I recently heard of not one, but two, outsourcing relationships that had gone bad. This is always unfortunate for both parties in the relationship, but it can be particularly tricky for the client company. In fact, I think terminating a logistics service provider (LSP) for a breakdown in service is one of the most difficult tasks in logistics management.
There are a couple reasons for that. It's partly because no one wants to be the bearer of that kind of bad news (although ideally, the LSP will have been kept fully informed of the problems and had every opportunity to address them). And it's partly because terminations for cause have enormous potential to disrupt operations. An early cancellation constitutes 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 it comes to working out an exit strategy.
In my March 2011 column, I offered some recommendations for ways to minimize the disruption resulting from an early contract cancellation. In light of recent marketplace developments, I think they're worth revisiting. What follows is a slightly updated version of those guidelines:
1. First and foremost, 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 appropriate managers within your company. Don't allow yourself to become so frustrated that you terminate an arrangement with an LSP before its replacement is ready.
2. Include the new provider in the planning process. If the operations are being transferred to another LSP, it is important to involve the new provider in the transition planning early on. 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.
3. 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.
4. 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.
5. Keep emotion out of it. Once you've delivered the bad news, frustration levels will likely run high, tempers will fray, and the atmosphere may become downright chilly. Try to maintain as much equilibrium in the relationship as possible and handle the myriad details in a professional manner. More often than not, the provider will take its cues from your behavior.
6. Make a clean break. When it's over, it's over. Don't spend an inordinate amount of time dwelling on the past. There's nothing to be gained from recriminations and second-guessing. Learn from the mistakes that were made. Then leverage those lessons to make the new relationship a successful one.