Download Contemporary Logistics Servitization Supply Chain

Contemporary Logistics 03 (2011) 1838-739X
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Contemporary Logistics
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Research on Service Capacity Coordination Strategy in Product
Servitization Supply Chain
Shujun Yao 1, 2, Juhong Chen 1
1. School of Economic and Management, Xi’an University of Technology, Xi’an, 710054, China
2. School of Management, Xi’an University of Finance & Economics, Xi’an, 710100, China
KEYWORDS
ABSTRACT
Service outsourcing,
Service capacity,
Stochastic service demand,
Supply chain
This paper introduces a three-echelon product Service-oriented supply chain consisting of
specialized service function provider, service integrator and customer. Service integrator
purchases service capacity from specialized service function provider and sales the added
service to customer facing with a price sensitive stochastic demand market. The purpose of
service integrator is to meet expected profit maximization through the optimal service
capacity order quantity and price of integrated services. Specialized functions service
provider identifies the best service capacity price to maximize the expected profit.
Establishing the revenue model and supply chain coordination model in product
Service-oriented supply chain based on service capacity. Through the numerical example, we
find that service capability has an important influence on product Service-oriented supply
chain coordination performance.
© ST. PLUM-BLOSSOM PRESS PTY LTD
1 Introduction
The definition of supply chain in domestic and foreign literatures concentrated on logistics flow, information flow and capital flow in
the process from the raw material supply to final product delivery, ignoring service elements in the supply chain [1]. "Service oriented
product supply chain" is the earliest proposed by Johnsonetal in 2008[2].
In the product service oriented supply chain, service integrators accept various customer service requirements, design these service
requirements, and outsource every well designed service package to professional function provider. After completion of service
processing, the service integrators synthetize the completed service packages and provide a customized, integrated solutions for
customer with product and service.
[4]
The recent literatures dedicated to the study of supply chain management coordinate strategy. Chenetal believed that reduce the
supply chain cost, optimize the structure of incentive to improve supply chain members of the cooperation between enterprises,
[5]
improving the overall performance of the supply chain. Weng
firstly put forward the service level, but not explicitly
considered the capacity loss cost. However, this paper focuses on the price sensitivity of stochastic demand situation, Service
integrator determines reasonable service provider, function service provider determines reasonable service ability price. When the
service integrator does not undertake service capacity surplus and insufficient risk, function service provider can design product
servitization supply chain coordination mechanism by effectively control service capacity.
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI:10.5503/J.CL.2011.03.013
77
2 Product Servitization Supply Chain Structure Model
We use a state model to research the product servitization supply chain. In this structure model, function service provider has w
units service capacities. The service integrator purchases Q service capacities from function service provider, and sales the integrated
p
value-added service capacities to customers in the market with unit price . Product servitization supply chain model shown in
figure 1:
Integrated service price: P
Service capacity :Q
Function
service
provider
customer
Service integrator
Stochastic demand function:X
Service capacity demand: W
Fig.1 Three-echelon product Servitization supply chain model
f ( x | p)
Service integrator faces a price sensitive and stochastic service demand market, with random service demand function x
,
which means probability distribution that service demand along with the service demand price changes. The linear demand
relationship between service demand and price for:
x( p )  d   p
d，  0
（1）
Equation (1) describes the maximum potential market standard of the linear service demand curve: d . Price sensitive coefficient 
x( p)   x( p)  b, x( p)  b 
Q
b is the service demand range parameter.
f x ( x | p) , the expected profit of service integrator is :
belongs to uniform distribution.
Based on the probability distribution of price stochastic demand:
SIP( P, Q)  
.
[( p  w) x] f x ( x | p)d X   Qx ( p )b [( p  w)Q] f x ( x | p)dx
x( p)
（2）
The former of equation (2) is expected profit as service demand is less than service capacity. The latter is expected profit as service
demand is more than service capacity.
The expected profit of function service provider is equal to service capabilities Q multiplies service capacity unit price w .
The capacity cost structure of function service provider consists of service capacity unit cost
Parameter
c is service capacity cost when scale economy is constant [10] . Parameter e
Scale economic infrastructure
[6][11]
c and
Scale economic cost
e.
is capacity management cost caused by
. So the expected profit of function service provider can be defined as:
FSP(Q)  wQ  (cQ  eQ ).
2
（3）
Q
Problems faced by service integrator are how many service capacities should be purchased from function service provider ( ) and
with what kind of service integrated capacity price to control customer market (
p ). But the objective of function service provider is
to setting an optimal service unit price ( w ) for service integrator so that achieving maximum expected profit.
Service demand is stochastic, causing function service provider has service capacity surplus and service capacity insufficient two
situations, thus leading to service capacity surplus cost (
SC( p, Q ) ) and service capacity insufficient cost ( IC( p, Q) ).
SC( p, Q)   Qx ( p )b [( w  r )(Q  x)] f x ( x | p)dx
IC( p, Q)  
x ( p ) b
Q
（4）
k ( x  Q) f x ( x | p)dx
（5）
Where the parameter r represents the salvage value of service capacity surplus, and the parameter k is the “opportunity cost” of
lost sales due to service capacity insufficient.
In the product servitization supply chain, the service integrator is close to the market and easy to collect service demand information
and service capacity information of function service provider, effectively choose appropriate function service provider for
p
Q
cooperation, determines a reasonable price of integrated service capacity for the end customer ( ). By adjusting service capacity ,
function service provider coordinates and controls the entire product servitization supply chain, and undertakes risk cost under the
circumstance of service capacity surplus and service capacity insufficient.
3 Product Servitization Supply Chain Coordination Mechanism
78
In these circumstances, assuming a core service-oriented enterprise from joint decision-making perspective between function service
providers and service integrator, realize performance optimization of the entire product servitization supply chain. Therefore, the total
expected profit of product servitization supply chain is the expected profit of function service provider and service integrator minus
service capacity surplus cost (
SC( p, Q ) ) and service capacity insufficient cost ( IC( p, Q) ):
R1 ( p, Q)  SIP( p, Q)  FSP(Q)  SC( p, Q)  IC( p, Q)
SIP( p, Q)
FSP(Q)
SC( p, Q )
(6)
IC( p, Q)
Where
，
，
，
have been defined in equation（2），（3），
（4）.
In the price sensitive stochastic demand conditions of uniform distribution, the total expected profit of product servitization supply
chain equivalence in:
 p  4be  r  k
)
4b
Q(( p  k )(d  p  b)  2bc  r (d  p  b))

2b
2
(r  p)(d  p  b) k (d  p  b) 2


4b
4b
R 1 ( p, Q )  Q 2 (
(7)
When the price of integrated service is greater than the salvage value of unused capacity (p > r) and the range parameter b is bounded
above, it can be shown in Lemma1 that the objective function in equation (10) is strictly jointly concave, thereby ensuring the
existence of a unique optimal solution.
The optimal solution of integrated service price made by service integrator is:
p* 
2  r  k   3b
2  k  2
The optimal solution of service capacity made by function service provider:
Q* 
d (2  k  2)  b（2  k  1）  (2  k  2  4 2 )  r  k 
2  k  2
4 Numerical Example Analysis
This section is a numerical analysis of products, mainly research how price sensitive coefficient  and service capacity unit cost
c affect performance of the whole supply service products, and use the statistical analysis table to illustrate.
Table 1 Benchmark parameter table
parameter
Benchmark
Zero-price expected demand： d
100
Price sensitivity parameter： 
2
Range parameter of uniform distribution： b
20
Service capacity unit price： c
0.5
Diseconomy scale parameter： e
0.1
Salvage value of per unit over capacity： r
5
Opportunity cost of lost sale due to under capacity： k
8
Table 2 The key parameters affect numerical
PSP：

PSSC-TP： R1
SCUP： c
PSSC-TP： R1
1.5
1.6
1.7
1.8
1.9
2
1258.9
1245.5
1145.7
1088．2
1012.6
987.6
0.1
0.2
0.3
0.4
0.5
0.6
1098.5
1032.6
986.56
932.4
894.21
856.6
PSP：Price sensitivity parameter： 
SCUP：Service capacity unit price： c
PSSC-TP：product servitization supply chain-total profit
79
Fig.2 Price sensitivity affect supply chain performance
Fig.3 Service capacity affect supply chain performance
5 Conclusion
A three-echelon product Service-oriented supply chain consisting of specialized service function provider, service integrator and
customer has been studied in this paper. Service integrator purchases service capacity from specialized service function provider and
sales the added service to customer, who is faced with a price sensitive stochastic demand market. The purpose of service int egrator
is to meet expected profit maximization through the optimal service capacity order quantity and price of integrated services.
Specialized functions service provider identifies the best service capacity price to maximize the expected profit. Establishing the
revenue model and supply chain coordination mechanism model in product Service-oriented supply chain based on service capacity.
Through numerical example study in this paper, we find:
First, in the process of constructing product servitization supply chain coordination mechanism, We will realize maximization of
whole supply chain performance, as multiple nodes enterprise competitive strategy are consistent.
Second, Compared to other nodes enterprise, the enterprise can obtain higher returns from product servitization supply chain
coordination of service products.
However, this model has the following limitations:
First, this paper merely study a harmonious relationship between service integrator and function service provider, without
considering the reality of life and a pair of among them for more than coordinating relations.
Second, the price sensitivity service demand just follows uniform distribution in our model. In the future, we should relax restrictions
on service products, further study of supply chain coordination strategy.
80
Acknowledgment:
Classification number: F270.5
Cultural heritage marking code: A
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