Choosing the wrong supplier can have fatal consequences, especially when it comes to the area of logistics. Six guiding principles are the foundation for successful logistics sourcing.
Most probably you’ve heard about the discussions in UK when a global food franchise company changed its logistics service provider for daily deliveries of fresh meat. To make a long story short – the new supplier was not capable to serve all stores in time. Therefore, more than 50% of the stores in UK had to shut down their operations and couldn’t serve customers anymore. While this is not only a financial damage it is as well a long-term reputational damage which could end up in significant top- and bottom line effects!
At the same time, our CAMELOT sourcing experts got frequently asked about the right approach for successful logistics sourcing. Even if there is no one fits all approach you can follow six guiding principles to avoid disasters during the sourcing process as well as during the implementation phase.
1. Involve your key stakeholders
The later you onboard your key stakeholders the more difficult a successful implementation will be. You will always have two groups of stakeholders in a logistics sourcing event: internal and external.
Internal stakeholders are the logistics department which is operating in- and outbound logistics including transport planning as well as warehouses. Depending on the role of logistics, it might make sense to involve customer service and sales as well.
On the other hand, you have external stakeholders, which are logistics service providers but also key customers. The current logistics service provider should be aware that the service is “on the market”. On the one hand, this helps to position its own company. On the other hand you can start with expectation management. If the logistics services are crucial for your business it is always recommended to involve key customers and discuss with them expectations or even select them as pilots for a later ramp-up phase.
2. Define the right requirements
As a sourcing event is always a legal act with any kind of contract at the end, it is important to define the right requirements. The clearer the requirements are defined, the better the rates will match the expected service. Defining requirements in an appropriate way means effort at the beginning but makes life easier for the buyer as well as for the service provider.
At the end the requirements should be reflected in a “Service Level Agreement” (SLA) – we always recommend aligning the SLA’s with internal stakeholders to first involve them in the process and second ensure that their requirements are reflected.
3. Bundle your volumes
In most parts of today’s world logistics markets are characterized by high competition. Bundle your volumes and lever the market – sounds easy, but it is usually not so easy to implement as soon as you have more than one plant or warehouse. Bundled volumes help reduce transactional and process costs as well as get better rates. Just imagine you only had to align your daily shipments with a few suppliers instead of talking and coordinating dozens of them at each of your sites.
4. Select appropriate suppliers
Based on the defined requirements you can have a look at the market – which suppliers are matching your requirements best? If you are shipping chemicals, it wouldn’t make sense to invite a food specialist. Same for the regional foot print – where are you shipping from and where are you shipping to? Focus on suppliers with a hub or depot in your surroundings as well as specialists with major shipping volumes to your destination region.
5. Bargain hard – but fair!
Now we are coming to the core task of any procurement manager. Run a tender and bargain the best possible price. But never forget you are bargaining a service which has no hard specification like a DIN or ISO norm. Everything is based on the defined requirements. The better they are described, the better you can negotiate!
Keep in mind that logistics services are representing your company towards your customer. As a well-established buyer you should know the bottom line of your suppliers to provide a sustainable and reliable service. Pushing them below could bring additional short-term savings but most probably ends up in a long-term low performance.
6. Take your time for implementation
Most buyers think that the job is done as soon as the contracts are signed. Again, there is no one fits all approach. But the bigger the tendered package is and the more crucial the logistics service is the longer you should schedule a transitional phase.
I can always recommend joining the first operational implementation meetings to be as close as possible to any upcoming rumors. Specially if a long-lasting supplier is changed to a new one, existing relations need to be build up from scratch. Some hick-ups are usually guaranteed, but it is important to avoid that they are turning into critical concerns.
Never forget the importance of logistics services as the link to your customers – if your goods are not delivered in time and in the right quality you will create a negative customer experience, which is more expensive than a few savings in the company’s pocket!