Explaining the effectiveness of performance‐based logistics: a quantitative examination

Abstract

Purpose

Performance‐based logistics (PBL) strategies are providing governments and for‐profit organizations with a contractual mechanism that reduces the life cycle costs of their systems. PBL accomplishes this by establishing contracts that focus on the delivery of performance not parts. PBL establishes a metric based governance structure where suppliers make more profit when they invest in logistics process improvements, or system redesign, that reduces total cost of ownership. While work has been done to outline an overall PBL theoretical framework, the underlying theory explaining the enablers that lead to organizational and team‐level, team‐goal alignment associated with the PBL governance structure requires testing. The purpose of this paper is to quantitatively test previously posited relationships between enablers of PBL and PBL effectiveness. An additional objective is to explore any differences in PBL effectiveness between different business sectors.

Design/methodology/approach

A multiple regression model was developed, tested and validated to explain the effectiveness of PBL. The model was externally validated with exploratory cross‐sectional survey data of 61 practitioners.

Findings

This study strongly supports recent PBL theory explaining PBL effectiveness. Key antecedents include investment climate, relational exchange, PBL leadership, and business sector. Further, government organizations lag behind their commercial counterparts in PBL effectiveness and PBL leadership.

Practical implications

PBL business arrangements are more effective in more favorable investment climates. Thus, leaders should welcome new ideas, empower employees, and encourage entrepreneurship. Since PBL effectiveness increases with relational exchange, building trust and communicating with suppliers is key. Leadership is also important to PBL effectiveness. Leaders should accept risk, focus on long‐term affordability and performance, and align activities to achieve end‐user goals.

Originality/value

This research is the first quantitative test of previously posited factors affecting PBL effectiveness. Additionally, this research unveils key differences in business sectors' use of PBL strategies.

Citation

Randall, W.S., Nowicki, D.R. and Hawkins, T.G. (2011), "Explaining the effectiveness of performance‐based logistics: a quantitative examination", The International Journal of Logistics Management, Vol. 22 No. 3, pp. 324-348. https://doi.org/10.1108/09574091111181354