Service Level Agreement (SLA)

Skill level: Basic

Description

A service level agreement (SLA) is an agreement, typically a formal document, outlining attributes of service that a customer and supplier have agreed constitute an acceptable level of service. SLAs may be included in contract documentation.

Benefits

  • Establishes clear metrics
  • Expectations are set prior to establishing service
  • Typically establishes defined penalties for failing to meet predefined agreed-upon targets
  • Encourages thoughtful deliberation by both customer and supplier prior to engaging in a servicing arrangement

How to Use

  • Step 1.  Define customer requirements.
  • Step 2.  Identify key performance indicators (KPI) and goals for each to meet the requirements.
  • Step 3.  Determine how frequently the KPI will be measured (e.g., weekly, monthly).
  • Step 4.  Determine the method of capturing the data.
  • Step 5.  Develop an effective format for communicating the KPIs and results.
  • Step 6.  Based on measurement frequency, determine the update frequency.
  • Step 7.  Determine a frequency to communicate the KPIs and results.
  • Step 8.  Periodically review KPIs to determine if they are aligned with the customers’ expectations.
  • Step 9.  Modify KPIs as required.

Relevant Definitions

Key performance indicator (KPI): A metric used to determine the effectiveness of a process or a supplier’s ability in delivering a service.

Example

XYZ Enterprise, a contracted jet maintenance organization, contracts with SQBOK Airlines to provide mechanical service to the company’s jet aircraft. Some typical KPIs would be response time, parts availability, and repair time.

The airline has specific requirements aligned to how much ground time it can tolerate and still achieve profitability:

  • The maximum response time for a technician to be dispatched and start working on the jet is 20 minutes
  • Parts need to be available at the airport or within a 30-minute drive time
  • Repair time can average no more than two hours

All of these measures are time-based so that technicians or logistics logging can automatically record them.

A report delineating these metrics showing data for the past several months could be used. It is important to consider the format and measurement frequency. In typical service arrangements, a major failure will occur, necessitating more repair hours, atypical parts usage, or other anomalies that can disturb the data for a measurement period if the measurement period is too short. This specifically applies when using average KPIs.

An SLA would be created that requires a monthly report and specifies that XYZ Enterprise will meet a series of standards as agreed upon.  In return, SQBOK Airlines would agree to accept the method that XYZ has said it will use.

Specific examples of SLAs would be:

Response Time

  • XYZ guarantees a technician response at an impacted jet within 20 minutes of a registered service call to XYZ dispatch center.
  • XYZ will refund 10 percent of the monthly maintenance contract fee for each incident in which the technician fails to show up after 30 minutes.
  • Each incident where response time is > 20 minutes but < 30 minutes will be recorded. At the end of each month if the combined total minutes is > 10, then 10 percent of the monthly maintenance fee will be refunded.
  • Any single response time over 40 minutes will result in the refund of 50 percent of the monthly maintenance fee.

Parts Availability

  • XYZ guarantees that 95 percent of the parts required to repair any issue for jets covered in the service agreement will be available at the airport or at a facility capable of delivering them within 30 minutes.
  • Data on part delivery will be reviewed with SQBOK Airlines each month.
  • Any month when the parts fill rate falls below 95 percent from the local inventories (airport or 30-minute satellite warehouse) will result in a 20% refund in the monthly maintenance fee.

Repair Time

  • The average of all repairs exclusive of response time will not exceed two hours.
  • This will be measured on a two-month rolling average and presented to SQBOK Airlines each month.
  • Any month that exceeds this two-hour average will result in the refund of 50% of the monthly maintenance fee for the corresponding month.

 

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