THIRD-PARTY LOGISTICS
Insight vs. Oversight
Governance
A
Signing a contract and getting
the business ramped up is just
the beginning of an outsourcing deal. The real work is
shaping the relationship and
making the parties operate
not only as a high-performance team, but also to allow
the companies to embrace the
dynamic nature of business
and keep the parties aligned
as “business happens.” It’s
essential to have a flexible and
cooperative governance
framework.
—Kate Vitasek, faculty of the
University of Tennessee’s Center for
Executive Education, and founder,
Supply Chain Visions
s supply chains become more complex in an uncertain and
volatile global economic environment, a sound governance
structure is vital for success. The University of Tennessee’s
research and fieldwork has identified four elements parties
should adopt in their governance to keep the agreement in alignment and
working toward their desired outcomes. These are:
1. Relationship Management—The relationship management structure formulates and supports joint policies that emphasize the importance of building
collaborative working relationships, attitudes and behaviors. A good relationship management framework uses a tiered approach (often 3 tiers, including
executive, operational and day-to-day functional levels) and peer-to-peer “ 2 in
a Box” principles versus a single point of contact principle.
2. Transformation Management—The best outsourcing agreements are
transformative in nature. They don’t just buy a transaction to do the work the
way it has always been done; they demand change and doing the work better,
faster and cheaper by focusing on process innovations and by using continuous improvement programs. A good governance structure will have formal
transformation management processes that embrace innovation and change
and will have mechanisms to support the change.
3. Exit Management—The future is unknown. Even the best plans fail or
events will change the business environment. An exit management strategy
provides procedures to handle these unknowns. It is not enough to merely
have simple termination-for-convenience or termination-for-cause clauses for
more complex outsourcing deals.
4. Special Concerns and External Regulations—Today’s business environment is demanding compliance against a host of environmental, regulatory and
social responsibility compliance requirements. A sound governance structure
will address how the parties will manage strategic prerequisites, including regulatory compliance requirements as well as how they will deal with security,
technology, and intellectual property.
The Outlook
While some companies will use outsourcing as commodity, in 2012 more companies will strive to work more collaboratively with their service providers,
focusing on creating business value. We believe that progressive companies
will understand and embrace the need to embed formal governance structures
as a critical component of their collaborative outsourcing and supply chain relationships. Wise companies will opt for governance structures based on insight
versus oversight.
