Outsourcing versus “rightsourcing”

In transport, partnership is priceless but perilous. JIM WARD warns that while the rewards are rich when outsourcing becomes “rightsourcing”, every embedded relationship hides the risk of exposure and imbalance.

The decision to outsource non-core activities in a business is usually made to sharpen focus on core competencies and avoid peripheral work that has become complex, time-consuming or too difficult to manage in-house.

The phrase “let’s stick to the knitting” is often used when, for example, a bakery decides to sell all its trucks and concentrate on baking bread – leaving product distribution to a logistics partner who, while knowing little about baking, understands drivers, vehicles and the day-to-day demands of transport.

Securing the difficult work

One way to secure outsourced work in the long term is to take on something difficult and do it exceptionally well. This means focusing on transport activities that others avoid – either because barriers to entry are too high, or the work is so demanding that it would absorb too much human or financial capacity.

Targeting work that frightens away competitors builds reputation and market credibility. In the world of outsourcing, two other phrases often emerge: “paying school fees” and “getting embedded with the client”.

The embedded partner

When you, as a partner, are “embedded”, it becomes difficult for the client to prise you out of the relationship. This entrenched position secures future earnings and makes you difficult to replace. It also allows you to recapitalise the contract and invest confidently in new equipment and staff. You can do so knowing that whatever assets you purchase will remain with the client until fully depreciated, or be transferred to their ownership at an agreed value if the partnership ends. That’s a secure position to occupy – and is generally what being “embedded” means. You become part of each other’s business.

“School fees”, meanwhile, refer to the costs you incur while learning the ropes – identifying the hidden challenges in your client’s operation and sometimes repeating their old mistakes, such as persisting with unsuitable equipment or trusting too readily in their advice.

When partnership turns precarious

Being embedded with a blue-chip client may sound idyllic, but the flip side is often overlooked. A common renewal condition is “open-book costing”. This gives clients the right to scrutinise every cost, forecast profit and operational assumption behind your service. They may ask: “Why 10 trucks – can it not be done with eight? Why two shift supervisors – can one not do both on overtime? Why five bakkies – could three not suffice if shared?”

Such negotiations can quickly become rich pickings for clients to press for savings, questioning the necessity of everything. Driven too hard, the process can damage the relationship, cutting through fat into operational muscle and undermining service levels. If every line item is pored over and brutally interrogated, your negotiation team must be sure of its facts, defending each element as though its life depends on it. If it’s in the costing, be ready to justify it.

The cost of cutting corners

Every decision carries an upside and a downside. Yes, you could save costs by having only one manager on site controlling multiple complex operations, but no one person can give enough attention to every area. Something will be neglected – or that individual will burn out after a year or two of relentless 24-hour calls and taking no leave. When they resign or are dismissed, the whole process begins again: paying school fees as their successor learns hard lessons at your expense. In outsourced work, those errors become your problem.

Clients, meanwhile, expect uninterrupted, contract-compliant service every hour of every day for the full term. The moment anyone slips up, they will swarm over you – eager to recover losses, submit back-charges and demand reimbursement for downtime.

Embedded in the supply chain

A vivid example of embedded partnership lies in the poultry industry. Consider a transport partner who delivers raw materials to feed mills, handles feed distribution, moves eggs and day-old chicks from hatcheries to farms, supplies feed formulations day and night in all weather, maintains biosecurity, manages catching and loading of live birds, removes manure, transports grown birds to factories, tranships modules, handles byproducts and distributes finished frozen product to national distribution centres – all within an unbroken cold chain.

Such a partner effectively controls the entire supply chain. If the operation processes around 4.5 million birds per week and the transporter is equipped for that scale, the client ultimately cannot function without them. All the equipment is client-specific, highly specialised and difficult to replace.

Negotiation pitfalls

Contract negotiations can be pivotal moments in any client relationship. Conceding too much in a difficult meeting can undermine the service provider’s business. If you emerge with your staff complement shredded, your vehicle replacement policy gutted and an agreement to do more with fewer resources, you’ve likely secured a pyrrhic victory – a renewal that’s unsustainable. You’ve sold the farm.

The contract might survive on momentum for a year or two while service levels decline, but eventually your operational grip erodes. Competitors then break down the doors, take the profitable cherries and leave you with worn equipment, demotivated staff and little residual value. Outsourcing like this becomes self-fulfilling: if the client wants it to fail, it will.

The perishable nature of service

There’s a concept known as the “intangibility of service”. Service is perishable, intangible and inseparable from its consumption – you use it the moment it’s provided.

If the high level of service you deliver is the essence of your offer, then every human encounter must be positive. At the foundation of service excellence lie skilled, motivated staff. No machine can replace human enthusiasm; if people have been written out of the agreement, service perishes.

The fragile art of retention

Securing three consecutive four-year renewals without tender is an achievement – proof of exceptional management and a strong client relationship. Yet such relationships are easily damaged if too much ground is conceded in desperation to retain the business. Once the balance tips and key performance elements are compromised, the relationship falters. In today’s hostile, ultra-competitive environment, this journey should not be taken lightly.

Learning the business – and paying the school fees – has become immensely costly, both in assets and human resources. The rewards exist, but the challenges are immense and the path forward is anything but easy.