Shared Destiny and Vested Outsourcing

The evidence is building that the Vested Outsourcing message is catching on, if I do say so myself, since my book, Vested Outsourcing: Five Rules That Will Transform Outsourcing, was published in February.

More evidence of its growing buzz comes from a white paper written by ARC Advisory Group’s Adrian Gonzalez on behalf of Unipart Logistics. Gonzalez, an ARC analyst, also writes for ARC’s always interesting Logistics Viewpoints blog, including the “must-read” This Week in Logistics News, published each Friday.

Gonzalez’ ARC Brief is entitled “Shared Destiny”: Key Lessons from Unipart’s Vested Outsourcing Journey with Jaguar and Vodafone.

It’s an excellent real-life case study of the Vested Outsourcing experience, as well as a fine introduction to and description of Vested Outsourcing, which Gonzalez says is “attracting the attention of many manufacturers, retailers, third-party logistics providers (3PLs) and academics.”

The reason for the interest is simple, the 13-page paper continues: Vested Outsourcing “has the potential to transform the way 3PLs and their customers work together, resulting in greater sustained value and enhanced competitive differentiation for both parties.”

Of course those words are music to my ears and are what my book and this blog are all about: achieving mutually beneficial ‘win-win’ outcomes through collaboration at the contracting level.

Gonzalez rightly points out that while Vested Outsourcing is not a new concept – it has been used successfully by the Department of Defense and the aerospace industry, along with some examples in IT and facilities management outsourcing contracts – there are very few pure examples of it in the broader contract logistics market. This is why this study of the Unipart experience is of special interest.

ARC interviewed three senior executives at Unipart who spoke candidly about the company’s outsourcing relationships: With Jaguar in aftermarket parts fulfillment in the UK and with Vodaphone, in which Unipart managed the company’s warehousing and distribution operations in the UK. Unipart started working with Jaguar nearly 25 years ago, and it began working with Vodaphone in 1999.

In each case, neither relationship was initially based on Vested Outsourcing principles, and early on there were strains, including a lot of non-value-added activity and a lot of blame.

Eventually there came the realization that the Jaguar-Unipart relationship was not working very well. Subsequent meetings between top executives led to the creation of a shared vision statement that continues to guide their business structure today.

A similar transformation occurred with the Unipart-Vodaphone relationship, with Vodaphone deciding early in the relationship that logistics was not a core competency, leading eventually to a stronger relationship and a high degree of trust between the companies, also at the top level.

Gonzalez concludes that both cases underscore the need for buy-in, active involvement and trust at the CEO level in developing successful outsourcing relationships.

Yet an ARC survey last year of 100 logistics executives found that 62 percent of those responding said their CEO was “not involved at all in the 3PL evaluation and selection process.”

That’s a really important point because the key to a truly vested and collaborative outsourcing relationship should come straight from the top.

As the white paper states: “If the CEOs are missing from the relationship, the likelihood of it becoming more long-term and strategic is very low.”

ARC makes other valuable points about the importance of trusting each company’s expertise, having a clear “shared vision” statement with end customer focus, a contract structure that encourages independent action, flexibility and the need to “provide insight, not just oversight.”

The latter point addresses a common complaint about 3PLs – that they are not proactive enough in identifying continuous improvement opportunities. That problem is also identified in Vested Outsourcing’s 10 Ailments, including #6 – Sandbagging, and # 7 – The Zero-Sum Game. It’s addressed head-on in the Five Rules, especially Rule # 5 Governance Structure Should Provide Insight, not Merely Oversight, and also Rule # 2 – Focus on Outcomes, and Rule # 3 – Agree on Clearly Defined and Measurable Outcomes.

I also like the paper’s conclusion, which acknowledges that not all companies and customers are suited for a Vested Outsourcing relationship. CEO involvement is critical, and even then Vested Outsourcing is a long and often difficult journey. “But to borrow a phrase from the poet Robert Frost, Vested Outsourcing is ‘the road less traveled,’ and for Unipart, Jaguar and Vodaphone, that has made all the difference.”

Yes, it can all fit together; working together toward a shared destiny really can work.

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