12: Manage contract renewal / exit
Purpose
The purpose of this step is to manage the contract conclusion effectively, whether through renewal or exit. This step ensures that the transition is seamless, minimizes operational disruptions, and allows for informed decision-making on whether to extend the contract or engage a new LSP.
Key activities
The key activities for this step include:
Assess performance for decision-making: Evaluate the current LSP's performance against contract metrics to guide renewal or exit decisions
Plan contract exit or renewal: Establish a clear exit or renewal plan in advance of the contract end date
Manage exit process: Ensure a smooth and well-coordinated exit if choosing not to renew the contract
Prepare for renewal or re-sourcing: Begin the renewal process or re-sourcing activities for a new LSP
Transfer knowledge & assets: Ensure that knowledge, data, and assets are transferred without disruption
See detailed activity descriptions at the bottom of this page.
Key output
By completing Step 12, your organization will have managed the conclusion of the LSP contract—whether through a seamless transition to a new provider or a successful contract renewal. This step ensures service continuity, risk mitigation, and a structured approach to knowledge transfer and operational handover.
Supporting resources
Assess performance for decision-making
Before deciding to renew or exit the contract, it's essential to assess the current LSP's performance against the KPIs, service levels, and other contract terms. This evaluation should be thorough and based on quantitative and qualitative data. Please consider:
Performance review: Conduct a detailed review of the LSP’s performance. Ensure that all key metrics, such as service accuracy, timeliness, and cost efficiency, are measured against the agreed-upon contract terms
Stakeholder input: Involve key stakeholders, including operational, financial, and strategic team members, in the evaluation to ensure the decision reflects all areas of importance within the organization
Cost-benefit analysis: Conduct a comprehensive cost-benefit analysis to weigh the value the current LSP provides against potential benefits of switching to a new provider. Consider both direct costs and indirect costs, such as the time and resources needed to manage a transition
Long-term partnership assessment: Evaluate whether the relationship with the LSP is still providing long-term value or if switching to a new provider could offer greater innovation, cost-efficiency, or service improvements
Plan contract exit or renewal
Whether the decision is to renew the contract or exit, it's essential to establish a plan well in advance of the contract end date. This will minimize disruption and ensure continuity of service. Please consider:
Renewal preparation: If the decision is to renew, initiate discussions with the LSP about any adjustments to the contract, such as service updates, pricing revisions, or changes in scope. Prepare the renewal proposal to reflect any lessons learned from the current contract period
Exit strategy: If the decision is to exit, the organization should prepare a structured exit plan that minimizes disruption and ensures compliance with the contract’s terms
Timeline for decision: Set a clear timeline for making the final decision on renewal or exit. Typically, this decision should be made 6 to 12 months before the contract’s end to allow sufficient time for planning
Manage exit process
If the decision is to terminate the contract, managing the exit process requires clear planning and execution to avoid service disruption. Please consider:
Asset & knowledge transfer: Ensure a structured plan for transferring assets (e.g., equipment, data, intellectual property) and knowledge between the outgoing LSP and the new provider, if applicable
Gradual transition: In some cases, a phased exit may be necessary to prevent operational risks. For example, during a phased exit from an LSP providing warehousing services, gradual transitions of stock and responsibilities to the new provider can reduce the risk of stockouts or delays
Risk management: Prepare for any risks associated with the transition by ensuring adequate contingency plans. This might include preparing internal teams for additional workloads or identifying backup providers to prevent service interruptions
Prepare for renewal or resourcing
If the contract is renewed, adjustments may need to be made based on performance or organizational needs. If a new LSP is sought, initiate the tendering or procurement process. Please consider:
Renewal adjustments: Work with the current LSP to make necessary contract adjustments, such as refining KPIs, adding or removing services, or adjusting pricing models to better reflect current market conditions
Re-sourcing process: If seeking a new LSP, begin the re-sourcing process in line with the organization’s procurement policy. This involves updating the RFP to reflect any new or changing logistics requirements
Innovations & improvements: Consider new technologies or innovations the LSP can introduce as part of the renewed contract. For instance, explore whether new tracking systems for shipments can be added to improve transparency and efficiency
Transfer knowledge & assets
To ensure continuity of service, especially if changing LSPs, a formalized process for transferring knowledge and assets is essential. Please consider:
Data & system transfers: Ensure that all data related to inventory, service history, and performance are transferred securely to the new LSP or back in-house. Ensure system compatibility and alignment between parties
Handover of operational responsibilities: Plan for a comprehensive handover of operational responsibilities, such as inventory management or distribution schedules. For example, in the case of laboratory sample collection, ensuring continuity in service scheduling and reporting is essential to avoid operational gaps
Ongoing support: For a set period after the exit, the outgoing LSP may need to provide limited support to ensure a smooth handover and resolve any post-transition issues