Expert Insights The 7 pitfalls of logistics contract management 2 Negotiating contract terms and KPIs out of line with the daily operation “Things turned out to be quite different in practice” It often becomes clear, as soon as the contract management phase has started, that the framework has been based on how the negotiators expected the operation would run at the time of contract negotiation, instead of the actual daily operation. In many cases, the defined KPIs are irrelevant or impossible to measure in daily practice and, as a consequence, the quality of the performance cannot be measured or is perceived as bad. It is good practice to agree to review and revise the cost base and standardization after a certain time, e.g. 6 months into the contract, to align the initial plan with the reality. During this initial contract period, a joint team should be responsible for evaluating the performance quality, terms, conditions and assumptions agreed upon during contract negotiations. Building on the experience gained in this first part of the cooperation will strengthen the contract and boost mutual trust. 3 Strategy mismatch “We lost each other along the way” Strategy can be an over-used term, but in a supply chain context the logistics strategy defines a company’s approach to ensuring the logistics process contributes to the distinctiveness of its offering. In short, how do we differentiate ourselves, or outperform our competitors, by optimally using our (or our LSP’s) logistics capabilities? An LSP that has no match with your own logistics strategy will at best fulfil its operational obligations at the start of the contract. Soon, however, the discrepancy on where you want to go and the ‘opposing’ strategic direction of the LSP will develop into a serious obstacle for the overall competitiveness and distinctiveness of the entire company. Consider aspects such as the LSP’s long-term plans and investment into areas such as IT landscape, visibility, industry-specific solutions, footprint and product development. Request details of the supplier’s strategy; ask for a thorough explanation by one of the board members and translate this into a specific logistics strategy. Know which standards are needed for the processes in order to outperform the competition. These standards can subsequently be translated into the logistics contract. 3
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