Performance-Based Logistics Contract Research Articles

The effectiveness of performance-based contracting in the defence sector: A systematic literature review

Performance-based contracting in the defence sector, also known as performance-based logistics (PBL), is attracting growing interest from operations and supply management scholars. In the defence sector, PBL entails outsourcing weapon system-related maintenance and logistics activities in such a way that it incentivises suppliers to invest in equipment reliability and process improvements at a reasonable cost. Research has advanced our knowledge of how PBL contracts are designed and implemented, but we still have only limited understanding of PBL evaluation issues, specifically PBL effectiveness and its influencing factors. Focusing on the defence context, we address this knowledge gap through a systematic literature review and synthesis of 45 peer-reviewed articles. We identify 15 factors influencing PBL effectiveness, which are grouped into six categories: governance, supply chain management, defence buyer input, innovation, environmental factors, and resources and capabilities. We extend prior research by developing a classification framework of the factors influencing PBL effectiveness. Further, we leverage defence industry-specific characteristics to suggest avenues for impactful future research through a series of propositions, including the need to examine how political factors influence the effectiveness of performance-based contracting in the defence sector. We also suggest that environmental sustainability and resilience requirements should be included when evaluating the effectiveness of PBL contracts and defence contracting more generally.

Performance management in logistics outsourcing: a study on sugar-energy industry

PurposeThis paper analyzes managerial practices currently used for outsourced logistics activities in mechanized cutting, loading and transportation (CLT) of sugarcane in a Brazilian company using performance-based logistics contracts (PBL) as reference.Design/methodology/approachThe methodology draws on literature review, design of an analysis model, small group meetings with academics/industry professionals and practical application through a case study. The model is based on PBL and its construction involved choosing the analysis axes, defining evaluation items and respective measurement scale and the means and sources of data collection.FindingsWhen comparing the evaluation results with PBL recommendations, it is possible to see that there are still many improvement opportunities. In contracting axis, decision-making process was poor-rated due to the absence of strategic considerations to support outsourcing decision. Procurement, contract and implementation are in intermediate level. Performance management is the most mature axis. However, quality analysis showed intermediate level. In relationship axis, the most relevant gap is the lack of expectations alignment. Remaining items showed intermediate levels of compliance but still need focusing on communication, establishing a structured relationship management development.Originality/valueThis study contributes first to develop an analysis model based on PBL to evaluate the level of relationship integration between company and logistics service provider, and second, to apply the model to an empirical case in a CLT company operation. As a result, the analysis model presents guidelines for the company, not to just contract/rent equipment and manpower but hire results.

Stochastyczny model do szacowania intensywności napraw dla systemu działającego w warunkach logistyki wydajnościowej

Performance Based Logistics (PBL) concept has an aim to improve the system availability and it has been extensively researched in the recent years. These researches showed that inventory level does not impact system availability as much as component reliability and repair time in repairable system operating under PBL contract. Based on that, in this paper, we propose a new stochastic model for determination of annual repair rate for critical aircraft components in such system in order to achieve desired availability. The result obtained could be used for planning of base stock level and capacity of repair facilities.

Distribution of Inventory Level on a Repairable Parts System under Performance-Based Contract

Mirzahosseinian develop a closed-loop inventory system consisting of a repair facility and a single warehouse, for a repairable parts system operating under a Performance-Based Logistics contract. They model the closed-loop inventory system as a multi-server queueing model (M/M/m queue) where component failures follow Poisson distribution and the repair times at the service facility are exponential. The model sets up the balance equations of the steady-state probability distribution of inventory level. This paper extends their model. A recursive method is utilized and an analytic steady-state probability distribution of inventory level is derived. It also demonstrates by numerical experiments that the analytic steady-state probability distribution is correct. We obtain the analytic system performances and the metrics, which contribute to system cost optimization.

The role of transition contracts in performance‐based logistics initiatives

AbstractLogistics support activities have long been part of any industrial enterprise. The increasing complexity of many systems dictated the need for outsourcing logistics support activities to specialized firms. The perceived deficiencies in many programs in the effectiveness and efficiency of that support approach motivated, a decade and a half ago, the transition to a new paradigm: instead of contracting logistics support resources as a means to achieving the desired system performance goals, customers started contracting directly the delivery of performance results. The initiative was called Performance‐Based Logistics (PBL). Experience shows also that customers and contractors face a serious challenge when trying to define all the terms and conditions of a PBL contract, such as its scope, the definition of responsibilities, the metrics to be measured, the way of measuring them, the translation of measurements to rewards, and the like. This paper illustrates, based on the experience gathered by the authors, how transition contracts can play a determinant role in effectively paving the way for a migration from conventional logistics support outsourcing to performance‐based logistics, reducing risks to both parties and enhancing the likelihood of their mutual satisfaction and reward. The paper captures the lessons learned in several programs and reflects them in the form of a list of issues to be validated in a transition contract, before a PBL one is entered into. © 2013 Wiley Periodicals, Inc. Syst Eng 16

Improving the computational efficiency of metric-based spares algorithms

We propose a new heuristic algorithm to improve the computational efficiency of the general class of Multi-Echelon Technique for Recoverable Item Control (METRIC) problems. The objective of a METRIC-based decision problem is to systematically determine the location and quantity of spares that either maximizes the operational availability of a system subject to a budget constraint or minimizes its cost subject to an operational availability target. This type of sparing analysis has proven essential when analyzing the sustainment policies of large-scale, complex repairable systems such as those prevalent in the defense and aerospace industries. Additionally, the frequency of these sparing studies has recently increased as the adoption of performance-based logistics (PBL) has increased. PBL represents a class of business strategies that converts the recurring cost associated with maintenance, repair, and overhaul (MRO) into cost avoidance streams. Central to a PBL contract is a requirement to perform a business case analysis (BCA) and central to a BCA is the frequent need to use METRIC-based approaches to evaluate how a supplier and customer will engage in a performance based logistics arrangement where spares decisions are critical. Due to the size and frequency of the problem there exists a need to improve the efficiency of the computationally intensive METRIC-based solutions. We develop and validate a practical algorithm for improving the computational efficiency of a METRIC-based approach. The accuracy and effectiveness of the proposed algorithm are analyzed through a numerical study. The algorithm shows a 94% improvement in computational efficiency while maintaining 99.9% accuracy.

A study of repairable parts inventory system operating under performance-based contract

Performance-Based Logistics (PBL) is becoming a dominant logistics support strategy, especially in the defense industry. PBL contracts are designed to serve the customer’s key performance measures, while the traditional contracts for after-sales services, such as Fixed-price (FP) and Cost-plus (C+), only provide insurance or incentive. In this research, we develop an inventory model for a repairable parts system operating under a PBL contract. We model the closed-loop inventory system as an M/M/m queue in which component failures are Poisson distributed and the repair times at the service facility are exponential. Our model provides the supplier and the customer increased flexibility in achieving target availability. Analysis of key parameters suggests that to improve the availability of the system with repairable spare parts, the supplier should work to improve the components reliability and efficiency of repair facility, rather than the base stock level, which has minimal impact on system availability.

Spares provisioning under performance-based logistics contract: profit-centric approach

Performance-based logistics (PBL) is emerging as a preferred logistic support strategy within the public sector, especially the Department of Defence. Under a PBL strategy, the customer buys performance, such as operational availability, mission readiness and operational reliability, instead of contracting for a specified collection of resources defining the underlying support infrastructure. The literature on PBL is still in its infancy and additional research is required to optimize logistic resources such as spare parts, equipment, facilities, labour etc within a PBL context. In this paper, an optimization model is developed for spares provisioning under a multi-item, multi-echelon scenario. The objective of the optimization model is to maximize the profit to the supplier under a PBL contract.

N‐Dimensional effectiveness metric‐compensating reward scheme in performance‐based logistics contracts

AbstractA paradigm shift is occurring in the relationship between suppliers and customers as the public sector continues to embrace the notion of Performance Based Logistics (PBL). There is now an increasing reliance on PBL concepts to define and monitor contractual relationships in both public and private industry. Successful PBL relationships are certainly faced with a number of challenges and difficulties. As uncovered by the work of Sols, Verma, and Nowicki [Eng Management J 19(2) (June 2007), 40– 50], the principle impediment to a successful PBL outcome is the proper formulation and mutual understanding, between supplier and customer, of the underlying financial reward/penalty model central to any PBL arrangement. The current state of the literature focuses on compensation structures based on only a single performance metric, which in most cases is insufficient to properly capture, reward, and penalize the supplier's performance. Instead, it is imperative to define and monitor multiple performance metrics to more accurately portray the performance the supplier is delivering in accordance to the customer's explicit expectations. This paper formulates an n‐dimensional performance‐based reward model for use in PBL contracts. Each dimension corresponds to a performance metric and the n‐dimensional reward model includes the notion of acceptable degree of variation in effectiveness (or, equivalently, a proportionality zone), of customer's acceptable compensation among metrics when there is overperformance for some and underperformance for others. An illustrative example is presented to show the applicability to PBL contractual relationships. © 2008 Wiley Periodicals, Inc. Syst Eng

Defining the Fundamental Framework of an Effective Performance-Based Logistics (PBL) Contract

:Highly capital-intensive systems in domains such as transportation, infrastructure, defense and aerospace, and telecom have long operational life cycles and their stakeholders expect them to exhibit the necessary operational and performance characteristics during these long operational life spans. Often the results have been less than satisfactory, which has led many to envision alternative approaches to effectively sustaining such systems. Among the alternative approaches is Performance Based Logistics (PBL), whose essence is to define key system readiness and effectiveness criteria and to contract for threshold values of these criteria. The emphasis is in contracting for results, and not for resources as traditionally done.This article is based on a literature survey conducted on the papers published in connection with this topic since the advent of the PBL initiative, as well as on numerous personal interviews entertained in programs in which the authors have been involved, and briefly surveys current practices in PBL-based contracting, highlighting the lessons learned and outlining the primary drawbacks observed. Finally this article proposes a framework for formulating more efficient and effective PBL contractual agreements and identifies the main topics or aspects of a successful PBL initiative. Experience shows that in order for a PBL contract to yield the desired results it is essential to have a thorough agreement on the metrics to be used to represent system effectiveness, as well as an agreed reward scheme that links reward to achieved effectiveness.