A company looking to outsource its logistics operations, or a portion thereof, must thoroughly understand what they are doing and what they want to accomplish. There are no shortcuts to doing it right, but there are real problems in doing it wrong.
The Vested Outsourcing Contract
Vested Outsourcing is a new methodology that may allow companies to work more effectively with their outsource service providers. Under this approach, they develop service agreements that are based on outcomes, not processes, with added incentives to improve results across a broad spectrum of business metrics. Because the two parties typically share both risks and rewards, they each have a stake in finding opportunities for improvement. Or to put it another way, they become vested in one another's success.
One of the difficulties in choosing the right pricing model for a Vested Outsourcing agreement - one that provides incentives for the best cost and service trade-offs - is that there is often confusion about the different models used to construct the agreement. This confusion is due to the lack of consistency in how terms are applied to specific contract elements.
In their book – “Vested Outsourcing: Five Rules That Will Transform Outsourcing”, www.amazon.com authors Kate Vitasek, Mike Ledyard, and Karl Manrodt look at the two most common pricing models and explain how to decide which is best for you.
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