Out Sourced Logistic Contract review

A number of major Plcs have delivered multi-million boosts to earnings through supply chain management efficiencies in their logistics function.  To achieve these substantial savings, businesses must invest time in planning the delivery processes, the application of rigorous change management and in the selection of the right logistics partners.

Outsourced logistics contracts can achieve operational advantages, by capitalising on both the contractors detailed understanding of the sector and through economies of scale (by sharing resources).  This is particularly beneficial in outsourced warehousing and distribution, where the use of performance incentives based on KPI’s can dramatically enhance efficiencies.

Many logistics contracts are operated on a ‘cost plus’ / ‘open book’ basis.  The complex nature of these agreements, and the large quantity of throughput typically seen on 3PL contracts, can lead to accounting & allocation errors which may eliminate some of the benefits of outsourcing. 

The Procurement Group are able to provide users of 3PL contracts with the peace of mind that contracts are being administered appropriately.  Our experts have an in-depth understanding of the logistics sector, and are able to identify both the frequently occurring errors, and the one off issues that can cost the customer.

Contract cost allocation review

Our experiences show that some customers are allocated excessive costs under outsourced logistics contracts.  The Procurement Group offer a comprehensive review service.  This includes an analysis of the financial reports prepared by the contractor, and cross references these to the legal agreement.  It will typically cover :

Do all the costs charged to you, relate to you?

Is the contractor allocating the correct ‘central overhead’ costs (Finance / IT / HR etc) to the contract? 

Are sundry credits / income correctly allocated to the contract – for example insurance rebates and group discounts?

Our work does not intend to identify methods of accruing costs agreed between the customer and contractor, though we can of course cover this separately.  Our work does not interfere with operations, and aims to maintain good relationships with the contractor. 

KPI performance / Service Level Agreements

Setting appropriate KPI and Service Level targets is often seen as the key to driving value from the logistics function.  These performances are notoriously difficult to monitor, and we are able to perform an independent check in these areas.

Procurement advice

There is fierce competition amongst 3PL’s for new business, and the differing cost and service levels can be stark.  It is a big commitment, and not one which can be broken easily.  Based on the size of your business, the regions covered, the products etc, we can help you select a suitable partner.