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McGriff Treading Company Implements Service Contracts with Shared Savings

Author

Listed:
  • Prashant Yadav

    (Department of Information Systems, Statistics and Management Science, The University of Alabama, Tuscaloosa, Alabama 35487)

  • David M. Miller

    (Department of Information Systems, Statistics and Management Science, The University of Alabama, Tuscaloosa, Alabama 35487)

  • Charles P. Schmidt

    (Department of Information Systems, Statistics and Management Science, The University of Alabama, Tuscaloosa, Alabama 35487)

  • Randy Drake

    (McGriff Treading Company, Inc., 84 Walnut Street NE, Cullman, Alabama 35055)

Abstract

Costs related to tires are about three percent of the operating costs of a transport fleet. Fleet operators have been trying to reduce these costs by extending the tires’ useful life and by increasing their use of retreaded tires. A program to reduce tire wear can pay off only if the fleet operator and the retreader cooperate. However, the typical contract between the two leads to conflicting incentives. We devised a service contract with shared savings and cautiously chosen parameters for McGriff Treading Company, Inc., that better aligns the incentives for reducing tire costs. Apart from the optimal choice of contract parameters, managerial performance metrics and information technology systems to monitor and track costs were the key factors in the company's transition from a product to a service company. McGriff Treading now successfully uses such contracts for its intermodal and trucking clients.

Suggested Citation

  • Prashant Yadav & David M. Miller & Charles P. Schmidt & Randy Drake, 2003. "McGriff Treading Company Implements Service Contracts with Shared Savings," Interfaces, INFORMS, vol. 33(6), pages 18-29, December.
    • Handle: RePEc:inm:orinte:v:33:y:2003:i:6:p:18-29
    DOI: 10.1287/inte.33.6.18.25187
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    References listed on IDEAS

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    1. Charles J. Corbett & Gregory A. DeCroix, 2001. "Shared-Savings Contracts for Indirect Materials in Supply Chains: Channel Profits and Environmental Impacts," Management Science, INFORMS, vol. 47(7), pages 881-893, July.
    2. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
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    Cited by:

    1. Lundin, Johan F., 2012. "Redesigning a closed-loop supply chain exposed to risks," International Journal of Production Economics, Elsevier, vol. 140(2), pages 596-603.
    2. V. Daniel R. Guide & Luk N. Van Wassenhove, 2009. "OR FORUM---The Evolution of Closed-Loop Supply Chain Research," Operations Research, INFORMS, vol. 57(1), pages 10-18, February.
    3. Adem Örsdemir & Vinayak Deshpande & Ali K. Parlaktürk, 2019. "Is Servicization a Win-Win Strategy? Profitability and Environmental Implications of Servicization," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 674-691, July.

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