Close Encounters

Customers of the logistics companies say the service arrangements need to be managed closely as with any other key outsourcing relationship.

Norris says Toshiba conducts quarterly reviews of the UPS repair service, and has its own logistics and engineering staff working at the repair facility. Toshiba also provides inventory experts to make sure parts’ inventory cycles are being properly maintained.

Whenever Toshiba releases a new laptop product it conducts product testing at the UPS facility and then works with UPS to develop training programs for repair of the new products.

Unisys has established six or seven key metrics, such as time to repair, for its outsourcing arrangement with DHL. “We will be getting reports on a weekly or monthly basis, depending on the metrics,” says Sunseri. Unisys formed a global vendor management group that reports to Sunseri and is responsible for managing the relationship with DHL.

“Service-chain outsourcing such as product repairs can have a big impact on customer satisfaction or brand, and that must be factored into the contract,” says Larry Scinto, Managing Consultant, IT Infrastructure practice, PA Consulting Group, a management, systems and technology consulting firm in Washington, D.C.

“It calls for a different model of how you award and incentivize the service provider,” says Scinto. “It can’t be just cost [reductions]. With PC repair, cost is not a primary driver, it’s customer satisfaction or time to repair. Those require different incentive mechanisms, and you need to have some type of model that specifically tracks certain types of metrics.”

“Sourcing managers when selecting a service provider should keep in mind the breadth and coverage of the logistics company, and the digitization of business processes by the company (i.e., how sophisticated its IT capabilities are),” says Ross School of Business’ Krishnan. Once the contract is signed, it’s vital to have the right governance in place. “While you can leverage the capabilities of the logistics company, you cannot lose control of the processes,” he adds. “More companies are likely to turn to logistics providers for help with their supply chain and service chain management as they become more accustomed to the idea of outsourcing and offshoring in general,” says Scinto. “The delivery companies are a natural for many of these services, such as product repairs. The biggest challenge with PC repairs is that you have to have someone go to a facility and pick up the computer; that’s where the cost is. Logistics companies can help manage those costs. They have the distribution networks that are much more efficient,” he adds.