Supply Chain & Shipping Optimization: The Shame of Using 3rd-Party Consultants
Authored by Glenn Gooding (President, iDrive Logistics)
I get it—like many shippers, you’re hesitant to use a 3rd party consultant. Even though you’re familiar with just how complicated and expensive shipping has become, you have some reservations about getting expert help. One of the fascinating and challenging aspects of my career is helping potential clients overcome initial reservations about using a supply chain or logistics consultant, so today I’m going to address the most common doubts I encounter. Here are five reasons you might be afraid to use a third-party consultant:
1. You don’t understand how the partnership will work or how much it will cost
Unfamiliarity can be intimidating. That’s why using a consultant can feel a lot like seeing a new doctor: you don’t know how long it will take, what data might be needed, or how much it’s going to cost.
- The Reality: The partnership is simple: you send your shipping data, we analyze it, then together we decide how to leverage the data to optimize your transportation expenses and improve your supply chain. How do we get paid? Our work generates tremendous savings to our partners. More often than not, we simply split the savings leaving both of us much better off for having engaged in a partnership. We are ‘black ink’ to your balance sheet, we are ‘plus signs’ to your carrier relationships, and ‘five stars’ to your customers’ experiences.
2. You’re afraid that accepting help could make you look bad
If you’re a supply chain specialist and you approach your boss to propose using a third-party consultant, what will they say? “Isn’t shipping YOUR job?”
- The Reality: According to a recent report by Armstrong and Associates, 90% of Fortune 500 companies use at least one third-party logistics company. The truth of the matter is that 3rd party optimization experts don’t try to do your job for you. They fill in the costly gaps where carrier knowledge and expertise around optimization run short. If billion-dollar companies lean on consultants for optimization help—despite having entire departments dedicated to supply chain—then why should you feel ashamed to partner with the right optimization expert? The answer is: you shouldn’t. It’s the smart thing to do.
3. It’s hard to admit someone else might know more than you do
Most of our clients have extensive backgrounds in supply chain. Like you, they know their industry well. But how well do you know the rest of the shipping industry when it comes to optimizing your distribution network, package characteristics and pricing strategy based on carrier cost modeling?
- The Reality: Even our most impressive logistician friends are caught off-guard by the invaluable insights our transportation team provides. The “A ha!” moments are generally provided by Carl Hutchinson and myself—two former UPS “elite special pricing” analysts who built UPS’s cost models for the world’s largest enterprise shippers. We wrote the language and designed the cost models still used by the carriers today. This carrier cost model knowledge and expertise does not exist outside the carriers, iDrive being the exception.
4. You are focused solely on money—not on carrier relationships
If the price tag is all that matters, you may be considering running your own renegotiation. You’d end up with less savings (if any) but keep all of it. The do-it-yourself (DIY) route is tempting because you don’t have to split savings with a third-party consultant.
- The Reality: We have many partners who initially took the DIY route but later came back to us, defeated, to ask for our help prior to signing their DIY agreement. By this point they are frustrated that they are not getting what they want without realizing that they were making the wrong business case from the beginning. Without the experience of the third-party consultant you risk damaging your careful relationship with the carrier and sometimes even getting a worse agreement. Even if you save a little, the resulting damage and missed nuances can ultimately hurt rather than help you.
5. You are confident you already have a great agreement
This is by far the most common response we get from potential partners. But there’s just one question you should ask yourself: How do you know you have a great agreement? Because it’s better than your old one? Because your rep assured you of it?
- The Reality: FedEx and UPS sales reps are trained to make you feel really good about the rates they offer you, but the reality is that they treat your agreement and negotiations like a balloon. It’s typical for carriers to give in where you press but expand the balloon in other areas to make up the margin lost on the concession for which you pressed—which is why carriers limit transparency in their billing methodologies and elsewhere. Less transparency means more flexibility to expand the balloon without shippers noticing.
A word about contract consultants
We have never encountered a fully-optimized agreement when conducting contract reviews for prospective partners, even if they have used another 3rd party contract consultant in the past. All contract consultants are definitely not created equal, particularly those who rely on benchmarking. Having engineered the world’s most complex carrier cost models in UPS’s highly-specialized “elite, special pricing unit,” believe me when I say that—although you may think you have a good contract—chances are, it’s more icing than cake.
At the end of the day, there could be a number of reasons you are hesitant to seek third-party help. While there is certainly more than one way to win the game of carrier agreement procurement, there is really only one way to lose: By refusing a second set of expert eyes to make sure you are on the right track. iDrive will grade your current agreement and provide a no-risk, complimentary analysis.
iDrive leads the industry in optimization and cost savings, and there’s nothing to lose by exploring better ways to optimize. Call or email us today. 888.797.0929 | firstname.lastname@example.org