Managing Supply Chain Risk When Outsourcing

Managing supply chain risk is a daily challenge for both parties in a logistics outsourcing partnership.  The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.

In a 3PL contract, negotiating risk can be challenging.  The key is to understand the potential impact to each respective party in the logistics outsourcing relationship.  Many times, shipper and 3PL will blindly enter service agreements without a clear understanding of managing supply chain risk. 

Here are some key elements of risk that shippers should consider in 3PL RFPs:

• System Integration
• Transitioning the Business
• Warehouse Shrinkage
• Warehouse Damage
• Freight Claims
• Vendor Compliance
• Regulatory Compliance
• Insurance Coverage
• Business Continuity

When managing supply chain risk, it is important to identify all the areas where risk is present.  Key risk factors should be clearly identified to ensure that 3PL RFP responses address shippers' concerns and that the cost associated with managing risk is included within the response.  Many times risk is identified after the business is awarded and leads to additional cost and/or liability not contemplated by either party.