McGriff Treading Company implements service contracts with shared savings

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.