Bargaining service-level agreements A behavioral investigation

Service-level agreements are performance-based contracts that seek to coordinate the decisions in a supplier-buyer channel to optimize the channel’s performance. We aim to understand how bargaining over service level targets and the costs associated with failing to meet such targets or the bonuses for achieving them within a service-level agreement influences the performance of a supplier-buyer channel. On the one hand, analytical approaches on service-level agreements focus on complex inventory systems. If brought to a laboratory experiment, such complexity could introduce confounding factors into the analysis. On the other hand, behavioral approaches on service-level agreements focus on a limited set of service-level agreement structures and do not allow bargaining. Thus, insights derived from such studies are limited. We will derive the full set of service-level agreement structures in a single-period inventory system and test them in a laboratory experiment where human buyers and human suppliers will bargain over the service-level agreement parameters. Results will offer behaviorally-grounded insights about how to design service-level agreements that improve the supplier-buyer channel performance and will provide operations managers with a solid basis for bargaining service-level agreements. This will also lay the foundation for further research that explores service-level agreement bargaining within more complex inventory systems

Behavioral operations, service-level agreements, bargaining, supply chain contracts, analytical modeling, laboratory experiments.

1. Conference presentation 1: initial results of the project.
2. Conference presentation 2: additional results of the project.
3. Working paper 1: analytical paper describing the normative properties of a single-period fill rate target SLA.
4. Working paper 2: experimental paper describing the effects of bargaining over the SLA parameters on the SBC efficiency

Engage one Joven Investigador: this is contingent on the availability of financial resources (e.g., Small Grants financing).
2. Engage one Asistente Graduado: the Supply Chain Management research line is currently working with one Asistente Graduado. We expect to engage this person in some of the project’s activities since this could be beneficial for her training (e.g., design of the lab experiment, data analysis).

We expect to present the project’s results in institutional research seminars, both internal and external. In addition, some academic journals offer the possibility of making accepted papers more accessible by giving their authors the opportunity of writing short articles without any technical jargon or analysis. To the extent that such option is available, we intend to use it to communicate the results to a non-academic audience.