Negotiation is a fine art. When it comes to negotiations between shippers and transportation/logistics service providers, there is much to gain, and even more to lose. Do it right, and you create a strong strategic alliance that will yield incredible financial rewards and unparalleled service and support for the long term; do it wrong, and you create chaos, stress, loss of revenue, and maybe even your job!
Are you sabotaging your transportation and logistics negotiations? The answer might surprise you. There are seven critical mistakes shippers make when negotiating transportation and logistics partnerships; PARCEL will be covering them in a multi-part series. 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.
As companies continue to grow through mergers and acquisitions, there is a significant desire to use corporate size and shipment volume clout to seek to obtain a huge advantage over its prospective business partner.
While the “lead” negotiators for the shipper have a corporate obligation to ensure they obtain the best value for their individual companies, it is not wise for them to force their “partner” to agree to pricing terms that negatively impact the business partner. If this is going to be a true, long-term strategic alliance, both parties must benefit operationally and financially from the impending relationship. The initial euphoria of “gotcha” will wear off real fast! There are many unintended consequences that develop when such arrangements are made, including inadequate and, in many cases, totally unacceptable service; lack of response from strategic partner operations teams; the need to increase costs to make up for losses long before expected; ultimately, the “loser” just walks away from the relationship and leaves the “winner” holding the bag. Then the real question becomes, who really won in that negotiation process? Remember, this arrangement needs to be a “good deal” for both parties!
2. Failing To Have An Exit Strategy
Thinking about an exit strategy at the beginning of the negotiation process might seem illogical. However, as experience tells us, “nothing is forever.” If things don’t work out exactly as planned, what do you need to do? When do you need to do something? How and when do you react to signs that things aren’t quite right in the strategic business relationship? Or do you just wait for things to fall apart before acting? We think not! On the other hand, when things are going well, some companies decide several years into a “normal” business relationship to “shake things up” by shifting their business to one of their current business partner’s major competitors. This certainly does have the effect of keeping all competitors on their toes. It does not, however, bode well for creating long-term strategic alliances. It tells the service provider that all you really care about is obtaining the most competitive rates. Without a clear plan to shift gears either on the fly or after a contract has reached its termination point, both parties have some real homework to do.
Is this business worth doing? Is this the right service provider to handle this business? What options do both parties have? With all this in mind, companies should always have an exit strategy that takes into account not only how to properly exit from a partnership without incident, but also, when the best time is to do it. This applies to both parties in the business relationship.
Part two of this series will be covered in the September 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.