Shine a Light on Your Costs

Shine a Light on Your Costs

Shine a Light on Your Costs As stated earlier, outsourcers are looking for a reduction in supply chain costs as a result of their partnership with an LSP, and LSPs are in the business of maximizing profitability. Yet cost information is often omitted in the RFQ, even though the price is ultimately the deciding factor in selecting the LSP. How can an LSP provide reliable and achievable savings projections in the RFQ response if the LSP does not know the cost of one single activity in the outsourcer’s current network? How an outsourcer disclosing cost information improves the quality Warehousing And Logistics: RFQ responses that focus on cost details should allow the outsourcer to evaluate which LSP respondents have cost savings that can be passed along from the outset, rather than just savings achieved through continuous improvement projects (a topic we will discuss a little later). However, if outsourcers do not disclose costs in the RFQ, they run the risk of compounding their cost overages, because now the outsourcer is continuing to overpay for a certain service Warehousing And Logistics and paying an LSP to correct the problem. If an LSP analyzes a potential outsourcer’s cost details and cannot buy better, provide any economies of scale, or leverage its core competency in an area, then that LSP is lacking a quality response to the RFQ, regardless of the price it associates with the response. There may be situations in which disclosing cost is not possible or is deemed too much of a risk, but even then, the outsourcer can provide qualitative information about the major cost drivers of its network, so that LSPs can baseline the current costs and review them with the outsourcer. If, after receiving good qualitative information, the LSP cannot accurately estimate costs of the current state, then the response to the RFQ will be virtually unusable. In this case, the lowest price makes no difference, as the lack of quality determines that the LSP and outsourcer are not aligned.  3. Talk About Change As discussed earlier, an RFQ is designed to allow an outsourcer and LSPs to collaborate on what the future may look like for an operation, with the outsourcer disclosing information that the LSPs will use to project a future state and costs. To increase the level of quality in responses, however, outsourcers should also include historical information on how their organization has managed change and improvements to the network of Warehousing And Logistics. This is a bit of a role reversal – usually the LSPs come armed with a stockpile of case studies and white papers that demonstrate how they have saved their customers money through a variety of supply chain optimization techniques, but rarely does the outsourcer provide the same. How an outsourcer discussing change Warehousing And Logistics management adds to the quality: An outsourcer involved in an RFQ is broadcasting its intent to change – whether that means its vendors, processes, locations or providers – but does not, typically, provide information about its change management process and CIP history. If an outsourcer has a successful track record identifying and implementing positive changes to its network, then that demonstrates to the LSPs in the RFQ that this outsourcer may be able to take on some of the morecomplex, collaborative projects required to achieve savings in today’s supply chain environment of Warehousing And Logistics. An outsourcer, however, that has struggled to identify and implement changes will need an LSP with a strong CIP and project management structure to assist it with a plan to work on the low-hanging fruit before continuing onto the more complex projects more advanced supply chains have undergone. An outsourcer that illustrates its supply chain aptitude should avoid the problem of LSPs recommending A Game of Thrones when the outsourcer is having trouble finishing Harry Potter and the Sorcerer’s Stone. Just because an outsourcer does not have a great track record with CIP and change management does not mean it cannot benefit from outsourcing, but the LSPs with strong startup and implementation teams need to be identified in the RFQ phase. This holds especially true for startup and high-growth outsourcers that are seeking an LSP to help logistic the growth of the network. If the outsourcer relies only on the final cost, it may select a provider that did not account for the effort required to bring the outsourcer to the level of complexity required to take advantage of the savings opportunities in the RFQ response. When the project launches, the lift will be heavier than expected and the chance of success will drop. By openly sharing some past experiences with CIP and change management, outsourcers can evaluate whether the responses from LSPs include the costs and resources required to successfully implement the changes that both the outsourcer and LSP agree are vital to the Warehousing And Logistics relationship.