In February, we published a report on “Maximizing the Value of 3PL-Customer Relationships” (available to ARC clients only). The content was based on think tanks we conducted at The Logistics & Supply Chain Forum organized by Richmond Events in November 2009. Forty-three logistics and supply chain executives from various manufacturing and retail companies participated in these sessions. ARC also conducted a web survey, with the support of Richmond Events, on the same topic. More than 100 logistics and supply chain executives responded to the survey.
I presented the results of this research at our Performance-based Outsourcing (aka Vested Outsourcing) seminar back in February. One of the interesting findings was the lack of CEO involvement in the 3PL evaluation and selection process. Sixty-two percent of the survey respondents said their CEO was not involved at all in the 3PL evaluation and selection process, and only ten percent said their CEO was very or completely involved.
Functions Involved in 3PL Evaluation/Selection Process (Source: ARC Advisory Group; click to enlarge)
Then again, when you consider that most of the think tank participants and survey respondents have 3PL relationships that are short-term and transactional in nature, is there really any reason for their CEOs to be involved?
In preparation for our seminar, I interviewed three senior executives at Unipart Logistics, each with more than twenty years experience at the company: Paul Brooks, Unipart Logistics Sales Director; Brian Marshall, Commercial Director at Unipart Logistics; and Mike Varnom, Managing Director Unipart Aftermarket Logistics. The goal of the interviews was to obtain their perspectives on Vested Outsourcing using Unipart’s long-term relationships with Jaguar and Vodafone as reference examples. (Note: Unipart is an ARC client and Richard MacLaren, General Manager North America at Unipart, was one of the presenters at our seminar).
Based on these interviews, I identified seven critical building blocks that I believe form the foundation and framework for vested outsourcing (VO) relationships, and which also re-enforce the “Five Rules” that Kate Vitasek discusses in her book. I outlined these building blocks in a paper published last month sponsored by Unipart. One of these building blocks is “The CEOs as Catalyst and Champions for Change.”
Unipart began working with Jaguar almost 25 years ago and with Vodafone in 1999. Neither of these relationships was VO-based at the onset. The initial focus of the Unipart-Jaguar engagement was aftermarket parts fulfillment in the UK, and in Vodafone’s case, Unipart managed the company’s warehousing and distribution operations in the UK.
As with many outsourced relationships, there were bumps on the road in the early years of both relationships.
“Vodafone hadn’t outsourced before,” explained Brian Marshall, “so the company tended to micromanage us a lot at the beginning. And that first Christmas was very difficult, as we faced a huge spike in demand while also trying to consolidate fulfillment operations into a single warehouse.”
In Jaguar’s case, recalled Mike Varnom, “there was a lot of non-value-added activity taking place, and a lot of blame going back and forth between the companies.”
What was the turning point? In Jaguar’s case, the CEO in the mid 1990’s, Sir Nick Scheele, recognized that the relationship was not working well and he began meeting with Unipart’s CEO, John Neill, to determine how to improve the working model. These meetings not only led to the creation of a shared vision statement, which continues to guide the business structure today, but also strengthened the personal relationship of these two leaders.
A similar transformation occurred in the Unipart-Vodafone relationship. “Our relationship with Vodafone didn’t change much the first two years,” said Marshall, “but Vodafone was growing very quickly and it ultimately decided that logistics wasn’t a core competency. The CEOs of both companies developed a strong relationship, as did I with Vodafone’s Director of Supply Chain. These relationships ultimately led both companies to trust each other more and more.”
Simply put, this is yet another example of how any type of strategic transformation requires the support of the CEO—and when it comes to an outsourced relationship, the leaders of both companies need to be involved. If the CEOs are missing from the relationship, the likelihood of it becoming more long-term and strategic is very low.
For additional commentary on PBO/Vested Outsourcing, check out the video below, taped during our seminar, where I’m interviewed by Russell Goodman, Editor-in-Chief of SupplyChainBrain.
