And as much of a challenge the holidays present to all of us, nobody is “on the line” more than the big fella himself – good ol’ Santa. Think about it – he’s gotta be the ultimate outsource authority. As I shop for my five-year old this year, I can’t help but wonder how Santa’s operation fits in with Vested Outsourcing.

How he does he do it? First, he’s definitely got a clearly defined mutual Desired Outcome: Happy Children.

But jolly old Santa couldn’t do it without all of his outsourced partners. He starts out by creating collaborations with all those that have a vested interest in his success: Web sites, snail mail, Santa clones in shopping malls and television. Collectively, the world makes sure kids know Santa is listening. And then there are the parents who do the actual purchasing.   And, of course, companies like UPS just love pitching in to do their part to help out the parents.

Then there’s measurement. We’ve all seen the look on the face of the kid on Christmas morning after getting what he wanted!   It’s the happy child thing again and it’s really easy to measure.

Austin gets The Pony

Of course, incentives play a key role as well.

It’s important to note that incentives don’t have to just be about money. For the kids, there’s the incentive to be good all year. Parents appreciate the help they get with discipline because, “Remember, Johnny, Santa is watching…and keeping the list!” Heck, he even has a song about that. Then, of course, the children get loot.

And for Santa?  All he wants is to be loved, keep his prestigious position, and, of course, keep his long term contract intact. There’s something for everyone using this vested model!

Somehow, the belief that the holidays are filled with the loving spirit of this “jolly old elf” always endures. And, perhaps, that’s where Santa fits best with Vested Outsourcing. It works best when folks work together, in an environment of respect. The ultimate vested framework–Santa has that one down pat.

To sum up, Santa is the big picture guy who works with the entire world for a single purpose – to make kids happy.

As far as I’m concerned, Santa’s contract can be perpetually renewed. I’m a believer.

Merry Christmas to All!

That’s better left to the logistics experts in the private sector.

This is becoming an issue in the state of Washington, where moves are afoot to privatize liquor sales and distribution. It could be a ballot initiative for voters in the state to decide this fall.

Washington is one of 18 so-called control states that have broad authority over wholesale liquor distribution. Some of those states also are involved in retail sales.

Washington, however, has state-run liquor stores along with outlets operated by private contractors. It’s been doing this since 1933.

The big problem, especially from an outsourcing and logistics perspective, is with the Washington State Liquor Control Board’s management of its huge distribution facility in South Seattle. The 250,000 square-foot warehouse and DC is where all of the state’s liquor is imported, processed and then transported to some 315 state and contract stores. It’s a fairly modern, automated facility that opened in 2003.

But a recent King 5 Television News investigation uncovered serious operational problems there, including equipment malfunctions, computer glitches and perhaps most costly and avoidable, overpayments to the trucking companies distributing the liquor due to weight miscalculations.

Simply put, trucking companies are paid based on the number of miles driven and the weight of each shipment. It’s not all that hard, but apparently it is for the DC’s state employees. For the past six months and perhaps longer they have miscalculated the weight of liquor cases, resulting in overpayments to some trucking companies. “We can’t tell you how much it’s cost taxpayers or even how long it’s been going on because the people running the DC don’t seem to know,” King 5 News’ Linda Byron reported.

But while Control Board officials say the problem occurred for a day or two and was fixed almost immediately, various documents obtained by King 5 indicate otherwise. One report cites problems with Bill of Lading and Packing lists that are sent to stores and then used by carriers to create an invoice. Apparently that is how the overpayments – and potential underpayments – due to faulty weight calculations are occurring. A case of liquor can weigh from 12 to 55 pounds, but trucking companies are paying based on a formula that uses an average weight of 37 pounds per case.

This sounds to me like sloppy and lazy practices on the part of the DC’s state employees, costing the state and its taxpayers some serious money.

Currently, liquor brings in about $320 million in revenue to Washington each year, but a recent report by Washington State Auditor Brian Sonntag found the state could increase revenue by as much as $277 million over five years if it changed its current liquor model, including distribution.

A state legislator recently introduced legislation to sell the DC, but perhaps that drastic step could be avoided if a Vested Outsourcing team was enlisted to collaborate with the board and its distribution providers to get liquor distribution back on track. This would be a quicker and cleaner solution that would also take the issue out of the political arena and into the hands of the experts.

A new approach and structure — see the Five Rules, especially Rules 4 and 5 — is needed: A properly structured pricing model that incorporates incentives for the best cost and service trade-off, and a new governance structure that provides insight, not just oversight. Possibly a structure that migrates away from using weight as a major determinate for payment in all cases (sorry) in favor of cube pricing; also, packaging and carbon neutral tariff incentives are now in the outsource provider’s quiver.

Liquor distribution is not a core function of government. In Washington State this is ripe for a collaborative, mutually beneficial, efficient and outcomes-based Vested Outsourcing relationship that uses all that’s available in modern outsourcing.

As Peter Drucker said, “Do what you do best and outsource the rest.”   The last time I looked, state governments didn’t really have a competency in warehousing!

It’s truly a brave new world of networking opportunities and one can spend a good part of the day sifting through all of the blog content available. It’s almost overwhelming; that’s why Google Reader is a godsend and why I wanted to point out a very good blog you should add to your list.

Adrian Gonzalez regularly posts for ARC Advisory Group’s Logistics Viewpoints newsletter/blog with thoughtful and insightful comment on the logistics industry. A recent post last month piqued my interest because of the way it dovetails with the Vested Outsourcing message of collaboration and trust between contracting parties for mutually beneficial outcomes.

Gonzalez’ post is about “courage, trust and patience in logistics,” qualities embedded in the Five Rules of Vested Outsourcing.

He talked about how a Fortune 500 company could have saved major bucks in transportation costs by putting its freight out to bid. This company (which must remain nameless) instead decided to honor its current rates with carriers.

Now why would a company willingly hurt its bottom line in this way? Gonzalez explains the company “knows that capacity will tighten again down the road, and when that day comes, it expects its carriers to maintain their commitments to them and not abandon them for other shippers offering a cent or two more per mile.”

Is this company naive to believe that will happen? Quite possibly. It’s a strategy that could backfire.

“Time will only tell and it will come down to one thing: if the trust the company placed in its carriers is well founded,” Gonzalez writes. “If carriers back away from the handshake agreement, the company will have to revisit how it defines a trustworthy partner. And for the carriers who follow the path of short-term money instead of long-term partnership, they won’t know the value of what they’ve given up until the next downturn arrives.”

The message: “Have the courage to manage for the long term against the pressures we face today for instant results.”

That thought is from Richard MacLaren, General Manager North America, Unipart Logistics, who began and ended a recent presentation at an ARC Logistics performance-based outsourcing/Vested Outsourcing seminar with those words.

You can see why this excites me. In the world of Vested Outsourcing companies move past the drive for the immediate “win,” the need for short-term gratification based on lowest-transaction costs, to loyalty, cooperation and performance-based outcomes that create the “win-win.”

Trust involves a high degree of risk; it takes courage and patience and won’t always work out, especially given the vagaries and pressures of the global economy. As Gonzalez notes, it takes courage to go against the grain, as the company he talks about did, along with the patience to stick to it.

“But the payoff is arguably greater and more sustainable than following that worn out path that serves as a shortcut today but often leads you back to where you started tomorrow.”

I’d add it’s a more sustainable path for the long term. A corollary to the Gonzalez’ conclusion is this saying: “If you keep on doing what you’ve been doing, you’ll keep on getting what you’ve got.”

Vested Outsourcing goes beyond self-interest and just settling for what you’ve got to a space where participants work together to ensure their mutual success.

It moves us from ‘What’s in it for Me?’ to ‘What’s in it for We?’ Why split up the pie when you can work together to bake a bigger pie?  And isn’t that a better place to be?