DEVELOPING AND IMPLEMENTING PARTNERSHIPS WITH LOGISTICS SERVICE PROVIDERS

This article discusses in detail the process of developing and implementing partnerships with logistics service providers, covering not only the main steps involved, but also the process of determining the most appropriate level of operational and managerial integration for each situation.

Before proceeding, however, we have to bear in mind that logistical partnerships, however much benefits they may generate and however many success stories are published in specialized magazines, are expensive commercial relationships due to the time and effort consumed in putting them into operation. day to day. In this way, a manufacturer or a retailer cannot and should not form, in principle, a partnership with any carrier, warehouse or logistics service provider in the broadest sense of the term. It is necessary to initially assess whether the partnership, compared to market relationships or vertical integration, is the commercial relationship with the highest benefit/cost ratio in the future. The Partnership Process Model, which we present in Figure 1, is a very useful tool in this regard.

This model is made up of three main components: Motivators, Partner Characteristics and Management and Operational Instruments.

Motivators (or desired gains) are the reasons that lead a manufacturer or retailer to enter into a partnership and can be of different natures, such as, for example, seeking greater efficiency in the use of assets (vehicles, warehouses, etc.), improving customer service indicators (product availability, delivery time, percentage of correct orders, etc.), gain competitive advantage by focusing on key business competencies or stabilize revenues and expenses (cash flow) through long-term contracts.

Potential Partner Traits, on the other hand, reflect several aspects such as their managerial attitudes regarding staff training and ability to work in a team; the standard of coexistence with regard to flexibility in setting common goals, providing information and sharing risks and benefits; the business philosophy reflected in the ability to plan together and the company's market image.

Finally, the Management and Operational Instruments are tools jointly developed to deal with various issues present in the short and long term of the relationship. Definition of performance indicators and procedures and methods are examples of operational instruments, while the policy for exchanging information, investment policy and the degree of contractual formalization are examples of management instruments.

The following paragraphs discuss each of these three components in more detail.

MOTIVATORS

A crucial issue that must be asked is how to assess whether a company's motivators (for example, reducing inventories, improving service levels, etc.) are sufficient to form a partnership with logistics service providers.

First, drivers must exist not just for the manufacturer or retailer but also for the service provider. We should pay attention that the motivations for forming partnerships are generally different among the different members of the supply chain, varying from the perspective of the supplier, the retailer or the service provider. This usually demands the need for extensive meetings to reconcile diverse interests towards common goals. A very frequent example is the negotiation for a partnership between a manufacturer, whose main motivations are usually the improvement of customer service levels, and a logistics service provider, interested in greater stability of freight volume in the long term. If the manufacturer's business is seasonal, the service provider's expectations will probably not be fully met.

Table 1 contains an internal evaluation questionnaire, which must be used individually by both companies interested in the partnership. This questionnaire seeks to measure whether the intensity with which different categories of motivators are present is sufficient to start the process of forming partnerships.

We noticed that this questionnaire seeks to quantify subjectivity, making tangible in terms of probabilities the real chances of these motivators turning into real benefits in the future. When the alternative 0% is marked, it is indicated that a certain motivator will certainly not materialize in the future. On the other hand, 100% indicates complete certainty regarding obtaining this benefit.

The score obtained in the application of this questionnaire can indicate three different results, as shown in table 2.

• From ZERO to 8 points: there are not enough motivators (the potential pay-off of the relationship is low), and the partnership proposal should be discarded.
• From 8 to 16 points: there is potential for the partnership, however the characteristics of each company must be analyzed in greater detail.
• Finally, from 16 to 24 points: there are strong indications for a promising relationship, once again not discarding a detailed analysis of the partner's characteristics.

PARTNER CHARACTERISTICS

On the other hand, once the probability of realizing the motivators into future benefits has been assessed, it remains to be assessed whether the partner has the appropriate characteristics for the formation of the partnership. This is the most critical stage of the analysis process, as the partner's characteristics cannot be changed or developed in the short term, a limitation that compromises the possibility of success in the future if the wrong partner is chosen.

Contrary to the evaluation of the motivators, which must be done individually in each company, the partner's characteristics must be evaluated jointly, aiming to quantify the degree of compatibility of objectives, values, business philosophy and operational skills. A questionnaire is also used, as shown in Table 3, to assess the partner's characteristics.

The score obtained in the application of this questionnaire can indicate three different results, as shown in table 4.

• From ZERO to 8 points: although there are high chances of motivators to materialize in the future, there is a strong incompatibility between the characteristics of each company.
• From 8 to 16 points: there is potential for the partnership, however the level of integration appropriate to the relationship must be carefully evaluated.
• Finally, from 16 to 20 points: there are strong indications for a promising relationship.

LEVELS OF INTEGRATION IN THE LOGISTICS PARTNERSHIP

Once the probability of achieving the expected drivers and the chances of future synergies with the other company have been assessed, the next step is to determine the appropriate level of integration for the partnership. In reality, the level of integration of a partnership basically depends on the combination of forces between the motivators for the partnership and the characteristics of the companies in question, as illustrated in table 5.

Below is a description of each of these levels of integration in the logistics partnership.

• Type I: In this case, the level of operational and managerial integration is small. The companies recognize themselves as partners, however, they coordinate and plan activities in a not comprehensive way. The partnership is focused on the short term and involves only one department of the manufacturer (usually its transport management or physical distribution).• Type II: companies move from coordination to integration of activities. There is a long-term perspective to the relationship and various departments and functions of the manufacturer are involved (production, physical distribution, sales, etc).• Type III: there is a significant level of operational and managerial integration, in which each company perceives the other as an extension of your business unit. There is no predefined deadline for the termination of the relationship.

These three levels of integration will be reflected in the development and adoption of more or less sophisticated management and operational instruments, as we will see below.

MANAGEMENT AND OPERATIONAL INSTRUMENTS

They aim to coordinate and control the logistics partnerships, whether in day-to-day operations or in establishing general guidelines for the relationship. Are they:

• Establishment of procedures and methods: related to the project of the operation itself, involving issues such as receipt, dispatch, storage, packaging and physical distribution of materials.
• Definition of performance indicators: involves the elaboration of indicators of productivity, quality, use and service levels, in addition to the definition of parameters associated with what are higher or lower performance levels in physical distribution.
• Information exchange policy: based on the definition of what information will be exchanged, the hierarchical levels involved, the routine and the type of system (manual or electronic).
• Contract formalization: reflects the level of detail of the contract, with the stipulation of exit barriers, exclusivity clauses, penalties and renewal horizon.
• Investment policy: involves the acquisition and operation of assets dedicated to the partnership (warehouses, vehicles, cargo tracking and control systems, etc.), in addition to training and qualification of human resources (drivers, checkers, loading helpers, etc.)

Normally, in successful logistics partnerships, the sophistication of their operational and managerial instruments will vary in these three levels. In this way, depending on the operational and managerial arrangement adopted, the partnership can be characterized by a greater or lesser degree of integration.

It is expected that most successful logistics partnerships present components of operational and managerial tools of types I and II, while type III partnerships would be restricted to a small number of special cases, in which the logistics service provider is really a critical element to the long-term competitive advantage of the manufacturer or retailer. Table 6 illustrates these differences.

SOME EXAMPLES

In this section we present real cases of partnerships between manufacturers and logistics service providers, which, depending on the characteristics and motivations of each company, assumed different levels of integration.

• Exel Logistics & Nabisco (UK): Nabisco UK believes that the best way to engage with its partners is to establish ground rules early on in the relationship. The contract with Exel Logistics (its main logistics service provider) is renewed annually and includes items such as procedures for dissolution of the partnership and clauses providing for changes in initial circumstances. This is a typical example of a Type I partnership.
• Robin Transport & General Motors (USA): Robin Transport was a pioneer in the development of canvas-walled trailers (siders), facilitating and speeding up the loading and unloading of parts at GM's facilities in Michigan. Despite the automaker not having been previously consulted about the change in vehicles, it benefited Robin Transport with the status of preferential carrier and a bonus on the freight price. This is a typical Type III situation, in which the service provider was rewarded for understanding GM's parts delivery needs.

CONCLUSION

This article presented a model to help companies in the process of developing and implementing partnerships with logistics service providers. It was seen how the characteristics of the companies as well as their motivations for the new relationship can influence the level of integration of the partnership and consequently the level of sophistication of its operational and managerial instruments.

The internal evaluation questionnaires illustrate that each partnership can present a specific pattern of development, and that for this reason seeking Type III integration should not necessarily be the main objective of the companies involved.