Procurement -- Performance-based Logistics

These days when the U.S. Department of Defense buys a fighter jet from Lockheed Martin it doesn’t simply pay Lockheed for the physical product. Instead the government has a ”performance-based contract” with the defense supplier according to Serguei Netessine professor of operations and information management at Wharton. This contract says in effect that the government’s reimbursement to Lockheed hinges on the jets’ performance -- that is how often the planes are able to fly. In this interview Netessine describes how performance-based contracts are becoming more common in a variety of industries.

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