Current Compensation Systems between Logistics Service Providers and their Customers
Towards stable business relationships
With regard to the outsourcing of transport and logistics services, industrial and commercial companies (here: customers) as well as the logistics service providers commissioned by them are basically faced with the task of agreeing suitable remuneration systems for their business relationships. Remuneration systems play a key role in ensuring the stability of business relationships: Remuneration systems not only determine logistics costs from the customer's point of view and revenues from the service provider's point of view, but also have significant implications for incentive orientation and risk distribution.
Based on the overarching question of how appropriate compensation systems should be designed to stabilize business relationships, taking into account specific influencing variables, this study aims to derive practical design recommendations for both customers and logistics service providers. Within the framework of a case study-based research design, different remuneration systems in three transport-centered and five warehouse-centered business relationships are examined systematically and in detail.
Central study results are, on the one hand, the four identified project-specific influencing variables, which were considered in the empirical investigation with regard to their concrete implications for suitable remuneration systems, and, on the other hand, the design recommendations derived in the respective context. It was found that the relationship-stabilizing effect of compensation systems depends on the extent to which the extent of specific investments, fluctuations in service utilization by customers, and the complexity and degree of standardization of outsourced services are reflected in the arrangements made. Based on the objective of stable business relationships, five design recommendations were initially derived which, starting from the project-specific influencing variables, suggest specific regulations within compensation systems:
(1) If significant customer-specific investments are required on the part of the service provider to provide the outsourced services, a remuneration component that is not dependent on volume and a correspondingly longer contract term should be agreed.
(2) In the event that service utilization by the customer is subject to greater fluctuations, a purely transaction-oriented service provider remuneration should be supplemented by predefined quantity-dependent price adjustment mechanisms (e.g., graduated price agreements).
(3) Furthermore, fluctuating service volumes should also be taken into account in the course of agreeing service level agreements and any associated regulations on a bonus-malus system or penalties.
(4) In view of the complexity of outsourced services, detailed and differentiated service prices should be contractually agreed for the various complex but repeatedly performed work steps.
(5) If the outsourced services can hardly or not at all be standardized, a transaction-oriented service provider remuneration via fixed hourly rates for the use of resources (personnel and assets) is a suitable option.
Irrespective of project-specific factors, four more fundamental recommendations for suitable compensation systems were identified:
(1) According to these, regulations that provide for situational price adjustments within the contract term should, if possible, be defined in such a way that the framework and the specific amount of the price adjustments are already fixed at the beginning of the contract.
(2) Furthermore, especially in the case of warehouse-centric business relationships, arrangements should be made for the remuneration of special services which were not yet known and/or defined at the start of the contract.
(3) The study also showed that, particularly when combining a service level agreement with a bonus-malus system or penalties, it should be checked whether the relevant data can be recorded in day-to-day business with a reasonable amount of effort, clearly evaluated and the defined targets actually achieved by a logistics service provider.
(4) Furthermore, regulations on lump-sum price reduction agreements in the course of continuous improvement processes demanded by the customer should only be agreed if a logistics service provider can actually exploit the optimization potential when viewed realistically. In this context, it has also been shown that improvements in cost efficiency jointly pursued by customers and logistics service providers in conjunction with gain-share arrangements are often more effective.
Further study results relate to cross-case study findings in connection with the design of compensation systems: Across all case studies, it has been shown that compensation systems are an essential building block, but not the sole basis for stable business relationships. It should also be noted that the design of compensation systems is strongly customer-driven. It also became clear across all cases that transport-centric business relationships are based on largely standardized compensation systems, while warehouse-centric business relationships are based on individually designed compensation systems.
Full version of the study as an e-book: Aktuelle Vergütungssysteme_e-Book2020
