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The elements of a successful
logistics partnership
Interamerican Group, Chino, California, USA A successful partnership is like a marriage. Neither just happens: bothrelationships require constant hard work from the parties involved. Both partiesmust understand each other's needs, and must be compatible, with sharedvalues. Like a marriage, a successful logistics partnership requires opencommunications, mutual commitment to the partnership, fairness andflexibility. Both partners must weather the good times … and the bad.
Successful partnerships are co-operative and collaborative. They are long term,and built on trust.
In the business world, increasing numbers of companies are entering into long-term relationships with carefully selected third-party logistics providers.
By joining forces, the partners improve the efficiency of both operations, worktogether to take costs out of the logistics system, mutually boost profitabilityand improve service to the end customer. Such partnerships, when successful,give both parties a competitive edge in the marketplace.
Some experts believe that companies will have to enter into such long-term partnerships in order to survive and prosper in the contemporary businessenvironment. While the concept of logistics partnershipping has attracted great attention in the past several years, many so-called "partnerships" today are not trulypartnerships. What are the elements of a successful logistics partnership? Whatcan cause failure? And are the benefits of a logistics partnership worth theeffort required to make it work? Here are viewpoints from several experts.
Traditional relationship versus partnership
There are significant differences between the traditional warehouse-shipper
relationship and a long-term partnership. According to Professors John
Gardner and Martha Cooper, writing in "Partnerships: a natural evolution in
logistics" [1], the traditional business-to-business relationship is transactional,
while a partnership-style relationship "extends over a long period of time,
involves sharing of benefits and burdens, involves extensive planning, includes
detailed operational information exchange, and allows operating control across
firm boundaries". Such a partnership generally evolves over time, the authors
say.
Critical success factors
Professor Donald Bowersox, in his book Logistical Excellence[2] outlines five factors that are critical to the success of a logistics partnership. They include: (1) Selective matching - partners have compatible corporate cultures and (2) Information sharing - partners openly share strategic/operational (3) Role specification - each party in the partnership knows specifically (4) Ground rules - procedures and policies are clearly spelled out.
(5) Exit provisions - a method for terminating the partnership is defined.
Bowersox also examines reasons why alliances fail, including lack of seniormanagement support, lack of trust, fuzzy goals, partners who are not equallycommitted to the relationship and lack of control.
A real-world view
What happens to partnerships in the real world of today's business
environment? Do the elements of success and failure remain the same? Here is a
look at ingredients that have made possible the long-term relationship between
Kimberly-Clark Corporation's Professional Health Care Sector (PHC) and the
Interamerican Group's Tricor Warehousing, Inc. These ingredients include:
a deep understanding of a partner's business needs; Kimberly-Clark Corporation's PHC manufactures disposable surgical packsand gowns, protective apparel and sterilization wrap. Its operating philosophyis "to be the best in quality of product, quality of service, and totalproductivity". PHC depends on third-party logistics providers to get itsproducts to PHC customers - distributors and hospitals - quickly, accuratelyand cost-effectively.
PHC joined forces with the Interamerican Group nearly a decade ago, when PHC began warehousing its product in Interamerican's Los Angeles facility.
The original relationship began as a traditional customer/vendor relationshipand gradually evolved over time into the current partnership.
The two companies have worked continually at establishing a mutually- beneficial relationship. Says Roy Ludvigsen, manager of Customer Service andLogistics for the PHC, "Kimberly-Clark Corporation has high expectations ofour partners; we expect them to have high expectations of us".
Compatibility - shared culture and values - is one of the keys to a successful partnership identified by Bowersox. Ludvigsen agrees that it is crucial: "We're looking for a warehouseman that has our goals. We want a logistics partner thatis forward-thinking, open, willing and able to change … that is committed to thequality management process, and is a good strategic fit." Because compatibility is so important, says Val Dodd, senior vice-president of the Interamerican Group, senior management at Interamerican seeks tounderstand the following about prospective partners: What is the philosophy of the organization? Does the company want to establish a partnership? But compatibility must go beyond shared culture and values for the logisticspartner, Dodd says. Operational compatibility is crucial for optimumeffectiveness and productivity, so Interamerican also considers the physicalcharacteristics of the prospective partner's product mix. Understanding business needsIn a successful partnership, each party must clearly understand its partner'sbusiness needs from the outset. "When you first begin operating", saysLudvigsen, "it's important that you explain to your partner who you are, whatyou're going to do, and what your plans are for the future." Involving both partners in long-term strategy planning is an integral part of the partnership process. Interamerican participates in PHC planning with keyindividual customers. As Bowersox points out, partners must work with clearlyspelled-out ground rules and procedures. For example, emergency orders areparticularly important to PHC's hospital customers. Specific PHC parametersspell out how Interamerican personnel should handle such orders.
Other important areas which need to be clearly defined include: what to do when a customer refuses a shipment, when the accountguarantees certain levels of service to major customers; how to handle orders for customers' continuous replenishment process; what standards the account has promised its customers it will meet.
In addition, the specific role of each partner must be spelled out, understood and agreed to. "We may think that our job is to receive, store, ship and transferproduct," Dodd observes, "but it's much more complex than that."Interamerican must also continuously look for ways to build on the traditionalwarehousing services and identify creative ways to enhance PHC's business,such as by calling on their customers to see how Interamerican can effect a Open communicationsHow well partners share information can make the difference between successand failure. The PHC-Interamerican partnership uses many different types ofcommunication, both horizontal and vertical, ranging from daily phoneconversations to annual meetings. Types of communication include: Daily phone conversations on the operational level, with the PHC staffwho oversees third-party logistics operations reviewing with his/herInteramerican contact activity, performance, any problem areas andwhat is ahead.
Monthly conference calls between Interamerican and Kimberly-Clarkcustomer service representatives during which problems and issues arereviewed and resolved.
PHC personnel visit Interamerican's Tricor facility several times a year,reviewing issues and plans with operating personnel.
Kimberly-Clark PHC holds an annual partnership meeting with all itslogistics partners, where the manufacturer outlines plans for the nextyear, including potential volume and new products. All logistics partnersexchange information and solutions with one another at the meetings.
Performance evaluation via a monthly report card which uses keyperformance indicators to track the Tricor facility's performance againstprior performance and against four other warehousing facilities used byPHC. By letting everyone in the Tricor facility know what is expected ofthem - and how well they are doing it, says Val Dodd, the report cardmotivates Tricor personnel continually to find ways to improve. Thereport card is part of PHC's "Warehouse of the Year" competition.
Interamerican's Tricor facility has been named "Warehouse of the Year"by Kimberly-Clark's Professional Health Care Division for two years in arow.
Open, honest communication practised by management at both PHC andInteramerican every day. "We're quick to point out problems", explainsLudvigsen, "but we're equally quick to give a pat on the back". It is a two-way street. Interamerican management feels equally comfortablebringing up and discussing issues with PHC. This creates an atmosphereof trust, one where everyone is comfortable with - not afraid of - open communications. "For continuous improvement between the two partners", observes Dodd, "you have to have a no-fault atmosphere".
Such an environment means that problems are not hidden but discussed openly and solutions identified. The result: better service, greaterconsistency and increased customer satisfaction.
Knowing that communication must be effective both internally and externally, Interamerican also communicates directly with its accounts' customers. "Wetalk regularly with our customers' customers about operational issues,identifying ways in which we can resolve any problems and improve our serviceto them", Dodd reports. Mutual commitment Bowersox identifies uneven commitment to the logistics partnership as one ofthe reasons a logistics partnership fails. Commitment must go both ways.
"We're the customer", says Roy Ludvigsen, "but, as our partner, Interamericanis the customer, too. If they have needs, we try to meet them. We're all in thistogether to meet our end customers' needs. We have a big commitment to ourlogistics partners. They know that, as long as they provide us with what weneed, we're going to stay with them".
Successful partnerships, like marriages, demand that both partners be committed to weathering and working out bad times. "Part of our commitmentto our logistics partner is working through difficult times", explains Ludvigsen.
So PHC was patient while Interamerican worked out the kinks resulting fromthe move to its new Tricor operation in Chino, California.
Tricor people similarly had the opportunity to demonstrate their commitment to working through difficult times when a spike in demand for onePHC product caused a backlog of backorders which greatly complicated thehandling of orders in the warehouse until supply caught up with demand, andthe backorder problem was finally resolved. FlexibilityWhile not cited by Bowersox or Gardner and Cooper as an essential ingredientin a logistics partnership, flexibility is a very important element in the realworld, according to Ludvigsen and Dodd. Customers' needs and themarketplace are in a constant state of flux, and both logistics partners mustwork together to respond to those needs. To prosper in its competitivemarketplace, PHC must get immediate decisions and quick response to itsquestions and requests. Flexibility also enables the Tricor operation to accommodate peaks and valleys of product supply resulting from manufacturing issues and from end-of-the-month and end-of-the-quarter pushes, as well as occasional backordersituations. Tricor personnel also work closely with Kimberly-Clark personnel asPHC adjusts its service offerings to meet - and anticipate - demand in a constantly-changing marketplace, adapting operations, procedures, record- keeping requirements and technology as required.
FairnessAccording to Cooper and Gardner, a long-term logistics partnership sharesbenefits and burdens. In the real world, this means that both partners must be perceived by the other as being fair - on all levels. Consider the example of pricing. While both PHC and Interamerican recognize that price is important, Ludvigsen says, "rates are the third thing Ilook at when selecting a partner. First comes the quality of management; next,the quality of the operation. We expect our logistics partners to have equitablepricing and competitive rates - but I'm willing to pay a little more for topservice".
Both partners are committed to working together to drive down costs and remove inefficiencies from the system - but not at the expense of either partner.
PHC understands that Interamerican must make a reasonable profit to besuccessful, and Interamerican in turn understands that it has a responsibility tobe competitive in pricing. For example, in a recent situation where productvolume differed substantially from the original projections on which rates werebased, PHC and Interamerican adjusted appropriate rates, then, when thevolume changed, reviewed and readjusted rates. "It was fair to them, and fair tous", explains Dodd. Such fairness must be felt on all levels, not just at the top.
Operational people at both Interamerican and PHC know that they will betreated fairly and with respect.
TrustLack of trust is identified by Bowersox as one of the factors contributing tofailure of an alliance. According to Ludvigsen and Dodd, tr ust betweenpartners is critical to the success of a long-term relationship. Understanding,communications, commitment, flexibility and fairness are the building-blockswhich provide the foundation for trust. Without trust, there can be nopartnership. "Trust is paramount", explains Val Dodd, "it has to be earned. To earn your partner's trust, you have to deal with integrity, and do what you say you'regoing to do every time". The effort must be company-wide, from top to bottom.
"We work to build that trust every day", he says. "It's so important to us thatour warehouse people have come up with a slogan - 'We do what we say we willdo, every time' - to demonstrate their commitment." "Trust is the key to a successful partnership", agrees Roy Ludvigsen. "It begins at the very start of your relationship with your partner. If you don't havetrust, you shouldn't be doing business with that partner." Partnerships should provide both partners with a competitive edgeSuccessful real-world logistics partnerships like that between PHC andInteramerican must be win-win relationships. For PHC, partnering with Interamerican enhances its competitive advantage in the West Coast marketplace. And Interamerican knows that, as long as it performs as expected, it will have a profitable, stable account.
PHC relies on Interamerican's Tricor operation consistently to deliver high levels of high-quality performance and customer service so that it can fulfil itsmission "to be the best in quality of product, quality of service, and totalproductivity". But the benefits of the relationship go much further. As The objective of these cooperative relationships is not just to survive in today's market, but toimprove the long-term competitive positioning of the involved parties … Strategic alliancesfocus on achieving, maintaining, and enhancing a firm's competitive advantage … For manyfirms, the notion of "alliancing" requires a new mind-set. It is increasingly becoming a matterof survival, not merely a matter of competitive advantage! To establish successful logistics partnerships - which stand to play such animportant role in the marketplace of tomorrow - companies which seek toestablish such relationships would do well to make sure they incorporate theelements identified by Ludvigsen and Dodd - compatibility, a deepunderstanding of a partner's business needs, open communications,commitment, fairness, flexibility and trust.
References
1. Gardner, J. and Cooper, M., "Partnerships: a natural evolution in logistics", Journal of Business Logistics, Vol. 15 No. 2, 1994, pp. 121-44.
2. Bowersox, D.J., Logistical Excellence, Digital Press, Burlington, MA.

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