OUTSOURCING RELATIONSHIPS (OR LACK THEREOF)

As supply chain management becomes more sophisticated and new technologies and techniques surface almost daily, the literature is loaded with information about logistics service providers, i.e. how to identify, select, manage, vest them, and motivate them. Yet, alarmingly little space seems to be devoted to what I feel is arguably one of the most significant aspects of outsourcing relationships – loyalty. Some of the criteria for selection seem to be similar to those one would use in evaluating a lawn maintenance service, and we seem to have lost sight of the fact that the LSP represents an equal partner in the relationship, and should be treated as such. This suggests maintaining open and honest communication with the LSP, and a long term commitment to the relationship.

Andrew Carnegie once said, “As I grow older, I pay less attention to what men say.” Clearly, verbal communication in his era was as untrustworthy as it sometimes tends to be in our own. Complicating matters further, those who profess to maintain a keen sense of integrity in their personal lives are often unwilling or unable to apply that same code of ethics to a business situation. Yet, in the outsourcing relationship, honesty should be the only policy.

In his book, Is Lying Sometimes the Right Thing for an Honest Person to Do? author Quinn McKay draws an interesting distinction between “personal ethics” and “gaming ethics”. Under the rules of personal ethics, McKay says “Most of us generally would agree that it’s wrong to deliberately mislead or deceive another person….” In gaming ethics however, “deliberately misleading and deceiving others is not only allowed; it’s an essential skill for winning.” These are the ethics that encourage running a play over the weak side of the line, raising the bet on a worthless poker hand, or taking advantage of an opponent’s chess move.

Most business executives practice gaming ethics in the routine discharge of their responsibilities, but these actions usually are directed at competitors. They should not be practiced in outsourcing relationships. The LSP should be a partner striving for similar goals. It is not the enemy and most certainly, is not a competitor.

If the provider is performing well, moreover, it deserves not only open communication, but also its client’s loyalty. Some clients feel that keeping a provider feeling insecure about the relationship’s future is the best way to manage it. They believe that constant, subtle threats to cancel the agreement will make the LSP strive harder for perfection. Although this may be effective over the short term, eventually the arrangement will fail.

In other cases, clients will seek new proposals every time a contract nears expiration, even when the LSP is providing good service at a reasonable cost. More often than not, the last thing they want to do is relocate the operation, but they believe that such a threatening strategy will force the provider to keep its skills sharp.

What it actually does is reduce what should be a long term, continuously improving relationship to a series of short term planning cycles. An LSP will never feel a true commitment to a client who views it as a short term associate with possible renewal options. Certainly, there will be occasions when the partnership needs to end, but hopefully, it will be for the right reasons and handled professionally.

Written By: Clifford F. Lynch