Service Level Agreement Defined

A service level agreement (SLA) is a contract between a Logistics service provider and a customer that specifies, in measurable terms, what services the Logistics provider will furnish. Many customers manage their Logistics providers with an SLA.

The service level agreement should be detailed with Key Performance Indicators (KPIs). These KPIs are different for each customer-Service provider agreement. These agreements can take three (3) to six (6) months to negotiate, depending on their complexity.

In my opinion, a service level agreement should be used in any customer-3PL engagement. An SLA should also be used for a LTL/TL (Less then Truckload/Truckload) agreement. Sometimes the LTL/TL contract uses a Quarterly Business Review (QBR) which details the LTL/TL contract. It states that certain KPIs in this QBR are to be negotiated/reviewed monthly.

Sometimes, the Logistics provider has their own SLA/KPI that they want to use with any customer, but negotiation is still in order. Some Logistics providers use time/percentages to implement the SLA/KPI based on the customer’s volume.

An SLA/KPI is typically used when there is a Logistics provider contract to co-sign.

Even if you are not a contract account, ask the provider what KPIs they give to new, non-contract open/public accounts.

How do you write an SLA/KPI? What sections are typically in an SLA/KPI?

In my opinion, there should be a service provider acquisition, cross-functional implementation team for the company who writes the SLA/KPI or QBR.

Each team member should submit their particular needs for the service/logistics provider to be measured as you are doing business with them.

Service Level Agreement Sections

Some general sections to be included in the SLA/KPI: If it is a Logistics provider SLA/KPI the sections should basically include:

  • Information Technology (IT) Requirements: should be very detailed
  • Customer Service Specifics: Turnaround time to your customers
  • Receipt of goods instructions
  • Quality checks/Return Material Authorization (RMA) process agreement
  • Turnaround time
  • Inventory Record Accuracy via Cycle Counting and Root Cause analysis
  • Cost Reduction agreements over time
  • Continuous Improvement Initiatives
  • Optimization specifics (LTL/TL as well)
  • Voice of the Customer (VOC) feedback

Each KPI has a specific measure or percentage to be reviewed based on your needs, examples: Inventory Records Accuracy: 98-100%, IT implementations: a specific timeline, Cost Reduction: 5% per quarter based on the Logistics provider’s expertise, Continuous Improvement initiatives: Going beyond the customer’s expectation: 5% improvements each quarter, etc.

Additional reading on service level agreement from CIO.com.

About the Author, Chuck Intrieri

Chuck Intrieri is the owner of Charles M. Intrieri Consulting in Orange County, CA. Chuck specializes in Supply Chain Optimization, Third Party Logistics (3PL) and International Purchasing and Importing Consulting. He also writes for THE GOOD WORD, LinkedIn and other Supply Chain Blogs. He is a guest speaker at the Purchasing Management Association and the University of Wisconsin-Madison. He is certified as a C.P.M.,CPIM, and Value Engineer.  Click here to view Chuck Intrieri’s Expanded Bio

By | 2017-08-04T10:22:01-05:00 April 6th, 2013|Logistics Management|Comments Off on Service Level Agreement Defined

About the Author:

Experienced logistics and supply chain consultant, Chuck Intrieri is a new contributor to TheLogisticsofLogistics.com. Chuck Intrieri is currently a operations and management consultant focused on third party logistics (3PL) management Chuck Intrieri Professional Experience Mr. Intrieri is a highly experienced and credentialed supply chain professional and is a recognized thought leader and innovator, primarily in the areas of Third Party Logistics (3PL), Supply Chain Optimization, and Logistics, strategic sourcing, international procurement, supplier management , contract negotiations and reviews, and purchasing operations. He is a motivational team builder with a history of conducting significant organizational transformation and achieving important operational successes at the local, regional and global level. Chuck Intrieri is a: Certified Value Engineer (VE), Certified Purchasing Manager (CPM), Certified Production and Inventory Control Manager (CPIM), and is Lean Certified all of which attests to his deep understanding of operations and logistics beyond the confines of the purchasing function. Chuck has been a sought after speaker (Purchasing Management Association and the University of Wisconsin-Madison, trainer, and has been published in professional journals and general publications. Chuck has significant operational experience having served as the Chief Procurement officer for The Schwinn Bicycle Company, Ping Golf, Troy Built as well as a procurement officer for Maricopa County Arizona. It should be noted that, with the exception of Schwinn, Chuck began work with these organizations as a Supply Chain Consultant. Additionally Chuck has achieved significant results as a consultant for companies such as Media One. Evolve Dental Technologies, Inc, Virtu USA, and many other large and medium sized companies in Illinois, Michigan, Arizona and Orange County, CA. Chuck is especially adept at reconfiguring purchasing organizations large and small in practical and effective ways to achieve dramatic operational results in relatively short time frames. His international and strategic sourcing experience includes both Europe and Asia and has garnered him the respect of peers and suppliers alike. Chuck Intrieri Education Chuck is a graduate of Northwestern University in Evanston, IL where he earned a Bachelor’s degree in Business Administration at the Northwestern’s Kellogg School specializing in Manufacturing and Distribution Management. Chuck Intrieri Contact Info: Charles Intrieri Consulting, cmintrieri@yahoo.com, 714-389-2238