What is the price of excellence? Excellence cannot cost extra. It must add measurable financial value. The lack of excellence however does carry a price. As excellence falls, risk climbs. Unallocated and unrecognized risk represents an invisible liability that can cripple your business. It can also destroy your career.

As the selection of outsourced services evolved into a procurement model, deliverables considered 'soft' were eliminated from the equation. A median level of competency was demanded. Competitive pressures and the invisible hand of capitalism slowly removed functions not specified by the customer. Having swung to an extreme, this acquisition model is again moving.

Major supply chain disruptions can mean millions in lost profits, damage to brand equity and destruction of customer confidence. Organizations go to great lengths to protect against such disruptions. Lets look at some facts.

These devastating numbers, from a 2005 Georgia Tech study are only in the year of the disruption. The damage, according to their study, lingers in substantial form for an average of two additional years. This illustrates why companies try to inoculate themselves from major supply chain shocks.

The above ranking should give any logistics executive pause. Outsourcing is unavoidable in today's hyper-competitive economy. How do you maximize savings while minimzing risks?

Compared to these devastating shocks, the relative differences in excellence between various 3PLs would seem minimal. However, a closer look at the level of risk and exposure questions that premise.

First, the total cost of steady-state operations can vary by up to 15% between excellent operators and the median. This number normally quelches any reasonable differences in their fee structures.

In addition to these known costs, the unknown risks increase as operators drop towards median. The risks climb substantially when operators dip below median. Consider the financial impact any of the following might have on your operations.

These are all real world situations. Each one caused significant harm to the customer. Most were predictable and avoidable. In each case the operator was executing at or near the median.

The above chart compares the five year performance of operators across a network. At the base you see the cumulative impact of their fee structures, which vary by up to 25% from the below-mean operator to those rated as excellent. While first year performances were comparable, the preferred operator was also the low-cost provider when measured over the life of the contract.

There is another major liability that this chart cannot take into account. Some of these operations act as seamless extensions of the customer's supply chain. Others are perenial laggards that slowly erode customer service KPIs and burden the remaining network. The effects are subtle and the reaction is predictable. The pain of displacement does not seem worth the gain. Most organizations adjust to these median performers by shifting resources and volumes to the most dependable operations. While outwardly effective, it papers over the poor performers and hides additional network friction from view.

There is nothing mystical or ephemeral about excellence. It is knowable, measurable and predictable. There is no better indicator of future performance that an operating record. Interview for proof of an excellent track record. Call references and ask the hard questions. Customers benefiting from excellence tend to rave when asked. References that do not rave are sending you a message.

Wedging excellence into a bloodless RFP is a difficult proposition. While these structured, antiseptic documents wring out personal bias, they also squash the telltale marks of excellence. Picking true supply chain champions requires a level of due dilligence that goes beyond an Excel speadsheet.

Ask. Ask. Ask. Then ask some more. Vendors should come out of their chairs when asked about operational excellence. Words are cheap, but experienced supply chain executives recognize the real thing when they look for it.

The risks in our world will only get more severe going forward. Major external disruptions can never be fully factored out. Careful selection of 3PL partners however will help manage and mitigate the risks you can control. When in doubt, go for excellence.

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*the numbers quoted were from "The effect of supply chain disruptions on long-rerm shareholder value, profitability, and share price volitality" by Kevin Hendricks and Vinod Singhal.