Expert Insights The 7 pitfalls of logistics contract management “Manage complex logistics contracts very carefully,” is a message often heard at logistics seminars. So it would be reasonable to expect that these days, almost every company does so. And that as a minimum, they review monthly key performance indicators (KPIs) with their suppliers in order to improve logistics performance. But do they? We have seen that in practice, logistics contract management which focuses on value optimisation is a difficult process for many companies. The contract management process contains a number of common pitfalls which can prevent you from getting the most out of the relationship with your logistics service provider (LSP). This white paper looks at logistics contract management from both sides of the table. We will explain where the most common pitfalls lie in managing the client-LSP relationship, how they can be identified and – more importantly – how to avoid them. 1 Choosing a supplier focusing on costs alone “How low can you go?” Costs are the single most important aspect during contract negotiations. This means that opportunities for incorporating other aspects often get overlooked, aspects that can generate a lot more value than the savings made from negotiating a few extra percent discount. For example, creating a joint planning process between the logistics service provider and the shipper could potentially yield more value than a 5% discount on storage. It is wise to develop a number of concepts where extended services will add direct value to your logistics operation, and consider introducing them during contract negotiation. LSP’s are often more open to discussing an extension of the activities than negotiating rock-bottom tariffs. Think in terms of methods of value creation and include these in the contract. “Price is what you pay; value is what you get,” as Warren Buffett said – let yourself be guided by what you will receive! 2
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