In my capacity as a consultant, I've been asked from time to time to serve as an expert witness in legal disputes involving outsourcing arrangements. Many, if not most, of the cases arose from performance disputes. Somewhere along the line, the client became dissatisfied with the service being provided and decided to terminate the arrangement for cause. The logistics service provider (LSP) challenged the decision, arguing that it had fulfilled the terms of the agreement. The hostilities escalated into a bitter struggle that eventually landed them in court.
Not all contract cancellations result in litigation, of course. But as any shipper who's been in this position knows, terminations for cause have enormous potential to disrupt operations. It's not hard to see why. An early cancellation is a rejection of the provider, its management, and its operations, and it's bound to create hard feelings. And a resentful partner is unlikely to be a cooperative partner when you go to work out an exit strategy.
While these situations may never be easy, there are things managers can do to minimize the disruption of an early contract cancellation. What follows are six guidelines for managing the process:
- Avoid acting impulsively. No matter how often you've been told to act swiftly and decisively, that advice doesn't hold here. Before rendering the first notice of unsatisfactory performance, you should have already developed a contingency plan and shared it with the appropriate managers in your company. Don't allow yourself to become so frustrated that you terminate the arrangement before a replacement is ready.
- Hope for the best; prepare for the worst. If the operations are being transferred to another provider, set realistic expectations for the handoff. Ideally, the outgoing LSP will make every effort to ensure a seamless transition, working with its successor to bring it up to speed on critical activities like order processing. But you can't assume things will work out that way. To head off trouble, sit down with your new provider and develop two separate timelines for the transfer of responsibilities—a plan for an orderly transition and a contingency plan for making the switch on short notice.
- Identify alternative distribution points. If DCs are involved, you don't want to be caught short if a total breakdown occurs before the new provider is ready to take over. As part of your contingency planning, identify other DCs that could be used in a pinch and make the necessary arrangements. That includes ensuring that adequate labor, equipment, and inventories are available at the alternate sites.
- Maintain good internal communications. No one likes to admit that a relationship has failed, but it's important to keep your colleagues in the loop. Let managers from marketing, sales, and other areas know that the relationship has gone bad and outline the corrective measures you're taking. Keeping them informed will make it easier for them to anticipate and head off potential customer and other issues.
- Lead by example. Once you've delivered the bad news, you'll likely notice a chill in the working relationship. That's to be expected. But no matter how bad things get, try to maintain a professional demeanor. More often than not, the provider will take its cues from you.
- Make a clean break. When it's over, it's over. Don't spend too much time dwelling on the past. There's nothing to be gained from recriminations and second guessing. Learn from your mistakes and move on.
The good news is that most responsible LSPs will cooperate, but inevitably there will be some slippage. As the Boy Scouts say, be prepared.
