Editor's Note: This is part two of a multi-part series. You can read part one here.
Are you sabotaging your transportation and logistics negotiations? The answer might surprise you. Here are some of the most critical mistakes shippers make when negotiating transportation and logistics partnerships. Fall into these traps, and you are sure to sabotage your company’s chances of creating a positive, strategic transportation/logistics alliance that will yield real, measureable, and positive results for the future. We covered mistakes one and two last month, so let's move on to mistakes #3 and #4.
3. Not Creating Clear Expectations
One of the main reasons for failures in creating strong and long-lasting strategic partnerships is the fact that one or both sides in the relationship failed to properly understand all of the expectations and/or the capabilities of the potential business partner. Often times, partnerships fail because one side or the other believes the other party clearly understood all of the expectations to be derived from the relationship. That is a real mistake that shippers, carriers, and logistics service providers should never allow to happen. Never take ANYTHING for granted. Ask, test, validate, and test some more.
How will the success of the relationship be monitored and measured? Who will be responsible for tracking the success or failure of the ongoing relationship, on both sides of the fence? A good starting point is to create a “Scorecard” that takes into account the following expectation tracking elements:
· “True” and Bottom Line Cost and Profit Metrics
· Identify and Implement Exceptional Service Standards; Track and Continually
Measure and Report Service Standard Compliance
· Invoicing Accuracy and Prompt Invoice Payment Standards
· Exception Free Transportation and Logistics Services; Create Valid Metrics and
· Continuous Improvement Initiatives for Both Parties
· Sales Representative and Client Involvement Responsiveness
· Reporting Capabilities; Consistent, Timely and Accuracy of Data
· Shipment and Transaction Visibility/Traceability
· Expertise of All Parties in the Relationship
· Customization and Flexibility Initiatives
· EZTDBW “Easy to do Business With!”
· Continually Identify and Implement Value Added Services
· On-Going Annual Cost Savings and Service Optimizations
· Comprehensive Implementation Plans
· Technology Requirements and Resources
4. Not Including Key Players and Taking Shortcuts
A classic mistake takes place when companies fail to consider all of the key stakeholders who will be impacted by the impending business relationship, especially in the preparation phase of building the relationship. It’s important to remember that there are both internal and external customer relationships on both sides of the intended partnership. The effect on these relationships MUST be considered in the initial research AND also as part of the ongoing negotiation process.
Some of the parties involved might include customer service, for example; not only for the service provider, but for the shipper as well. What’s to be expected from a customer service standpoint? Will transit times change, or will there be new services provided that the ultimate customer might need information on? How do these messages get translated to the ultimate customer? How does this impending relationship affect all aspects of customer service?
Will the sales and marketing group of the service provider be required to call on local shipping and receiving facilities to ensure 100% customer satisfaction? Will the sales and marketing department of the shipper now have “new” sales literature and value-added services to review with their customers? How will the message be delivered, and what metrics will be used to determine the true value this new relationship will bring?
Costing and finance need to be brought into the process as well. How are costs going to be calculated? Will there be considerable savings to be derived from this new relationship, or will the costs increase because more enhanced services are being offered? How will these costs be measured? Who will be responsible for assembling the data, and who will be responsible for reporting the information? How often will reports be created, reviewed, and reported to upper management?
And perhaps most importantly, the operations department, both corporately and locally, must be brought into the process early on and often. Operations must clearly understand the what (what’s to be expected with this business relationship); the Why (why the decision was made to enter into the relationship) and finally the How (how the business relationship will affect their individual operations).
Obviously most companies are eager to implement new strategic alliances as quickly as possible so they can immediately gain the benefits the partnership agreement is intended to yield. However, many companies fail to understand the major problems that can and will occur if the proper research is not done, the wrong strategic partner is selected, and the entire process to be implemented is not completely understood by all of the members of the negotiating teams on both sides of the fence. You see, as human beings we want and expect instant gratification, and that gratification could come from reporting huge savings as a direct result of implementing a new business alliance. Likewise, it could come from a huge increase in revenue for the transportation and/or logistics service provider. However, that instant gratification can turn into instant trouble if the partners commit too early without dotting every “I” and crossing every “T.” It is much better to hold off the implementation process until both sides agree they are totally in sync on all aspects of the intended business relationship. This is also a major problem when firms don’t perform the necessary “due diligence” to seek out the most compatible business partners to join forces with at the outset. Remember “Ready, Shoot, Aim” is not the best approach in these cases. Yes, we know management is constantly looking for cost savings, increased revenue, and process improvements, but you must make sure you do not take any shortcuts that will come back to haunt you in the future.
We will cover part three of this series in our October e-newsletter.
Tony Nuzio is Founder & CEO of ICC Logistics Services, Inc. Since the company’s founding in 1975, Tony and his team have been helping companies reduce shipping costs and optimize the spectrum of logistics spending.