Stop me if you’ve heard this one before. A company switches from one logistics service provider to another and the transition is anything but smooth. The company and service provider point fingers at each other, while end customers suffer through the service failures.
It’s a story that made the headlines in The Boston Globe this week, but about 10 percent of the newspaper’s subscribers weren’t able to read about it because, well, they were the victims of this story.
Last week, the Globe switched delivery companies from Publishers Circulation Fulfillment to ACI Media Group and thousands of subscribers stopped getting their newspaper delivered. The problem was so bad that more than 100 Globe employees — including the paper’s editors, reporters, and photographers — volunteered this past Sunday to make home deliveries.
The irony is that the switch to ACI was made to improve customer service, reduce cancellations, and save the newspaper “millions of dollars per year,” as the Globe’s CEO Mike Sheehan stated on Dan Rea’s NightSide radio program this past Monday.
Reduce costs and improve customer service — the two main reasons why companies typically outsource their logistics operations. Yet, as this case study illustrates, outsourcing an existing operation to another party can be a rough and painful process without a well-defined transition plan, clear and honest communication between the parties (as well as end customers), and adequate resources and technology (at both parties) to execute and manage the rollout. It’s clear from press reports that all of these fundamental factors for success were missing here.
For example, while “disruptions” were expected by both companies, the Globe and ACI weren’t on the same page in terms of what “disruptions” actually meant. As reported by the Globe:
[Boston Globe CEO] Sheehan, in two interviews, acknowledged ACI warned of disruptions, but not of the level of vast failure Globe subscribers are experiencing. “Ten percent of our people not getting papers?” Sheehan said. “That was never communicated to us. That goes far beyond any reasonable definition of disruption.”
[ACI’s president and chief operating officer Jack] Klunder, however, said he warned Globe executives that the switch would be enormously difficult. Globe officials dispute his account of those conversations.
“I said ‘I cannot describe to you how painful it is,’ ” Klunder said, recounting his warning to Globe officials. “I used the expression ‘massive disruption.’ . . . You’re going to get thousands of calls, e-mails — social media is going to be blistering you. The news media is going to be blistering you. You’re going to like where you are at the end of this cycle but you’re going to go through this.”
Does disruption mean late or missed deliveries? What percent of each does ACI expect at kick-off? What will be the root causes of these late or missed deliveries? Will certain neighborhoods be more affected than others? What actions will ACI take to reduce and eliminate these disruptions and how long will the process take?
It doesn’t seem like anybody at the Globe asked ACI these basic questions — or maybe they did and ACI didn’t have the answers (or at least not detailed ones) but the Globe decided to move forward anyway, which is equally troubling. At the end of the day, the Globe and ACI are both responsible for failing to communicate clearly and honestly with each other and for not conducting an adequate analysis of the delivery operations upfront, which prevented both companies from fully understanding the scale and scope of the challenge before them and from developing an effective transition plan to proactively address these expected disruptions.
For example, a thorough upfront analysis would have revealed weak spots in ACI’s distribution network (the company, for example, doesn’t have drivers for more than 150 routes). Keeping on the existing service provider for a period of time to handle these weak coverage areas would have been a reasonable solution — and that’s exactly what the Globe announced this morning it will do!
In addition to a lack of drivers, it appears that ACI also lacks adequate routing and scheduling technology. In a funny article this week, Globe columnist Kevin Cullen described his experience delivering newspapers on Sunday:
They gave us 273 papers and handed us a delivery route that appeared to have been prepared by someone under the influence of methamphetamine [emphasis mine]. The route wasn’t circuitous. It was circus. If you handed an Etch-a-Sketch to a really drunk guy and told him to turn the knobs, that’s what our route would look like.
Maybe the “circus” routes are a byproduct of ACI’s lack of network coverage, but considering that delivery companies must create optimized routes to minimize their operational costs (which reduces miles driven, leading to lower fuel costs and fewer trucks and drivers needed), I’m not sure how ACI plans to deliver (pun intended) millions of dollars in cost savings to the Globe if their routes look like a drunk guy’s Etch-a-Sketch drawing.
What are the lessons learned?
“It is extremely difficult to do something like this without a transition period,” Boston Globe CEO Sheehan said in today’s article. “To flip a switch overnight is more disruptive than anyone would have ever imagined.”
(I would argue that no imagination was necessary if the Globe and ACI had asked and answered the questions above and had conducted some basic network analysis upfront).
Another lesson learned, which many CEOs and procurement executives learn the hard way, is that procuring logistics services is not the same as buying paper clips. Yet, many companies view logistics services as a commodity: a guy in a truck driving around delivering newspapers; how hard can it be? But when you treat logistics as a commodity, no different than buying paper clips, and you focus on awarding the business to the lowest bidder, you often discover that the cost and consequences of a failed outsourcing relationship are exponentially greater than the planned savings.
But the most important lesson of all is that when you outsource your delivery operations to a third party, you’re entrusting your brand and reputation to them (which is another reason why you shouldn’t view logistics as a commodity). As I wrote a couple of years ago in The Most Critical Factor in Last-Mile Delivery: Managing the End-Customer Experience:
The biggest issue and concern, and what differentiates local delivery from other transportation operations, is measuring and controlling quality — that is, the end-customer experience.
The local courier, and especially the driver and other personnel assisting with the delivery, represent your brand to the end customer. If a courier is two hours late making a delivery, or if the driver is wearing a t-shirt with offensive wording on it or drags mud across your recently-cleaned carpet, or if the driver and his helper break or damage something in your house, it’s the brand owner (the retailer or distributor) that the end customer ultimately holds accountable, not the courier.
It’s the Boston Globe’s brand and reputation that’s being dragged through the mud and cursed on social media this week, not ACI’s.
It’s the Boston Globe’s call center that is being overwhelmed with thousands of customer complaints, not ACI’s.
As reported in the Globe, ACI’s president Jack Klunder said his firm’s reputation has not suffered from the crisis. “I can’t say that it has or that it even will…We’ll be fine.”
With about 2,000 customers cancelling their subscriptions since the problem began (more than 30 percent higher than the typical rate), I doubt the Globe’s CEO feels the same way.
I’ll just say it again: logistics is not a commodity. If you don’t conduct proper due diligence in selecting a service provider, if you don’t have clear and honest communication with each other and your end customers, if you don’t develop a well-defined transition plan, and if you don’t apply adequate resources and technology to execute and manage the rollout, you’re putting your company’s brand and reputation at serious risk.
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