The role of transition contracts in performance-based logistics initiatives

Abstract

Logistics 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. © 2012 Wiley Periodicals, Inc. Syst Eng 16