When companies go to choose a logistics service provider (LSP), they tend to give a lot of weight to factors like price, capabilities, experience, management depth, and so forth. What sometimes gets overlooked in the process is the LSP's financial health.
Unfortunately, that's something a prospective client can't afford to skim over. While it might feel awkward to question a candidate about its financial stability, this is an essential part of the due diligence. For one thing, you want assurances that the provider will be around for the long term. For another, if you're signing a sizable contract (as is common today), it's important to ascertain that the LSP has adequate financial resources to provide the support and services you require.
How do you go about investigating a candidate's financial health? If the provider is a publicly held company, it's a relatively straightforward matter. Its financial statements will be a matter of public record and therefore, readily available for your review.
If the prospective partner is a privately held concern, however, it can be a bit tougher. While some will furnish serious prospects with audited financial statements before the final agreement is signed (and then every year thereafter), others may be extremely reluctant to provide financial data. If you encounter resistance, persist until you get satisfactory answers. A provider that is financially healthy, responsible, and capable of handling the business will find an acceptable method of demonstrating that.
Although outsourcing will always carry some risk, there are a number of steps you can take to minimize your company's exposure. What follows are some suggestions:
It's important to note that the need for thorough financial due diligence doesn't end with the selection of a service provider. As we all saw during the recent recession, an organization's financial condition can change almost overnight. To avoid unpleasant surprises, make it a practice to conduct regular audits of your provider's financial stability.