Location of LSP facilities.

Are you a manufacturer or importer that intends to contract with a logistics service provider (LSP) for storage and distribution of your goods to retail outlets. When outsourcing your distribution to a LSP, you would expect the storage facilities for your inventory to be sighted in an optimum location for efficient distribution.

What if the location is not the best for your products? You can negotiate with another service provider for storage in a more suitable location, but what length of contract are you prepared to have with the LSP? An annual contract is not uncommon and three years appears to be the typical maximum.

To obtain a new facility in your preferred location, the LSP must negotiate with developers. But they expect a long lease to compensate for the risks and expense of the development. For a building of about 30,000 square metres, a minimum lease period of seven years is likely to be expected.

So, here is a problem, if shippers want a purpose built facility in a selected location, the contract with the LSP  must extend for longer than is often considered prudent. If you are not prepared for that length of contract, then the LSP is constrained to obtaining an existing building and depending on the economic situation, there could be a shortage of available sites.

Buying logistics services is not without risk, as this example shows. The process is therefore the same as buying any product or service and commences with identifying the need. This is the critical step, because it requires the user to justify why there is a need. If there is a justified need for purpose built outsourced facilities, then the procurement function can structure and negotiate a contract that satisfies the requirements of each party, including a contract term of seven years.