If you missed part one of this article, you can access it here.

Now you’re ready to take all the responding bid/proposal submissions and to verify the documentation submitted. At this point, it’s also wise to review any noted exceptions or modifications to the proposed terms and conditions of the contract, especially considering how these might require further adjustment, compromise, or negotiation. As you analyze each bid or proposal, you may note areas that require more investigation or clarification, such as:
• What type of turnaround time is offered?
• Does the provider have sufficient capacity to accommodate increased demand?
• Is there sufficient alignment between their capability and technology roadmap and yours?
• What is their commitment to good practices, process improvement, and value added opportunities?
• What are the acceptable negotiation criteria for the length of contract; delivery terms; service levels, price, quality, and so on?

Essentially, your assessment and final selection of a contract provider should include these 5 Critical Consideration Criteria:
1. Financial strength
 Total annual revenues
 Annual revenues in contract logistics services
 Total assets
 Assets employed in contract logistics services
 Financial rating
2. Business experience
 Years providing contract logistics services
 Number of clients in your specific industry
 Depth of management experience
 Strength of operating management
 Quality of work force
 Labor management
3. Business development
 Corporate commitment to contract logistics
 Overall corporate strategy
 Leading accounts
 Trends in business development
 Accounts lost
4. Support services
 Can human resources be phased in and out?
 Is the insurance program adequate?
 Does the safety program support the insurance strategy?
 Are information systems robust?
 Are communications state of the art?
5. Business arrangements
 Open book cost disclosure
 Incentives for performance
 Recapture of excess profit
 Provisions for replacement
 Independent financial audits

Finally, you’ll want to consider conducting a site visit in order to narrow your alternative to a short list. Using a cross-functional team and a formal checklist, talk with local management or those responsible for your outsourced operation. Review the candidates’ qualifications, finances, management philosophy, and their “strategic fit” for a long-term relationship in order to finalize your selection.

This final step focuses on providing the contract to the selected provider and reviewing the measures of agreed performance that you will use to monitor their costs and service level commitments. Remember, the emphasis is on LTR - Long-Term Relationship, where you will seek continuous improvement and incorporate provider feedback. Most LSP or 3PL outsourcing contracts cover a range of 3-10 years, so we recommend that you schedule and conduct frequent in-progress reviews (IPRs), at least on a quarterly or semiannual basis. Additionally, a contractor performance report card should be issued on a monthly or quarterly basis.

It’s important to consider that both parties share in the risks and rewards. Both invest time and resources in the relationship. So, just as in any supplier relationship, there has to be mutual benefit.

How comfortable you are in applying the Four S’s to your outsourcing decisions will depend heavily on your experience in applying the steps successfully in other contexts. In other words, if you have the “know-how” to purchase services effectively, you can probably use the same practices to contract with an LSP or 3PL provider. But why not make the outsourcing selection process less daunting? A qualified, experienced consultant can round out the experience by furnishing you with the outsourcing-specific criteria you need for constructing an effective BPO template and for lining up prospective providers. It’s a winning combination for outsourcing success.

This article part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants and educators. In future columns they will be sharing their views on a number of Supply Chain topics.

Thomas L. Tanel, CTL, C.P.M., CISCM, is the President and CEO of CATTAN Services Group, Inc., specializing in Logistics and Supply Chain issues. He is also the Chair of ISM’s Logistics & Transportation Group and can be reached at tanel@cattan.com or (979) 260-7200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.