Define Goals, Competencies, and Resources

Before determining if and where to enter the third-party arena, a company should define its goals as well as assess its competencies and resources. Company leaders must understand the strategic vision of their business. Competencies in third-party logistics may have been developed through special services provided to an existing customer or may be acquired by hiring expertise.

Define Outsourcing Targets

After determining which third-party logistics activities will be offered, evaluate further based on such things as internal needs, cost structure of the functions or process, and the availability of qualified providers.

Solicitation Process

To ensure a Request for Proposal (RFP), the client should set goals, develop a detailed and realistic timeline for the process, and involve senior management. The client should consider a wide range of candidates, define clearly the scope of what is to be outsourced, and establish a baseline of costs and service levels for self-performance of the outsourced activity. The RFP should provide a clear set of requirements and stress the need for innovation and creativity.

Service Provider Selection

The selection team should come from a number of ‘touch points’ within the company, but a single individual should act as spokesman to respond and answer questions to ensure consistency. Do not rush the process. Take care to evaluate the written proposals and the provider’s company as a whole — not just sales presentations. Make sure that bids address the full scope of the activity to be outsourced and be sure that the evaluation is equitable (apples to apples). Contact other customers, and do not announce a winner until a binding term sheet or contract is signed.

Creating the Outsourcing Relationship

This involves establishing initial expectations, clarifying the relationship desired, and determining a fee structure. During the initial period both provider and customer will work together to check their assumptions about the services offered and required. Likewise they need to develop a mutual agreement about process and next steps.

Legal Considerations

The Tompkins book advises bringing in experienced outsourcing counsel at or before the RFP step. It may be advisable for negotiations to proceed with a single provider or two finalists. A binding term sheet will allow participants to agree on the terms of the deal, including a variety of legal, technical and financial concerns, balancing reward and risk and certainty and flexibility, determining price predictability, and planning for an exit. Service levels and performance measures are an important component of this agreement.

Implementation

A relationship manager should be appointed from each side, and cross-company teams should be named to foster communication and the transition of knowledge. Rules of engagement are established as well as a communications plan. Decide "who is going to communicate what to whom and when." Executive buy-in is critical as well as an open process and a practical timeline.

The Ongoing Relationship

Two common types of relationships are vendor-client and partnership. A migration towards true partnership should be the ultimate goal of the relationship. Tompkins compares the relationship to the life cycle of a marriage, starting with courtship (the RFP process) through wedding and honeymoon (selection, start-up and implementation) and finally a happy marriage — a true partnership. He notes that all organizational units within the third-party company must be 100% directed towards the success of the initiative.