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.Keywords Logistics management, Leadership, Performance-based logistics, Investment climate, Sustainment, Outcome-based contracting, Post-production support, Logistics, Supportability Paper type Research paper IntroductionThe post-production logistics and product support costs associated with sustaining large-scaled, complex systems such as aircraft fleets, rail, and power generation facilities quite often exceed two to three times the research, development, and production costs associated with these systems (Berkowitz et al., 2003). Adding complexity to this costly reality is the fact that as systems age post-production logistics and support costs tend to increase (MaClean et al., 2005). These costs represent a significant logistics-related segment of the economy. For instance, the US commercial airline industry spends in ex...

Performance‐Based Logistics and Interfirm Team Processes: An Empirical Investigation

“…The traditional model has an inherent incentive deficiency, where the suppliers make more money the more the system breaks (Randall et al. ). Performance‐based strategies correct this deficiency by monetizing potential supplier cost avoidance using a return‐on‐investment governance structure (Kratz and Diaz ).…”

“…This means that, holding usage constant, the buyers go into the next multiyear PBL contract with a lower cost (Randall et al. ). Third, PBL results in less disruption for the buyer.…”

“…; Randall et al. ; Siemens ). Therefore, team‐level factors examined using defense public‐private partnerships provide a foundation for insight into other industries using PBL.…”

Estrutura organizacional, capacidade dos serviços e impacto sobre o desempenho de fornecedores logísticos no contexto B2B

“…To manage efficiently and effectively the customer related aspects can lead to economic strategies and decisions that take into account the value generated for this customer. In this approach, the PBL (Performance-Based Logistics) emerges as a theoretical proposal to manage complex structures of specific supply chains, whose provision of information and activity synchronization are crucial for customer service (Randall et al, 2011).…”

Management Changes in MRO Business through Product Lifecycle

“…Actually PBL contracting is closer to case-bycase earning. It can be said that PBL focuses on delivering performance not parts or single maintenance to customers [22].…”