vested outsourcing Archives

Nu Skin Selects XPO as a Lead Logistics Provider in a Vested Outsourcing Agreement

Logistics Service Providers | By Steve Banker • 06/26/2017

Nu Skin Enterprises, a direct seller of nutritional supplements that they develop and distribute, recently signed a Lead Logistics deal with XPO Logistics to manage their global supply chain logistics function. which operate in 54 countries. XPO is one of the largest supply chain solution providers in the world and, while the arrangement has not been in effect long enough for Nu Skin to talk about the benefits they received, what I found interesting was the nature of this agreement. It was based on a vested outsourcing arrangement.

Brad Morris – VP of Global Logistics at Nu Skin, David Pollard – the Executive Director Lead Logistics Solutions at XPO, and Steve Symmes – a Consultant with the Forefront Group, spoke about this at eyefortransport’s 3PL and Supply Chain Summit in Chicago last week. The Forefront Group is a global procurement and strategic supply chain management consulting firm.

ARC has long been a proponent of vested outsourcing. Vested outsourcing can be considered gainsharing on steroids. Although, proponents of vested hate having these agreements compared to gainsharing. A short description of vested principals includes the idea of focusing on outcomes rather than methods, having long-term agreements that reward the service provider for investing talent and capital into achieving quite significant improvements in cost and service, and flexible contracts that can change over time.

From the book “Vested Outsourcing”

Here were a few of the more interesting comments made in the presentation:

The “RFP” stood for “request for partner” rather than “request for proposal.” It was a short four-page document describing what they were looking for in selecting a supply chain partner rather than focusing on pricing.
Nu Skin did provide logistics cost data to the 3PL candidates, so that the 3PLs could be comfortable that they could provide value. However, in the final master agreement, XPO has the freedom to increase logistics costs if that will lead to significant enough increases in revenues; The economic model that was developed supports this.
In the presentations from 3PLs, Nu Skin was looking for IT savvy, innovation, and a cultural fit. Cultural fit was evidenced by a willingness to ask questions of the wide array of Nu Skin stakeholders present and a willingness to listen. Nu Skin was also looking for assurance that the “A team” that was making the presentation would not be swapped out for a “B team” when the deal was executed.
The initial implementation is being conducted in Southeast Asia. This region was selected because of executive support in that region, and because some of their 3PL days were due to expire shortly.
There has been a significant emphasis on communication as this is the key to true partnership and collaboration: How often meetings will occur, the cadence of those meetings, and who will be in attendance. Problems will inevitably occur, but there is a clear understanding of how those problems will be escalated and solved.
As the Lead Logistics Provider, XPO is expected to be “agnostic.” XPO assets for warehousing and transportation may be selected, but XPO must remain agnostic as the LLP and select the best provider for the service and cost requirements.
Nu Skin has high level executive support that is highly supportive of this deal. Without this support, the supply chain leadership would not have considered this type of arrangement. Despite that, they recognize that there are substantial cultural hurdles that will need to be addressed on an ongoing basis.

In conclusion, a lead logistics relationship is a significant commitment. There deals should always be based on several of the key vested principals, even if the parties to the deal don’t refer to this as a “vested outsourcing” arrangement. Usually, there are not. Finally, kudos to eyefortransport for putting together a terrific show.

Vested Outsourcing: The ‘Mind Shift’ is Finally Happening

Logistics Outsourcing | By Adrian Gonzalez • 01/09/2013

Back in April 2009, I took a 2.5-day course on Vested Outsourcing (called “Performance-Based Outsourcing” at the time) at the University of Tennessee. Halfway through the course, I shared some of my key takeaways, including this one:

Implementing Vested Outsourcing “the right way” takes a lot of work and discipline, and it requires 3PLs [third party logistics providers] and customers to make a clean break from the way they’ve always done things. It’s a mind shift that will be difficult (if not impossible) for many 3PLs and customers.

After almost four years, it seems like the mind shift is finally happening — and gaining momentum. In the past six months, for example, two different 3PLs have told me that customers have come to them interested in forming a Vested relationship.

(If you are not familiar with Vested Outsourcing, check out the website, as well as some of our writings about it, including “Et tu, Apple?” and “Vested Outsourcing: Gain Sharing in a New Dress?.” Needless to say, I am a big proponent of Vested).

Why the uptick in interest and momentum? Part of the reason, I believe, is that early adopters of Vested are starting to share their stories. Some of the best case studies are included in Vested: How P&G, McDonald’s, and Microsoft are Redefining Winning in Business Relationships by Kate Vitasek and Karl Manrodt (Palgrave Macmillan, September 2012). This is the third book in the series, which takes the Vested Five Rules outlined in the first book and grounds them in real world examples, including both large and small companies, as well as government agencies and nonprofits.

You’ll have to read the book, which I highly recommend, to get all of the details about each of the case studies. But here are some of my takeaways:

The desire for transformation is a key driving force for exploring a Vested business relationship. In other words, the companies and organizations profiled in the book were looking to truly transform the status quo and reach a higher level of performance and results, rather than just transferring a business function to a third party because it wasn’t a “core competency” for them. Here is an excerpt from the Microsoft case study:

Microsoft recognized that it needed an unconventional approach that was not simply about outsourcing the work but about outsourcing the transformation of the work.

Hawkes [Microsoft’s finance operations general manager and controller at the time] explained the strategy. “Microsoft wanted more than simply shifting our ‘mess for less’; we wanted an outsourcing business model where we could ‘lift and shift’ existing operations to a service provider who would then as quickly as possible determine a clear and accurate baseline which they would be expected to improve with Microsoft. The service provider would then be highly compensated for achieving transformational results.”

Understand the difference between a “price” and a “pricing model,” and the importance of building flexibility into an agreement. There’s a lot of detail behind this point, but the bottom line is that in traditional agreements, prices are set based on current realities and underlying assumptions about the future. But we all know that the future never unfolds as expected; things occur in business that are often unexpected or unpredictable, which can shift demand, supply, and costs in the opposite direction of what was originally forecasted. The authors cite the work of Dr. Oliver E. Williamson, the Nobel laureate economist, who wrote that “all complex agreements will be incomplete — there will be gaps, errors, omissions and the like.” Simply put, since it’s impossible to account for every future scenario in an agreement, you need a mechanism to adjust the agreement in response to new realities.

If you don’t invest in governance, everything else is wasted. “Governance may be the last of the Vested Five Rules, but it is perhaps the most important,” write the authors. “Following the first four rules helps you get to a good agreement — but you have to manage it. If you do not manage it well, the consequences are costly.” As the chapter on McDonald’s illustrates, governance is McDonald’s “secret sauce” for its supply chain success.

Are you interested in learning more? Do you have some questions or comments about Vested? Then you’re in luck! I am hosting a live video conversation with Kate Vitasek and Karl Manrodt tomorrow (Thursday, January 10) at 12:00 ET. Bring your questions and comments and join the conversation. Here are some of the topics I plan to discuss with Kate and Karl:

What is the difference between a price and a pricing model, and why is understanding the difference important? What are the attributes of a good pricing model?
Why does governance slip through the cracks so often? What are the attributes of a good governance framework?
How do you know if you’re ready (or have the right mindset and skills) for a Vested partnership? How do you know if an existing (or maybe a new) relationship is a good candidate to take a Vested approach?

I hope to see you tomorrow. If you can’t make it, then post a comment below and share your questions and viewpoints.

[Update: You can watch a replay of Adrian’s conversation with Kate and Karl at Talking Logistics].

3PLs and Software Vendors: Keep Innovating Your Business Models

Cloud/Software-as-a-Service | By Adrian Gonzalez • 11/28/2012

Most of the time, when people talk about innovation in supply chain management and logistics, the focus is on technology (e.g., social and mobile) or business processes (e.g., same-day delivery and omni-channel fulfillment). But what about innovation in business models? Is there an opportunity for 3PLs and software vendors, for example, to innovate their business models to deliver greater value to clients, differentiate themselves from the competition and gain market share, and achieve greater financial success?

Of course there is, and it’s already happening.

Over the past decade, software vendors have been moving away from the traditional model of having customers pay large sums of money upfront to implement software solutions in-house toward software-as-a-service (SaaS) and cloud computing models where customers pay over time to access solutions deployed remotely via the Internet.

In the 3PL realm, it’s no longer outsource everything or nothing. Many service providers now offer customers more configurable service options, where customers can choose which functions they want to keep in-house (such as procurement) and which ones they want to outsource (such as day-to-day operations and IT). Some 3PLs and their customers are also starting to adopt Vested Outsourcing principles in the way they work together.

And as I’ve discussed in previous postings, the business models of 3PLs, software vendors, and consultants continue to converge. A successful 3PL today, for example, is an operations manager, a consultant, and a technology provider all rolled into one.

Simply put, 3PLs and software vendors have been transforming their business models over the past few years. The challenge now is to keep looking for additional opportunities to innovate. But how do you find these opportunities?

You can start by answering these three questions:

1. Is your mission statement aligned with your customer’s objectives and desired outcomes? As highlighted in a recent HBR blog posting (“When Business Models Trump Technology”), an Israeli company, Netafim, captured almost one-third of the “seemingly commoditized” micro-irrigation equipment market by changing its business model to better address the needs and constraints of its customers (read the posting for all the details). According to the authors, “Netafim went so far as to change [its] mission statement from ‘making the best drip irrigation equipment for customers’ to ‘helping the world grow more with less’, an objective far more aligned with the objectives of its customers, the farmers.”

This reminded me of the Jaguar and Unipart Logistics case study I wrote about last year. Jaguar and Unipart created the following shared vision statement, which they review at the start of every meeting between the two companies:

”To support Jaguar dealers in delivering a Unique Personal Ownership Experience to Jaguar Drivers worldwide, ensuring industry leading owner loyalty through partnership and world-class logistics.”

This shared vision statement aligns both companies toward a common goal that both unifies and transcends the interests of each company.

Simply put, if your mission statement and objectives are not aligned with those of your customers, then an opportunity exists to change your business model to close that gap.

2. What challenges and constraints do your customers still face that you can solve or alleviate for them? The SaaS model emerged in large part to address a problem many companies faced: they had limited IT resources and limited (and shrinking) IT budgets. Supply chain and logistics organizations face many challenges today, such as finding and retaining talent, enabling new business processes quickly, and dealing with high variability in supply and demand. The idea here is to take a step back and look at all of the resources and assets you have at your disposal (including those you’ve only been utilizing internally) to see if there are opportunities to bundle, price, and deliver them together in new and unique ways to solve the problems and constraints your customers still face.

3. What is your customer’s total experience with your product or service? In their July 1997 HBR article “Discovering New Points of Differentiation,” Ian C. MacMillan and Rita Gunther McGrath write that “most companies, in seeking to differentiate themselves, focus their energy only on their products or services. In fact, a company has the opportunity to differentiate itself at every point where it comes in contact with its customers—from the moment customers realize that they need a product or service to the time when they no longer want it and decide to dispose of it.” They go on to say: “We believe that if companies open up their creative thinking to their customers’ entire experience with a product or service—what we call the consumption chain—they can uncover opportunities to position their offerings in ways that they, and their competitors, would never have thought possible.”

The article outlines how to map the consumption chain, which includes answering questions such as: How do customers find your offering? How do customers make their final selection? How is your product or service delivered? How is your product or service paid for? What is your customer really using your product for? What do customers need help with when they use your product?

The bottom line is that by exploring these questions in detail, you will likely uncover opportunities to streamline and improve your existing business model and practices.

I’ll end with a quote from another great HBR article related to this topic: “One secret to maintaining a thriving business is recognizing when it needs a fundamental change.” Something to think about and discuss in your next strategy meeting.

For related commentary, see the following postings:

If Operational Excellence is a Given, Then What Else Matters for 3PLs?

Logistics Service Providers | By Adrian Gonzalez • 09/05/2012

If operational excellence is not enough for third party logistics providers (3PLs) to differentiate themselves in the market, then what else matters?

I’ve been thinking about this question a lot lately, as I prepare to participate in two 3PL-related sessions this month:

“Delivering Customer Value Beyond Operational Excellence,” a panel discussion I am moderating with leading logistics service providers at the MercuryGate User Conference on September 10th.

“The Path to Becoming a Successful 3PL,” a presentation I’m giving at the TMW Systems User Conference on September 24th.

I first addressed this question last year in “Operational Excellence is Not Enough–Why 3PLs Must Leverage Their Most Valuable Asset.” Simply put, I argued that 3PLs should set themselves apart from the competition by fully harnessing the power and value of their customer and employee communities. “By investing in customer engagement management, 3PLs can also create a community (a knowledge network) that their customers would highly value and greatly miss if they were to move elsewhere — a community that provides [customers] with valuable insights about industry trends and leading practices, a community that facilitates peer-to-peer learning and knowledge exchange, a community with motivated and engaged members, a community that is diverse, vibrant, and yes, fun.”

I still firmly believe that “customer engagement management” is arguably the biggest missed opportunity for 3PLs to enhance their value proposition for clients.

But what else matters?

I don’t want to steal too much of my thunder before the conferences, but here are some of the other points I plan to make:

A successful 3PL is an operations manager, a consultant, and a technology provider all rolled into one. If you’re not regularly providing customers with new ideas and recommendations as a valued consultant, and also providing them with up-to-date technology to help them make smarter decisions faster, then you’re sitting on a wobbly, one-legged stool.

Don’t just sell your services, but also the knowledge, skills, and experience of your people. There is a “war for talent” going on right now in the supply chain industry. Focus on hiring and retaining people with proven experience and success in the vertical industries you’re serving, and who also have the right mix of technical, analytical, and interpersonal skills.

Continuously invest in customer-facing technologies. There are two types of technology investments you can make: those that help you streamline and automate your internal operations, saving you time and money, and those that provide your customers with the tools and information — such as business intelligence dashboards — to help them save time and money. Don’t shortchange investments in the latter.

Avoid the ailments of typical 3PL-customer contracts and instead take a Vested Outsourcing approach. The building blocks to achieving this goal include focusing on outcomes instead of tasks and creating alignment between the two companies, which involves having ongoing and clear communication on strategic initiatives and continuous improvement opportunities. For related commentary, see “Vested Outsourcing: Gain Sharing in a New Dress?”

I plan to share some more ideas in a future posting, after the conferences are done. In the meantime, post a comment and share your viewpoint on this topic.

(Note: MercuryGate is an ARC client and Logistics Viewpoints sponsor).

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