skip to primary navigationskip to content

Cambridge Service Alliance

At the forefront of service transformation in the digital era

Studying at Cambridge

 

Outcome-oriented contracts in logistics outsourcing relationships

last modified Sep 30, 2017 09:26 PM
September Paper by Torsten Steinbach, Carl Marcus Wallenburg and Florian Urmetzer, on using outcome-oriented contracts to foster performance improvements in logistics outsourcing relationships.

Using Outcome-oriented Contracts to Foster Performance Improvements in Logistics Outsourcing Relationships

Torsten Steinbach, Carl Marcus Wallenburg and Florian Urmetzer

Outcome-oriented contracts are used for an increasing range of private and public services. In view of the importance to involve service providers in continuous improvement efforts, this paper helps managers to better understand how outcome-oriented contracts should be designed and managed to instigate proactive improvement. Following a quantitative research approach, empirical data was collected on logistics outsourcing relationships in Germany. Results reveal the potential of outcome-oriented contracts to improve the provider’s performance. Specifically, bonus payments foster the efforts of the service provider to achieve above-standard performance levels while penalties do not instigate proactive improvement efforts. Furthermore, practitioners should be aware that linking the compensation of the service provider management to the achievement of customer goals (i.e., the remuneration obtained by the customer) fosters proactive improvements. Lastly, customers and service providers are advised to allow frequent adjustments of the performance metric system (i.e., changing the target values and/or introducing new KPIs), for example, to reflect lessons learned during the contract management phase, in order to maximize the contract’s potential to stipulate proactive improvement efforts. In sum, outcome-oriented contracts can increase proactive improvement behavior by the service providers when they are designed and implemented effectively for which this paper provides a guideline.

Filed under: ,

RSS Feed Latest news

'Using AI to Track How Customers Feel — In Real Time' published in the Harvard Business Review

May 13, 2021

The paper 'Using AI to Track How Customers Feel — In Real Time' by Mohamed Zaki, Janet R. McColl-Kennedy and Andy Neely has been published in Harvard Business Review.

Industry Day 2020 | What we learnt

Dec 06, 2020

What is the future of services in the new pandemic-driven era? This was the topic explored at our 2020 Industry Day by senior executives from L'Oréal, Microsoft Research, Manchester United and start-up, Fairjungle.

Understanding business models in the construction sector

Nov 25, 2020

What’s standing in the way of offsite manufacturing? For decades, the construction sector has been hailing it as the next big thing but we have yet to see it really taking off. Why is that, when the technologies and processes already exist? Dr Zakaria Dakhli believes it is due to a fundamental incompatibility between business models and it is only when this has been fully understood that the long-awaited transformation can take place.

A machine learning approach to quality control

Nov 14, 2020

Most of the products we take for granted contain huge numbers of components assembled in multiple stages by different manufacturers. Quality control is vital throughout the assembly process with rigorous testing required at every step.

View all news