A Service Level Agreement (SLA) is a formal contract that defines the expectations and responsibilities between a distributor (brand owner) and a logistics service provider (LSP).

A well-structured SLA ensures smooth collaboration, minimizes disputes, and optimizes supply chain performance.

One of the best ways to make an SLA clear and actionable is to structure it as a flow of tasks and responsibilities in sequence. This approach ensures that both parties understand who is responsible for each step in a process, reducing errors and delays.

1. SLA vs. Contract – What’s the Difference?

In my opinion and based on my own experience I keep and treat these two documents separately.

A contract is a legally binding document that governs the overall business relationship between a distributor and a logistics service provider. It typically includes:

• Commercial terms (pricing, payment conditions)
• Legal liabilities and risk allocation
• Termination clauses
• Intellectual property rights
• Confidentiality agreements (NDA)

In contrast, a Service Level Agreement (SLA) focuses only on the operational aspects of the relationship, specifying:

• Service expectations and quality standards
• Key performance indicators (KPIs)
• Responsibilities of each party in daily operations
• Penalties for service failures

Why Keep the Contract Separate from the SLA?

Keeping the contract and SLA separate allows greater flexibility. While contracts are often static and require formal renegotiation for changes, SLAs can be updated periodically to reflect evolving service requirements without affecting the entire legal agreement.

2. Scope & Objectives

This section sets the foundation for the SLA.

• Purpose: To ensure accurate and timely warehousing, order fulfillment, and distribution of goods.
• Parties Involved: The distributor (brand owner) and the logistics service provider.
• Service Scope: Inbound logistics, storage, order fulfillment, outbound logistics, and returns management.

3. Service Requirements & Responsibilities (Flow-Based Structure with Examples)

Each key process is structured as a sequence of steps, showing how responsibilities transition from one party to the next.

A. Inbound Logistics (Receiving Goods at Warehouse)

1. Delivery Note Submission → Distributor
   • Example: The distributor provides a delivery note listing SKUs, quantities, and expected arrival date at least 24 hours before shipment arrival via email or the agreed system.
2. Scheduling of Unloading & Inspection → Logistics Provider
   • Example: The LSP confirms the unloading slot within 24 hours of receiving the delivery note and assigns resources.
3. Receiving, Quality Check, and WMS Update → Logistics Provider
   • Example: The LSP unloads and inspects goods within 6 hours of truck arrival and updates the Warehouse Management System (WMS).
4. Discrepancy Reporting → Logistics Provider
   • Example: If there is damaged or missing stock, the LSP reports this within 12 hours, providing photos and documentation.

B. Storage & Inventory Management

1. Storage According to Guidelines (FIFO, FEFO, etc.) → Logistics Provider
   • Example: Perishable items follow FEFO (First Expired, First Out), and non-perishable follow FIFO (First In, First Out).
2. Real-Time Inventory Updates → Logistics Provider
   • Example: Inventory levels are updated in real-time through the WMS, accessible by the distributor.
3. Regular Inventory Reporting → Logistics Provider & Distributor
   • Example: A weekly inventory report is sent every Friday at 4 PM.
4. Stock Audits & Reconciliation → Both Parties
   • Example: A full inventory audit is conducted every quarter, and discrepancies above 0.5% are investigated within 3 business days.

C. Order Fulfillment & Outbound Logistics

1. Order Request Submission → Distributor
   • Example: The distributor places an order before 2 PM for same-day processing.
2. Order Picking, Packing & Labeling → Logistics Provider
   • Example: Orders are picked, packed, and labeled within 4 hours of submission.
3. Shipping & Tracking → Logistics Provider
   • Example: The LSP books transportation and provides a tracking number within 1 hour of dispatch.
4. Proof of Delivery (POD) Submission → Logistics Provider
   • Example: PODis uploaded to the shared system within 12 hours of delivery.

D. Returns & Reverse Logistics

1. Return Request Submission → Distributor
   • Example: The distributor submits return requests via email, including return reason codes.
2. Inspection & Processing ofReturns → Logistics Provider
   • Example: The LSP inspects returns and processes restocking or disposal within 48 hours.
3. Return Report Submission → Logistics Provider
   • Example: A monthly report on returned items, including root cause analysis, is sent to the distributor.

4. Performance Metrics (KPIs & Penalties)

5. Communication& Dispute Resolution

Example Communication Flow:

1. Daily Reports → Logistics Provider sends stock and shipment reports.
2. Weekly Meetings → Discuss issues, KPIs, and upcoming shipments.
3. Escalation Process:
   • Step 1: Issue logged in shared system (Response within 4 hours).
   • Step 2: If unresolved, escalated to senior manager (Response within 24 hours).
   • Step 3: If unresolved, escalated to contract review.

6. Contract Duration & Review

• SLA Duration: Typically 1 year, with renewal options.
• Review Frequency: Quarterly performance review meetings.
• Amendment Process: SLA can be updated based on performance trends.

Conclusion

A well-structured SLA between a distributor and a logistics service provider ensures clarity, accountability, and operational efficiency.

By using a flow-based approach, each party understands their responsibilities at every step in sequence, reducing risks and improving service quality. Keeping the contract separate from the SLA adds flexibility, allowing service expectations to evolve without renegotiating legal terms.