extra value or concessions from a supplier during negotiations.

But does it make sense to shift risk?  That is the question thought leaders pose in a new white paper published by the University of Tennessee titled, “Unpacking Risk Shifting.” The white paper focuses on risk shifting in logistics and supply chain services, but the concepts apply to virtually all goods and services that organizations buy.

In the paper—written with the support of the University of Tennessee, Expeditors and Adelante—seven industry experts argue poor commercial practices currently in place in the third party logistics (3PL) industry are causing a tipping point for the industry that is doing more harm among 3PLs than benefit in terms of the gains won at the negotiating table.

The goal of the paper is increase awareness on the part of GSCs (Global Shippers and Consignees) and 3PLs of the need to create fair and balanced commercial agreements that promote healthy businesses on all sides.

What emerges from the white paper’s exploration is a call for action to for buyers and suppliers to shift away from commoditization to a mindset where 3PLs work more collaboratively to develop solutions that help their clients’ supply chains become a competitive differentiator. The authors call for buyers to

and a value-added perspective by incentivizing suppliers to create value with collaborative risk reduction projects.

There is no time like the present for GSCs and 3PLs to come together to address the real problem—not how to avoid or shift risk, but how to optimize their overall logistics and supply chain management processes to produce tangible “win-win” benefits for both GSCs and 3PLs.

Download “Unpacking Risk Shifting: Challenging Unreasonable Risk-Shifting in the Transportation and Logistics Industry.”

There’s absolutely no risk involved! It’s free!

Image: Risk by GotCredit via Flickr CC

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