Today begins our three part series on Vested Outsourcing as a rising trend in the process of logistics outsourcing. We will first cover what is Vested Outsourcing, and then we will talk about some benefits, and finally end talking about companies who have successfully employed this logistics outsourcing model.
Vested In Logistics Outsourcing: A Bit of a Paradigm Shift
One big change that is occurring for logistics is in the area of logistics outsourcing. Many logistics service providers and their clients will start to look at other outsourcing methodologies, such as Vested Outsourcing. In fact, there is a phenomenal book out by authors Kate Vitasek and Karl Manrodt, of the University of Tennessee titled, The Vested Way. Originally Ms. Vitasek and Mr. Manrodt set out on a simple research project, but the result was an entirely new way of looking at not only logistics outsourcing, but a paradigm shift in all of outsourcing. We live in a world where we constantly ask “what’s in it for me?” But that is not the path to success, according to Vitasek and Manrodt. The book and the movement is based on both partnership and collaboration as the genesis and breeding ground where innovation meets business success. In this book, the authors reveal how theory in collaboration and partnerships meet in practice. They share how successful relationships have taken Nobel Prize winning academic concepts and applied them in real life situations to achieve extraordinary results. And most importantly The Vested Way provide insights into how you can take theory and actual cases and apply them to your own relationships to help you achieve results you are hoping for. Definitely worth a read at only 69 pages available on the Kindle and paperback.
What does “Vested®” Mean?
From Vitasek and Manrodt, they not only registered “Vested” but also define it formally as:
- “A hybrid business model, methodology, mindset and movement based on research conducted by the University of Tennessee Center for Executive Education and funded by the U.S. Air Force. What started out as a simple research project aimed at finding a better way to outsource evolved into a groundbreaking and award-winning methodology and business model we coined as “Vested.”
- Proof of John Nash’s Nobel Prize-winning equilibrium theory that cooperation, not competition, guarantees the best results for all parties.
- A challenge to redefine what it means to “win” in today’s evolving business landscape. As the world marches towards reinvention, Vested relationships aren’t just the best way to achieve business success; they’re the only way to work together to create success for a future we can no longer envision, let alone prepare for.”
So How Does Vested Outsourcing Work in Logistics Outsourcing Models?
In the traditional model of logistics outsourcing (and most outsourcing) there are some logistics service providers and the customers have the mentality: It’s just business. Nothing personal, but I have to focus on what’s in it for me.
Diametrically opposed to the “What’s in it for me mentality” is vested outsourcing to create a collaborative relationship where both parties work together to achieve mutually agreed upon desired outcomes. An example would be where a logistics service provider, carrier, or a manufacturer is tasked with introducing new innovative practices that improve the operation, such as being more flexible in changing inventory levels, and reducing costs for their client. The client then shares a percentage of the value derived with the logistic service provider in this logistics outsourcing model. This creates a win-win solution for both parties. Some companies are using Vested Outsourcing as a way introduce lean principals, (such as Lean Six Sigma, Kaizen and Kanban) across company boundaries and to target overall waste in the supply chain.
It’s a change in perspective from “how?” to “how much?” In traditional 3PL relationships, the provider determines HOW to execute a particular task and presents a cost for those services. A better logistics outsourcing model is for shipper and 3PL to collaborate in evaluating the current supply chain to determine HOW MUCH time and cost can be taken out and HOW MUCH incremental revenue can be added with the right kinds of changes.
In short, this is not just lip service, this is a true partnership in the logistics outsourcing environment. This attitude of “What’s in it for me” is the basis for the game most business relationships are built on, a zero sum game where one party wins at the expense of the other. Yet in today’s rapidly evolving world, this mindset leads to rigid, “us vs. them” relationships that can’t withstand a landscape that demands constant change and adaptation (such as in the very rapidly volatile and ever changing world of logistics and supply chain).
A Business Model (beyond lip service) that Supports Vested Outsourcing in Logistics Outsourcing
Imagine if, instead of the relentless pursuit of “winning” at all costs, the focus was on building an anticipatory vision, accelerating innovation and increasing competitive advantage? What if your business relationships didn’t have to be “win-lose,” but could truly be “win-win”? This is possible in a logistics outsourcing model if a logistics service provider not only simply views themselves as a strategic partner but sets up their business model to support it.
More specifically, moving away from logistics service providers from being partners only in lip service to partners as set forth in the logistics service level agreement before the logistics outsourcing engagement and execution begins. This is a move for logistics service providers to create business models and contracts with customers that support real partnerships aimed at solving real problems—and not just choose any person to drive a truck, pick product, or count inventory.
Vested outsourcing takes the concept of partnership to new heights because it digs deep into fixing some fundamental flaws associated with how companies purchase outsourced services. It adds order through “rules” and follows a structured process to help companies achieve true partnerships with the power to deliver transformational results.
If you are looking for a logistics service provider to mimic a vested outsourcing environment, then you should look out for one that allows for the following:
- A Logistics service level agreement which supports desired outcomes and solves your current logistics problems
- Flexible technology systems which supports risk compliance and internal compliance by way of business logic and rules
- Ability to empower you and your people to make the choice of carriers, rates, and insurance in order to make the best decision for your business needs
- Provide data and analytics to provide information to you and glean insights in order to make future business decisions which continue to offer value and save money over the long haul
- Gives you integrated managed services to better intimately understand your business, offer expertise, and collaborate with you on an ongoing basis to continue to drive more results
- Has skin in the game: Meaning, for example, let’s say they work to negotiate freight rates on your behalf with carriers for specific lanes, the logistics provider in this logistics outsourcing model doesn’t charge you a fee, but only makes money off the margins. In this business model, the provider has skin in the game, the more they are able to save you by being very good at carrier rate negotiation the lower the shipper’s price, but also the healthier the logistics service provider margin. Both parties get a fair rate and sustain over the long haul.
- Also ask the churn rate of the logistics service provider customer base. If customers have been with the provider in this logistics outsourcing model for a long time on average, then the model is working
- A focus to not only decrease your hard costs (carrier rates, labor to process, etc.) but also soft costs such as reduced time, less errors, and improved customer service.
Vested outsourcing is a hot new trend in all of outsourcing, but also in logistics outsourcing. Believe it or not, many logistics providers have put this methodology or idea into practice with great success. Make sure you tune into the next blog to check out what are some of the main benefits of applying a vested outsourcing lens to logistics outsourcing. Have you currently employed Vested Outsourcing in your career? What were your results?