The extensive adoption of logistics outsourcing in the business environment leaves no doubt that this has become one of the management practices most practiced by the Logistics Departments of companies of the most diverse profiles and sectors.
Whether seeking cost reduction, competitive advantages, greater response flexibility, risk dilution, new services and technologies or many other possible outsourcing drivers, the fact is that companies are increasingly relying on experience and technical knowledge of Logistics Service Providers (LSP), than trying to achieve its objectives exclusively with its own competences.
The sophistication of services and technologies offered by PSL's is attracting many companies to include more and more activities in their contracting scopes, in order to increase the range of potential benefits.
On the other hand, there are still companies that are more restrained in the scope of their outsourcing, either because of the fear of losing control of activities or the difficulty of switching suppliers later, or even because of the belief that they have the necessary skills to carry out their logistics activities.
Thus, multiple situations of logistics outsourcing began to exist, with variations in scope, motivators, needs and also in the expectations of contractors.
A shipper may want to outsource so that the PSL brings process changes, implements improvements and innovations, assumes the planning of operations and even monitors the results. But there are cases where what is wanted is not to hand so much responsibility to a third party or that this “turns upside down” the processes.
Despite so much talk about sophisticated, complete outsourcing, with heavy investments in information systems for data exchange, at the other extreme there are still companies that want simpler and “traditional” outsourcing.
We are not going to discuss here the reasons for these differences or whether they are the most appropriate for one situation or another (for this topic see, for example, (Lacerda, 2004) or (Gould, 2003). The fact is that variations exist and the way of selecting PSL's should accompany these different scenarios.
Planning the Selection of Logistics Service Providers
As already illustrated in other CEL/Coppead articles (Nazário & Abrahão, 2002), a structured PSL selection process has the following phases in Figure 1:
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Figure 1 illustrates the stages of a Structured Selection and Hiring Process.
The suggestion of these steps aims to ensure the success of the selection process. From outsourcing planning (definition of drivers and scope) to the final negotiation and preparation of the contract, contracting companies must be very conscious in selecting the PSL's most suitable for their needs.
Despite the objective here being to relativize the selection process, indicating what should be varied according to the different needs of the contracting company, the steps in Figure 1 constitute the “generic” model and the following ideas will be based on it to be developed.
The first question that should be clear to a contractor is what they want out of outsourcing. For this, it is necessary to have a global view of current logistics operations, their capabilities, limitations, costs, as well as their future needs. In addition, expectations must be very clear and concrete, because when the company itself does not fully understand the activity, this can lead the LSP to respond to incorrect, vague or incomplete requests.
In this planning phase, the company must still have an idea of the level of control it wants to have, over the information systems, over the solutions and over the operational execution.
The result of these definitions can generate several combinations of outsourcing models. The variations can be many and involve the following forms of division of responsibilities (Figure 2):
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Figure 2 shows the different ways in which a PSL operates in the logistical activities of a contracting company.
The arrow indicates that the LSP's responsibility increases along with the sophistication of the required activities.
From the desired definitions of responsibility, you can start planning the Selection Process itself. It is important to emphasize that the performance and the degree of responsibility expected from a PSL must be reflected in the selection process. In other words, the level of demand in a selection must correspond with the requirements after hiring.
Figure 3 illustrates this concept, showing that as the responsibility of the LSP to be hired increases, the greater the requirements during the selection process:
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Figure 3 indicates the various forms of “responses” that can be requested from LSP's during the selection process.
These forms vary according to the responsibility that will be assigned to the PSL after contracting.
Doing so is advisable for two reasons: 1) It helps to communicate and align competitors with outsourcing objectives and 2) It can define the success of the selection process.
The second reason is more present in processes where the PSL is expected to assume a more strategic role. This is because, even when a company plans an evolution in its outsourcing practices, it usually does not develop new forms of selection to accompany this change, selecting PSL's as it always did before, even if now it consciously has a greater requirement.
By deepening relationships without subjecting PSL's to a comprehensive assessment process, the contracting party may fail to confirm promised/announced capabilities. The results can be suboptimal outsourcing decisions that can negatively affect the logistics strategy and operational capabilities of the shipping company.
At the other extreme, when outsourcing involves a low level of responsibility from the LSP with low expectations regarding changes, (such as carrying out transport on some routes or taking over a warehousing operation “as it is”) carrying out a long and selective selection process sophisticated can divert the company from the desired result.
Therefore, it is necessary to ensure that the form of selection used is appropriate to the types of service being outsourced and the role that one wishes to assign to the PSL after contracting.
Variations in the Selection Process according to needs
The variations described below are organized according to the stages of the Selection Process illustrated in Figure 1.
Identification of PSL's
Prior to differentiating the requests and requirements made to PSLs, there are variants in how the contracting company must even generate its list of participants.
The more strategic the projected participation for the PSL is, the more attention must be given in the analysis of the existing base of PSL's to generate the list of participating companies. A detailed market assessment of logistics providers can help you understand your current capabilities and positioning, as well as researching recent developments in the PSL industry. If the scope of outsourcing is some specific challenge or activity, such as, for example, launching a product, starting up an operation in a new region or even starting an export operation, then the search for information on the market should focus on these experiences.
If the responsibility to be delegated is too high, it is worth checking the PSL's reputation with already contracting companies and the community in general, even before the RFI (Request for Information) stage. Issues such as mergers, financial difficulties and involvement in legal actions can also be crucial in eliminating a potential participant.
RFQ (Request for Quotation) / RFP (Request for Proposal)
When this phase of the selection process is reached, a first “screening” has already taken place through the RFI and some decisions and choices must be made by the contracting company regarding the way of conducting the subsequent activities.
These choices are closely linked to what was illustrated in Figure 3, that is, what will be asked from competitors in response to the selection process. Depending on what is requested, there are possible variations in relation to the following topics (Figure 4):
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- Data about the operation:
The information that is passed on to the PSL's will vary according to the sophistication of the response you want to obtain. For a quotation, a brief description of the activities, the volume and any peculiarity that exists (for example, seasonality) are sufficient for satisfactory answers.
As the sophistication of expected responses increases, the information passed must be increasingly rich and detailed as well. Detailing of internal processes, layouts and plans, order profile, current level of cargo consolidation, product dimensions, stacking characteristics, are some of the details possibly necessary for LSP's to be able to develop proposals for changes or customized projects that are expect to receive.
It is always good to remember that if the information given is vague, the answers obtained will also be.
- Visits to the Contracting Party's facilities:
The contracting company can choose to “open its doors” to the candidates, to facilitate the understanding of the nature of the operations and, consequently, the scope to be outsourced. Of course, for a simple quotation, visits are not necessary, but, again, if what you want are proposals for improvements or projects, visiting permission is an investment in time and exposure that can be very worthwhile for you. the contractor.
- Time given to Participants:
Clearly proportional to the effort and dedication you want to obtain from PSL's in the selection process. For a freight quote, for example, one week is enough. For quotations where consultation with equipment suppliers is required, in turn, approximately two weeks are required. In a response where, in addition to the price, the scale of the operation is required (start-up's, for example), four weeks should be enough to guarantee appropriate responses.
Proposals for improvements to current processes need 3 to 5 weeks to be prepared. Customized projects, with major changes and innovations, can take from 1 to 6 months to be developed, depending on the scope in question.
- clarification meeting
Regardless of the invitation to visit its operations, it is strongly recommended that the contracting party consider holding a clarification meeting soon after sending the RFQ or RFP. In cases of very basic outsourcing, these meetings are not justified, despite the effort spent being small.
A meeting like this can have a number of purposes, such as: reviewing the submitted document, answering questions and concerns that PSL's may have, communicating expectations regarding the process and its results, conveying reliability in the selection process and even encouraging competition among participants.
If the contracting company does not want to identify itself, it can hire a consultancy to conduct this type of meeting, which must be fully aligned and informed about the shipper's objectives and operations.
- Visit to PSL's
During the selection process, the contracting party may choose to request visits to the facilities or to any operation under the responsibility of the PSL's. The purpose of these visits can vary depending on the interest and concerns of the contractor, such as:
– Know the organizational culture of the PSL
– Evaluate the technical quality of the team and infrastructure
– Dig deeper into critical outsourcing issues
The shipper can also request a presentation with specific topics or even try to learn about operations with current customers. In order to better organize the visits and enable an adequate comparison between PSL's, it is advisable to prepare a structured checklist, listing everything you want to ask, observe and discuss with the candidates.
- Evaluate possible Gap's of perception and expectations
At the end of the selection process, a Gap's assessment of the motivators and important characteristics in a PSL between the contracting party and each of the finalists can be quite revealing, in addition to speeding up the correction of any dissonance between the parties. As presented by Ribeiro (2002), when establishing a relationship, it is very important to assess the possible discrepancies between the views of the two companies involved.
Thus, the more strategic the role designed for the PSL, the more advisable it is to try to assess the business compatibility and managerial philosophy of the contracting party with potential candidates. To quickly illustrate this concept, figures 4 and 5 below show the two types of Gap's that can exist between Contractor and PSL:
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Figure 4 illustrates a way of assessing possible discrepancies between the views of the contracting company and the “finalist” LSP's. This assessment is important to align the objectives and reinforce the communication of the motivators that led to the outsourcing.
The identification of gaps related to motivators can generate the need for alignment between companies, which tends to be reasonably quick, but very important for the good start of a strategic relationship.
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Figure 5 illustrates a way of evaluating possible discrepancies of vision about the characteristics of a PSL. These criteria can serve to assess culture, way of working, and positions regarding financial issues, HR, etc. Very different results (very high Gap's) can eliminate a candidate PSL.
The gaps referring to the most important characteristics in a PSL, on the other hand, are not quickly resolved, as they are intrinsic to the management practices and philosophies of each company. Large disagreements can eliminate a candidate.
Practices that should not vary under any circumstances...
Despite so many possible variations in a selection process, there are certain concerns that should always be considered, regardless of how the selection of PSL's will be conducted.
From the simplest to the most sophisticated outsourcing, the acquisition of logistics services will always be an extremely complex activity, as it is the purchase of a process, therefore very different from the purchase of components and goods. What a PSL actually provides is a series of transactions, requiring more sophisticated interfaces and monitoring from the contracting party. Concerns about consumer satisfaction and the impacts on the various areas of the company also make it difficult to manage hiring
Any successful outsourcing will be one where both parties have a clear understanding of the objectives, purpose, expectations and required capabilities.
So that communication is always clear, without “noise”, the formation of a management team that will be responsible for conducting the selection process is crucial for the smooth running of the work. The team should also be responsible for internal communication, disseminating the objectives and the changes that will occur to all areas of the company.
If applicable, internal communication should also involve the company's current service providers. They must not be neglected or misinformed, as poor management of the situation can even lead to a stoppage of activities. In addition, the transition between current and future PSL's must be smooth and guarantee the continuity of the operation.
BIBLIOGRAPHY
GOULD, Stephen. How to source logistics services strategically, September/October, Supply Chain Management Review, 2003
LACERDA, Leonardo. Strategy for Hiring Logistics Service Providers, Revista Tecnologística, 2004
NAZÁRIO, Paulo, ABRAHÃO, Fabio, Structured Outsourcing: The Use of RFI – Request For Information – As a Logistics Operator Selection Tool, Tecnologística Magazine, 2002
RIBEIRO, Aline, Relationship Management with Logistics Service Providers, Tecnologística Magazine, 2002
SHAMLATY, Ron. Set goals before choosing a 3PL, Food Logistics, issue 64, 2003, p.50
