Service Level Agreement (SLA)
A Service Level Agreement (SLA) is a formal, measurable commitment defining the level of service a supplier will deliver, usually forming part of (or attached to) a contract. It sets out specific service standards and targets — such as delivery times, availability/uptime, response and resolution times, accuracy or quality levels — as quantified metrics (KPIs), along with how they are measured, reported and reviewed.
Crucially, an SLA also specifies the consequences of missing the targets — service credits, penalties or remedies — and often the obligations on the buyer too. By turning vague expectations into objective, agreed standards, SLAs make service performance manageable: both sides know what “good” looks like, performance can be tracked against it, and shortfalls can be addressed fairly. SLAs are central to managing outsourced services, logistics providers, IT and supplier performance, and are a key tool in supplier relationship and contract management. A well-crafted SLA aligns incentives and protects the buyer's service outcomes.
"Good service" means nothing until it's measured — the SLA turns it into concrete targets with metrics and consequences, so performance can actually be managed and shortfalls addressed. It is what gives a buyer real leverage over outsourced services and logistics providers, making SLAs indispensable to supplier and contract management.
What does an SLA specify?
Measurable service targets (KPIs) such as delivery, uptime and response times, how they are measured, and the consequences of missing them.
What happens if an SLA is breached?
The agreement typically provides for service credits, penalties or other remedies as agreed by the parties.