Is pay per use, or Performance-based Logistics (PBL), the future of paying for the delivery of products?

At the heart of PBL is the notion that risks and incentives should be more equitably aligned between suppliers and customers than has been possible under traditional “fixed-price” or “cost-plus” contracts. According to a recent paper and conference presentation by two Wharton professors of operations and information management, Morris A. Cohen and Serguei Netessine, and doctoral student Sang-Hyun Kim, performance-based contracting may also “improve product availability and reduce the cost of ownership by tying a supplier’s compensation to the output value of the product generated by the customer.”

Without doubt, they argue, this new strategy is fast becoming an important component of the management of after-sales service supply chains, with implications that potentially reach beyond defense and aerospace contracting, and into certain retail sectors. And, if their future analysis of risks and incentives in contracting holds true, they predict that the optimal customer-supplier relationship will be realized by combining performance-based contracting with elements of more traditional service agreements.

Follow this link to read more about the future of PBL, Cohen, Netessine and Kim’s work here.