Common Contracts

Service Level Agreement with Dynamic Inventory Policy: The Effect of the Performance Review Period and the Incentive Structure

November 19th, 2020

• Filed
  November 19th, 2020

Conditions VT (υ˜T ) ST∗ Explanation TL TUυ˜T ≥ Tα and υ˜T + 1 < Tα 0 0 The supplier receives no penalty or bonus υ˜T + 1 < TαTL L− 0 The supplier receives a lump-sum penalty TUυ˜T ≥ Tα +−L 0 The supplier receives a lump-sum bonus υ˜T < TαTL and υ˜T + 1 ≥ TαTLand υ˜T + 1 < TαTU +hE ([ST − dT ] )+L−(1 − FdT (ST )) +arg.Min(hE ([ST − dT ] )+L−(1 − FdT (ST )) There is a chance to avoid a penalty TL TUυ˜T ≥ Tα and υ˜T + 1 ≥ Tα +hE ([ST − dT ] )+−L FdT (ST ) +arg.Min(hE ([ST − dT ] )+−L FdT (ST )) There is a chance to obtain a bonus υ˜T < TαTL and υ˜T + 1 ≥ TαTU +hE ([ST − dT ] )+L−(1 − FdT (ST ))+−L FdT (ST ) +arg.Min(hE ([ST − dT ] )+L−(1 − Fd (ST )) − L+Fd (ST ))T T A bonus or a penalty is ap- plied. This situation occurs when T is small