14 research outputs found
Contracting outsourced services with collaborative key performance indicators
While service outsourcing may benefit from the application of performanceâbased contracts (PBCs), the implementation of such contracts is usually challenging. Service performance is often not only dependent on supplier effort but also on the behavior of the buying firm. Existing research on performanceâbased contracting provides very limited understanding on how this challenge may be overcome. This article describes a design science research project that develops a novel approach to buyerâsupplier contracting, using collaborative key performance indicators (KPIs). Collaborative KPIs evaluate and reward not only the supplier contribution to customer performance but also the customer's behavior to enable this. In this way, performanceâbased contracting can also be applied to settings where supplier and customer activities are interdependent, while traditional contracting theories suggest that output controls are not effective under such conditions. In the collaborative KPI contracting process, indicators measure both supplier and customer (buying firm) performance and promote collaboration by being defined through a collaborative process and by focusing on endâofâprocess indicators. The article discusses the original case setting of a telecommunication service provider experiencing critical problems in outsourcing IT services. The initial intervention implementing this contracting approach produced substantial improvements, both in performance and in the relationship between buyer and supplier. Subsequently, the approach was tested and evaluated in two other settings, resulting in a set of actionable propositions on the efficacy of collaborative KPI contracting. Our study demonstrates how defining, monitoring, and incentivizing the performance of specific processes at the buying firm can help alleviate the limitations of traditional performanceâbased contracting when the supplier's liability for service performance is difficult to verify
Cooperative quality investment in outsourcing and its impact on supply-chain performance
This paper highlights the importance of cooperative quality investment (CQI) strategy and proposes a simple proportional investment sharing schedule in outsourcing of a supply chain, which consists of a single contract manufacturer (CM) and one original equipment manufacturers (OEM) whose demands are both sensitive to price and product quality. A three-stage dynamic game-theoretic framework is applied to describe decisions of every entity. In particular, we analyze two possible decision structures of quality choice: the CM optimally sets product quality and the OEM chooses product quality. By the backward induction approach, we obtain the analytical equilibrium solutions for each decision scenario. We find that if the CM is willing to share sufficient large investment fraction, the CQI strategy will be beneficial to quality enhancement no matter who sets product quality level. On the respect of equilibrium payoffs (profits), this study shows that each of the players always prefers to have complete control on quality choice with implementation of the CQI strategy. In addition, the supply-chain performance can be improved by practicing the CQI strategy. Furthermore, we explicitly put forwards the conditions for realizing this improvement. © Springer-Verlag Berlin Heidelberg 2014