Collaboration Trumps Cost

“We want to be a partner for the long haul to our customers and help them create value for their customers,” says Frank Natali, vice president of operational excellence for Diebold Inc. “And we want to be compensated in accordance to the value that we provide them in achieving those goals,” he adds.

When it comes to relationships with suppliers, including logistics service providers, Natali is very clear, “We’re looking for that same sort of relationship with our supply base.”

Diebold’s business may be all about cash—it makes automatic teller machines, card readers and security systems—but its outsourced logistics relationships don’t focus only on cost. It’s not that cost isn’t important, and it is a metric for evaluating performance, but Natali lists a number of other factors driving Diebold’s supply chain strategy and decisions to outsource before reaching cost or cost reductions.

“If all you are going after is cost and you think that’s going to lead to a long-term competitive advantage, you’re wrong,” says Natali. “I want my business partners to understand my ‘end game.’ If all they understand is logistics and they can’t appreciate what I’m trying to achieve, that’s not helpful either.” That end game, as Natali describes it, is meeting customer needs, and Diebold’s core strategies are focused there. It wants partners who can appreciate and embrace its strategies.

Diebold has undergone some transformation recently, including a new CEO in 2005. Positioning operations for the new CEO was less about how logistics could perform better and more about “how does it intertwine with our core strategy,” Natali points out. “We’re focused on critical functional capabilities that are restraining our business strategy and correcting them, whether that is through an internal program or, in the case of logistics, an external partnership.”

Natali offers some factors he considers when making logistics outsourcing decisions:

1. Fill a resource gap.
2. Fill a knowledge gap.
3. Satisfy systems needs.
4. Speed of improvement.
5. Gain procurement leverage.
6. Redeploy key personnel to customer-facing tasks.

In assessing his needs, Natali asks, would any or all of these functional deficiencies inhibit the ability to achieve long-term business goals? And, if the answer is “yes” the decision to outsource is clear-cut.

In addition to aligning on strategic goals, Natali acknowledges the importance of connecting with the operations people who will be handling his business. “I need to meet the on-site leader from the 3PL,” says Natali. “That leader needs to be a doer and, more importantly, that leader needs to be a force of nature. They have to have this competence, energy and work ethic that is awe-inspiring to behold.”

He is also looking for a supplier who is tops in its area of expertise and, he’s not afraid to admit, “they need to be smarter than me.” And, he adds, sometimes they need to save him from himself. “They have to be able to challenge me effectively with data and say, ‘You’re gong to hurt yourself if you try to execute this.’”

“With a few exceptions, the days of the completely vertically integrated mega-corporation are over,” says Natali. “If you try to understand how to do everything yourself in-house, the level of execution that you need to have in every piece of your business to be competitive today is just so high that you will spend yourself into the ground trying to be the best there is in every functional element.”

That said, Natali adds, Diebold does have a global logistics and warehousing director with a small core group of people who manage critical pieces of the business and manage their logistics providers. And, he continues, there’s an internal sourcing exercise so that Diebold understands the capabilities of the logistics providers they use and their competitors, so if they should need to change resources, they know what is available.

Contracts are typically structured on a three- to fiveyear basis. The core contract covers terms and termination and a series of appendixes spell out specifics so that changes can be made during the contract period without the need to revise the whole contract.

Coming back to Natali’s listing of reasons to outsource, one of the first considerations he had was filling a resource gap. Posed as a question, Natali asks, “Do I have the resources I need internally?” He follows this with another question, “If not, do I have time to grow them?”

Faced with a small department and some knowledge gaps based on the growth and evolution of Diebold’s markets, Natali had to be realistic about spending to grow that expertise through training or additional staffing. The answer: “I have to bridge that resource gap with an outside partner.”

Outsourcing allowed those critical internal resources to be focused elsewhere. “Do I really want to have them focus on network design or are there other more critical projects in terms of how we serve our customers that I want them to focus on while I have an outside company that has a lot of competency focus on the execution piece?” Natali asks.