Avoid being surprised! That's the basic rule of negotiation. And as Dizzy Dean, the great Baseball Legend, once said: "If you can do it, it ain't braggin!" Successful negotiation depends on knowing what leverage you have as the outsourcer, and knowing how to use it.
The ability to analyze a Logistics Services provider (LSP) is as important to negotiation as being able to set realistic objectives. An outsourcer company should define a process, operation, or functions that can be improved - then make these potential providers compete for it, and discover what each LSP wants out of the negotiations. This will let you reconcile your objectives with their objectives. It will also allow both parties to progress beyond "jockeying for position." The type and amount of information that must be collected will depend on its use. Do you need it to:
• Strengthen and support your objectives?
• Blunt the anticipated thrust of the LSP's objectives?
• Allow developed information to be used to its fullest extent?
PREPARATION AND PLANNING
Over 90% of the negotiation process is preparation and planning. The information that you garner during this period enables you to deal frankly with the LSP about your concerns. It also allows the LSP to come back with innovative solutions or answers that meet both parties' objectives. The following are assessment questions to review with your LSP so you can gauge their responsiveness:
• Tell us about our business process or department function. Are the process flows and procedures realistic? What modifications would you make? Why?
• What are the best practices today for this business process or department function? What role can you play to help us succeed? What competitive advantage can we gain?
• Have you looked at our functional requirements and performance metrics? What can be eliminated and/or improved? What are the operational alternatives to our business process or functional department? Do you have some better ideas?
• Are we using the best processes for our purposes? Are there operations being done in-house that could better be done by your firm? Would you be willing to talk about them in more detail?
• Do you see waste or inefficiency in our operation that you, perhaps, could help us clean up? How would your recommendations affect our total cost of ownership and your internal cost profile?
• How can we continue to manage the process or function effectively from a long-range, strategic point of view?
AVOID CONFRONTATION
One of the goals of negotiation is to avoid confrontation. Getting into bed with an LSP does not absolve an outsourcer of the responsibility, fiduciary or operationally, to manage their own business as well as the provider's performance. Each party should be aware of all contractual terms and conditions and how they apply to the given situation.
All parties involved in an outsourcing arrangement, like those in a marriage, usually work towards and aim to achieve a long term, hopefully permanent partnering arrangement, with divorce not even a consideration. And the milestones, terms and conditions, operating procedures, etc. that the parties on both sides agree to should be designed and implemented with this in mind.
However, not all outsourced arrangements last - some fail catastrophically, and for a variety of reasons, not all of which can be anticipated. Therefore, a good outsourcing contract will include:
• Procedures to identify and remedy concerns
• "Get well" plans and procedures to put a problem-plagued arrangement back on track
• Specific triggers that bring "get well" actions into being
• Consequences and/or other provisions for nonperformance - including termination
Leave nothing to chance. You, as the outsourcer, have the opportunity to literally take control before the negotiations begin. Knowledge is power and the better the preparation, the better the negotiation•for both sides.
This article is 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 continue to share 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) 212-8200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
The ability to analyze a Logistics Services provider (LSP) is as important to negotiation as being able to set realistic objectives. An outsourcer company should define a process, operation, or functions that can be improved - then make these potential providers compete for it, and discover what each LSP wants out of the negotiations. This will let you reconcile your objectives with their objectives. It will also allow both parties to progress beyond "jockeying for position." The type and amount of information that must be collected will depend on its use. Do you need it to:
• Strengthen and support your objectives?
• Blunt the anticipated thrust of the LSP's objectives?
• Allow developed information to be used to its fullest extent?
PREPARATION AND PLANNING
Over 90% of the negotiation process is preparation and planning. The information that you garner during this period enables you to deal frankly with the LSP about your concerns. It also allows the LSP to come back with innovative solutions or answers that meet both parties' objectives. The following are assessment questions to review with your LSP so you can gauge their responsiveness:
• Tell us about our business process or department function. Are the process flows and procedures realistic? What modifications would you make? Why?
• What are the best practices today for this business process or department function? What role can you play to help us succeed? What competitive advantage can we gain?
• Have you looked at our functional requirements and performance metrics? What can be eliminated and/or improved? What are the operational alternatives to our business process or functional department? Do you have some better ideas?
• Are we using the best processes for our purposes? Are there operations being done in-house that could better be done by your firm? Would you be willing to talk about them in more detail?
• Do you see waste or inefficiency in our operation that you, perhaps, could help us clean up? How would your recommendations affect our total cost of ownership and your internal cost profile?
• How can we continue to manage the process or function effectively from a long-range, strategic point of view?
AVOID CONFRONTATION
One of the goals of negotiation is to avoid confrontation. Getting into bed with an LSP does not absolve an outsourcer of the responsibility, fiduciary or operationally, to manage their own business as well as the provider's performance. Each party should be aware of all contractual terms and conditions and how they apply to the given situation.
All parties involved in an outsourcing arrangement, like those in a marriage, usually work towards and aim to achieve a long term, hopefully permanent partnering arrangement, with divorce not even a consideration. And the milestones, terms and conditions, operating procedures, etc. that the parties on both sides agree to should be designed and implemented with this in mind.
However, not all outsourced arrangements last - some fail catastrophically, and for a variety of reasons, not all of which can be anticipated. Therefore, a good outsourcing contract will include:
• Procedures to identify and remedy concerns
• "Get well" plans and procedures to put a problem-plagued arrangement back on track
• Specific triggers that bring "get well" actions into being
• Consequences and/or other provisions for nonperformance - including termination
Leave nothing to chance. You, as the outsourcer, have the opportunity to literally take control before the negotiations begin. Knowledge is power and the better the preparation, the better the negotiation•for both sides.
This article is 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 continue to share 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) 212-8200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
