Navigating the risks of changing warehouse service providers

Wherever you look in your logistics operation, there is complexity, and where there is complexity there is risk.  Even more so when you are moving that operation to a new building, onto a new system, introducing new technology and, or, a new team.  The key risks we most often see manifesting themselves are:

1. Misunderstanding the details of processes, in particular, how to deal with exceptions to the rule and the relationship between the retained and outsourced operations
2. A lack of granular detail in the data. Too often assumptions are made with a data set, that proves to be inaccurate leading to performance or space issues
3. Hidden costs. When things aren’t exactly as described or mapped in the transition process additional costs are inevitably incurred to cover the unplanned activities
4. Lack of a clear cutover plan from one operation to another, all stakeholders support,and the effect on inventory management and the end customer experience

Why do 3PLs and their customers often have an excessively optimistic view of a transition process before it starts?

• Risk Blindness: Our brains are wired to overlook risks, even when data suggests otherwise. Cognitive dissonance occurs when those involved in the selection process convince themselves that they’ve made a good decision, and therefore their risk perception is lowered.
• Honeymoon period: A 3PL awarded a contract will typically be reluctant to call out too many imperfections in their new client. They will hope to be able to change them over time, rather than digging their heels in at the first sign of their new partner not quite matching the experience of the first date.
• Time, Cost, and Quality: The famous triangle of project constraints. Time is the key driver of decisions far too often.  Activities take longer than planned, and the transition date should be changed, but to keep up appearances it isn’t.  Other things get dropped instead – testing is always the first victim of this cull.

What are the practical tips to avoid these costly errors?

• Ensure the basic operation is secure and robust prior to any change. Firstly, it means the new provider can add real value from early on and also, you’re not paying for something you should have fixed yourself.
• Always check for any application of TUPE, the Transfer of Undertakings Protection of Employment rights legislation. It is a complicated set of legislation, and cannot be “signed away.”
• Have some brutal honesty in the programme kick-off. Acknowledge that neither party is perfect, and share your imperfections.  Allow the 3PL an opportunity to complete a full due diligence exercise to ensure they know the business they are taking on, to reduce surprises.  Allow the 3PL to work in the customer’s business before the transition so they understand the company culture, ways of working, and key stakeholders. This encourages a spirit of openness, builds relationships and will help deal with issues along the way
• During the transition, engage a third party to act as an ‘honest John’. An independent observer who aims to land a successful transition can provide the required level of project governance, arbitrate challenges and keep the plan on track, without being parochial about where fault lies.
• Accept that the plan is the best guess at the start of the programme. Create a fallback plan, based on different business scenarios. Acknowledge that it may need to change and adapt as new factors emerge.
• Identify and manage the transition risks and have credible contingency plans for key risks and a robust go/no-go decision-making
• Create a plan that ensures all project stakeholders are regularly informed of progress.
• Focus on quality over time. No one ever remembers a transition that is a couple of weeks late.  Everyone remembers the one that moved on time and didn’t ship anything for 2 weeks.  This is about making your first impression with the wider business and their customers not just the logistics team, and you only get one chance

If you’d like help with your next warehouse service provider move get in touch.