11: Manage contract & performance

1. Monitor performance & continuously improve operations

Performance management is an ongoing process that involves tracking the LSP’s compliance with both the MSA and SLAs, including KPIs and other relevant performance metrics. The management structure established in Step 10 will continue to support this activity.

• KPIs & operational metrics: Track all relevant performance metrics, not just KPIs. For example, monitoring metrics like delivery accuracy, transit times, and stock availability at key distribution points ensures timely delivery to remote areas. If these are consistently falling short, early corrective action is necessary

• Performance dashboards: Consider using real-time performance dashboards that allow both parties to track key metrics and adjust as needed

• Continuous improvement & learning: Encourage the LSP to suggest innovative solutions or process improvements during strategic reviews. This ensures that both parties remain proactive in improving logistics operations. Establish a feedback loop where performance insights and lessons learned are used to continuously refine the contract and service delivery

• Penalties & incentives: Ensure that the penalties for underperformance and rewards for exceeding performance goals, as outlined in the contract, are applied consistently. For instance, if an LSP consistently exceeds on-time delivery targets for deliveries, applying agreed-upon rewards can help reinforce positive behavior

• Proactive issue identification: Use data and metrics to identify early signs of underperformance. For example, if the LSP’s data shows deliveries to certain health facilities are increasingly delayed, this is an early indicator that adjustments are required before a full-service disruption occurs

2. Manage financial & administrative aspects

Beyond logistics performance, managing the financial and administrative components of the contract is critical. This includes ensuring accurate and timely payments, processing invoices, tracking service costs, and managing any financial discrepancies.

• Invoicing & payment: Establish a clear process for managing invoicing, with defined timelines for submission and payment approval. For instance, in a contract for laboratory sample transportation services, if penalties for missed sample collection times are included, these should be reflected in the invoices submitted

• Financial tracking: Implement tools or systems for tracking contract costs, ensuring that the budget aligns with actual expenses. For example, if laboratory sample collection costs are consistently higher than projected due to fuel surcharges, financial audits can identify if these costs are justified or need renegotiation

• Financial audits: Schedule periodic financial audits to ensure transparency and accuracy in financial dealings with the LSP. Audits help verify compliance with the agreed pricing structures and service costs, preventing cost overruns

3. Handle change requests

As logistics needs evolve, change requests or ad hoc service requests may arise. It’s essential to have a formal process for managing these changes to avoid disruptions and ensure transparency.

• Formal change request process: Establish a formal process for documenting, reviewing, and approving any changes to the contract, whether they involve scope adjustments, new services, or operational tweaks. For example, if there is a sudden demand surge for HIV testing kits due to an unexpected increase in testing initiatives, a formal change request would be initiated to assess additional costs and service adjustments required

• Approval workflow: Ensure that an approval hierarchy is in place for handling changes, with senior management involved for significant amendments to prevent unexpected disruptions or costs

• Ad hoc requests: Implement a process for managing smaller, one-off requests that fall outside the regular scope but may be needed for operational flexibility. For instance, if there's a need for temporary storage of medical equipment due to a delayed health facility opening, an ad hoc request can be submitted without triggering a full contract revision

4. Conduct regular reviews

Ongoing contract and performance management requires periodic reviews to assess overall performance, financial health, and strategic alignment.

• Operational reviews: Use the operational reviews established in Step 10 to conduct monthly or quarterly reviews. These reviews should focus on immediate operational issues, such as service disruptions, delays, or opportunities for improvement. For example, during a quarterly review of diagnostic kit transportation services, it was found that delays occurred at customs clearance points. A decision was made to work with the LSP on pre-clearance strategies for future shipments

• Strategic reviews: Conduct biannual or annual reviews to assess the broader success of the LSP relationship. For instance, during an annual review of a multi-country malaria commodity distribution contract, both parties discussed geopolitical risks impacting cross-border deliveries and revised contingency plans to manage potential disruptions

• Celebrating successes: Recognizing and rewarding successes throughout the contract term is critical for maintaining a positive relationship. Celebrating major milestones or exceptional performance builds trust and encourages continued excellence

• Risk management: Use these reviews to conduct risk assessments, ensuring that any emerging risks—such as supply chain disruptions or regulatory changes—are identified and mitigated proactively. For example, if a new regulatory framework for cold chain transport is introduced in a country where lab samples are regularly moved, the strategic review is an ideal moment to assess compliance risks

5. Correct or remove underperforming providers

Addressing underperformance promptly is critical to maintaining high-quality logistics services.

• Early identification: As soon as performance issues are identified through metrics or operational reviews, initiate corrective actions. For example, if the LSP handling HIV commodity distribution is consistently late in meeting delivery timelines, schedule an urgent review meeting and issue a formal notice of concern

• Corrective action plans: Develop a clear corrective action plan with the LSP, detailing specific improvements required, timelines for resolution, and consequences if performance does not improve. For instance, if an LSP is underperforming in delivering health commodities to remote areas, the corrective action plan might include revising transport routes or scheduling additional capacity

• Contractual remedies: If performance does not improve, use the penalty and remedy clauses within the contract. These may be outlined in both the MSA, which provides the legal framework for breach of contract, and the SLA, which focuses on operational metrics. This may include applying financial penalties, suspending payments, or issuing a formal warning. For example, if lab sample collections continue to be missed, the organization may opt to reduce payments until service levels meet the agreed performance metrics

• Termination of contract: In cases of continued non-performance or severe underperformance, activate the contract’s termination clauses. The contract should outline how poor performance or non-compliance with agreed metrics can trigger renegotiation or termination of the contract, and the steps leading to termination, including notifications, corrective action plans, and final resolution stages. Ensure a structured exit process to avoid disruptions to logistics services. For example, if an LSP repeatedly fails to deliver shipments despite corrective action plans, the organization may begin the process of switching to an alternative provider while ensuring no interruptions in the supply chain