Performance Based Logistics

2008-07-22 11:42:16

( Financial )



Background of Performance Based Logistics

Performance Based Logistics or PBL is a type of operational stragegy by which a business organization outsources the system support services of another company. The company that supplies the services is also called a third party logistics provider.

Instead of physical goods or services, you pay for the supplier's performance in executing various logistics functions, which is actually the entire supply chain management system.

This strategy was first used by the Department of Defense in the entire process of procuring and transporting weapons to user locations. In essence, Performance Based Logistics is a close partnership between the Department of Defense and its supplier. Overall, the strategy has been successfully implemented. There has also been gradual adoption of Performance Based Logistics in other government agencies as well as non-military business operations.

Benefits of Performance Based Logistics

The main goal is to optimize the entire logistics process. Upon ordering, the company can expect the performance logistics supplier to handle and execute delivery at the soonest possible time. The supplier assures you of utmost accuracy and promptness in processing the orders.

Another assurance that the logistics supplier gives is continuous product or service availability. You don't need to keep any goods in stock because you can always count on the logistics supplier to deliver.

Engaging Performance Based Logistics can reduce or even completely eliminate any warehousing or holding costs, as well as any possible losses from delays in deliveries.

Setting Up a Performance Based Logistics System

You should search for and screen out firms that market their Performance Based Logistics services. You need to negotiate carefully with the logistics supplier and work out a feasible arrangement between yourselves. You will want a long-term relationship with the supplier, so lay down all your terms right from the planning and negotiation stage.

If you are not quite certain whether such a system will work for you, you can draw up a temporary contract with the logistics supplier. It may be for a few months, and it will be an excellent chance to try the system. You can also draw up a performance bond which will protect you from any breach of contract

Compare the costs of having to put up your own logistics system to engaging a third party logistics provider before finalizing any contract.


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