Performance based contracting in long-term supply relationships

The study investigates performance-based contracting in long term-supply relationships. Evidence in the context of supply relationships involving manufacturers of consumer and pharmaceutical products, service providers and grocery retailers indicates that the performance that companies buy and sell can be analyzed as specific combinations of effectiveness, efficiency and risk. While firms engage in a complex and time-consuming process to design and agree upon performance targets, incentive mechanisms and involved risks of buying and selling future performance, they often fail in achieving excellence in all performance targets