Optimal channel coordination in use-based product-service system contracts

Abstract

Nowadays, service economy efficiencies are key to keep competitiveness and increase market advantages. The development of Product-Service Systems (PSS) can be an interesting strategy as they seek to improve the business performance of all the participants in the value chain. This paper proposes a novel reliability-based reward scheme for use-oriented PSS contracts. In a PSS instead of paying for the product, the client pays a fee for its performance. The contribution of this work to the existing literature is to provide a quantitative tool for the development of a use-oriented PSS contract based on non-repairable component reliability and risk sharing. It can be extended to other performance metrics such as availability and reliability. A well designed PSS achieves a mutual growth agreement for the client and the supplier if it aligns their interests through channel coordination. This is achieved by balancing the improvement in the expected cost and profit for the client and the supplier, respectively. The improvement is measured with respect to a baseline scenario where no PSS contract exists. The methodology is tested using a case study that analyses mining haul truck tires. The results show a significant overall improvement in the main key performance indicators and environmental impact of the value chain.