An LSP's bill of rights (and obligations)

Given the high-stakes nature of logistics outsourcing arrangements, it's no surprise that so much has been written on the "rules of outsourcing." I've done it myself, as have scores of others.

Most have approached the topic from the client's perspective, offering advice on how to work successfully with a logistics service provider (LSP). But providers have rights and obligations as well, and it's high time that we concentrate on these. What follows is my attempt to do so by offering 10 basic rules for logistics service providers:

1. Encourage strategic thinking and planning. In their haste to hand off responsibilities, clients oftentimes fail to think through their outsourcing decisions. That haste has a price. When a client rushes through the process, the result can be a badly flawed request for proposal (RFP)—one that overlooks the most cost-effective and/or efficient procedures (or any unique services you may offer). To prevent this from happening, try to become a part of the process from the beginning.

2. Know how you stack up in the marketplace. The sophisticated client will conduct due diligence on all prospective partners, running background checks, talking to existing customers, and assessing financial stability. As a provider, you should be prepared to demonstrate not just your financial health but also how you stack up against the competition with regard to management depth, strategic direction, IT capabilities, and labor relations.

3. Set realistic expectations. We've all heard stories about outsourcing relationships that were derailed by unrealistic expectations. Sometimes, the failure stems from the client's inability to provide accurate (or adequate) information on, say, the volume, size, and frequency of its shipments. Other times, the fault lies with the provider—LSPs frequently underestimate the cost of providing the service, especially in the IT area. Either way, the result is the same: The provider ends up developing costing for—and committing to—arrangements that don't reflect reality. It's worth spending the time up front to avert these kinds of disasters.

4. Develop an airtight contract. Be sure that all obligations, expectations, and remedies are clearly spelled out. Include incentives for improvements in operations and productivity, with both parties sharing the benefits.

5. Ask for the manual. Strongly urge the client to provide an operating manual that contains all policies, procedures, and other information necessary for the efficient execution of the outsourcing agreement. Ideally, this manual will be developed jointly by the provider and client.

6. Identify potential friction points. Both parties usually have a pretty good idea of the friction points that could cause trouble down the road. Identify them in advance and agree on a procedure for resolving them.

7. Communicate. Failure to communicate is second only to poor planning as a cause of outsourcing relationship failures. Communication on all aspects of the operation must be frequent and two-way. Visit your key clients on a regular basis.

8. Solicit feedback. When setting up the program, clearly identify and agree upon standards of performance. Insist on regular performance reports so you resolve any problems that develop on a timely basis—not when it's too late.

9. Motivate and reward your personnel. Ideally, this should be done by the client. But if the customer declines to do so, take it upon yourself to reward good performance. Compliments, recognition, awards, days off, and dinners are all proven motivators. Do whatever works for your particular operation, but do something.

10. Be a good partner. Never forget that your client's ability to serve its own customers depends largely on your performance (or lack thereof). Maintaining a high level of integrity and service in all your transactions will ensure a high level of satisfaction.