Comments on: Performance-based Outsourcing in Logistics

By: tlc

tlc — Wed, 09 Sep 2009 16:38:56 +0000

Performance Based Outsourcing (PBO) makes a lot of sense if you think about it. The objective should be to maximize the performance of the supply chain. However, a client/3PL relationship may not necessarily be set up to do that. We see PBO vested outsourcing as the next evolutionary step for 3PL’s that are invested in their Clients business. The PBO model means your relationship with your 3PL is more of a partnership than a vendor-client one. Both entities must “let their guard down”. PBO might not be for everyone, but it certainly makes the 3PL and the client align their relationship and expectations. Ultimately both share in the value of a higher performing supply chain.

By: shchung

shchung — Thu, 16 Jul 2009 09:41:22 +0000

I agree that it requires a radical change in the relationship between the customer and the 3PL. Most customers have tended towards transactional relationship with the 3PL instead of seeing greater improvement possibilities by engaging their 3PL. Many customers I’ve met still maintained the “don’t tell me how to do my job” mentality. To be fair they might not have come across a competent/ convincing 3PL yet.

By: M L Humphreys

M L Humphreys — Wed, 15 Apr 2009 18:37:16 +0000

The problem with acceptance of PBL has been the general perception that distribution and logistics is essentially a bunch of box-kickers and label-lickers and therefore how difficult can it be to staff and manage. Hence, the profit margin of the 3PL is easy money being given away. In addition, and this may be related to the perceived low-level of value add and general lack of understanding of the logistics function by senior management, there has been a reluctance to establish a true partnership (vs. the standard volume-based contract) because this would require a true understanding of the value-stream map of the organization’s logistics processes and the true costs associated with providing the value. This lack of understanding causes both parties to yield to lowest common denominator (volume) and put sufficient buffer in their offer/agreement to cover uncertainty. As always, lack of total understanding is a major waste.