The problem with this approach is that procurement savings, while dependent on the purchasing power of the provider, are tightly linked to market conditions. In a down market, bid savings become a shiny object while results in years two and three are overlooked. The provider with the best packaging on its proposal becomes the front-runner. As the business is implemented, the shipper sees cost benefits in year one and typically does not see process improvement, productivity enhancements or cost reductions in subsequent years.
The challenge for shippers considering a new logistics provider is understanding how to evaluate the overall potential of the relationship. Key items to evaluate include:
◾Tenure of relationships with the provider's current customers. Long-standing partnerships demonstrate supply chain savings provided year-over-year, not just early in the relationship.
◾The provider's experience with characteristics similar to the shipper's business. While a shipper often focuses on experience in its vertical, the maturity of its customer's supply chain is also a critical factor. A rapidly growing business experiences different problems and requires different solutions to maintain service to its customers while managing supply chain costs.
◾Examples of cost savings projects, not just ROI calculations, must be provided. Case studies should demonstrate proficiency.
◾Reward structure for provider's personnel. Delivering supply chain savings should be part of the performance criteria to ensure the team is not overly focused on tactical execution.
Be sure you dig into the promise of continuous improvement when evaluating your current and future supply chain partners. Ensuring results are expected beyond year one's savings is the most critical part of the equation that is most often missed. In response to the question, what does your logistics provider cost you? The answer is savings beyond year one!
3
Related Articles
Share Everything: Why Multi-tenant Technology Wins
Accurate Transit Times: The Backbone of Efficient Supply Chains
What You Need to Know About Nearshoring
Optimum Dental Extracts Transportation Cost Savings
Is It Time to Think About Logistics Outsourcing?
Delivery App Perks Up Coffee Sales
Is Transportation Management Your Core Competency?
3PL Perspectives 2016
Girl Scout Cookie Sales Go Digital and Milk E-Commerce Innovation
Readers' Choice: Top 10 3PL Excellence Awards 2016
More related articles...
Related Resources
Read 3PL whitepapers
Read Supply Chain Mgmt/Optimization whitepapers
Find 3PL web sites
Find Supply Chain Mgmt/Optimization web sites
Related Company Profiles
FIDELITONE
CT Logistics
Pilot Freight Services
Rinchem Company, Inc.
HWC Logistics
LeSaint Logistics
OOCL Logistics