To read this content please select one of the options below:

Performance-based contracting for advanced logistics services: Challenges in its adoption, design and management

Kostas Selviaridis (Department of Management Science, Lancaster University Management School, Lancaster, UK)
Andreas Norrman (Department of Industrial Management and Logistics, Lund University, Lund, Sweden)

International Journal of Physical Distribution & Logistics Management

ISSN: 0960-0035

Article publication date: 6 July 2015

3539

Abstract

Purpose

The purpose of this paper is to explore key challenges of adopting, designing and managing performance-based contracts (PBC) for advanced logistics services, as seen by providers. The shift toward performance-based solutions has proved challenging since providers often struggle to link performance to their payment. Despite such managerial challenges, empirical research in this area has been limited.

Design/methodology/approach

A multi-case design was adopted. Three cases of logistics service providers were selected based on purposive sampling. Data were collected through 38 semi-structured interviews and review of 43 documents such as contracts and customer target letters.

Findings

Key PBC adoption challenges include customer and provider intention to align their goals and incentives as well as their views on risk and reward sharing. Contract design challenges center around performance metric definition and weighting, designing performance monitoring systems that consider service co-production effects and help improve customer relationship and designing incentives with appropriate intensity levels. Contract management challenges include fostering provider pro-activity, provider changes in terms of processes and resource investments, perceived fairness of designed incentives and contract re-design to allow for win-win relationship outcomes.

Research limitations/implications

The study empirically contributes to extant logistics service provider literature by identifying specific challenges that extend also beyond PBC adoption and design and cover contract management (and potential contract re-design). It also unpacks the notion of performance attributability by analyzing its role also in terms of contract and performance management as well as its potential effects on customer relationship management.

Practical implications

The study presents implications for logistics provider managers regarding how the observed PBC challenges can be overcome.

Originality/value

The study unearths several challenges of PBC for advanced logistics services, particularly in connection to contract management and re-design.

Keywords

Citation

Selviaridis, K. and Norrman, A. (2015), "Performance-based contracting for advanced logistics services: Challenges in its adoption, design and management", International Journal of Physical Distribution & Logistics Management, Vol. 45 No. 6, pp. 592-617. https://doi.org/10.1108/IJPDLM-11-2014-0267

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

Related articles