After-sales service competition in a supply chain: Does uncertainty affect the conflict between profit maximization and customer satisfaction?

Abstract

Abstract After-sales services are a key strategic tool in the durable consumer product market. They allow a manufacturer and a retailer to capture more sales and profit. Less obvious, however, is how the uncertainty of the customer's needs for after-sales services influences after-sales service decisions. As an extension of Kurata and Nam's 2010 (International Journal of Production Economics 127 (1), 136–146) work, in this paper we explore the effect of uncertainty on after-sales service decisions by comparing several information structures in a two-stage supply chain. The model presented in this paper demonstrates that uncertainty may temporally alleviate the discrepancy between customers’ optimal service level and a firm's service decisions based on maximizing profits (referred to here as accidental outperformance). However, ultimately, uncertainty will never improve supply chain performance. We determine probabilities that such accidental outperformance may mislead the firm into making erroneous after-sales service decisions due to misunderstandings regarding uncertainty. In addition, our analysis shows that a firm's effort to provide efficient service operations will increase the chance of accidental outperformance. Based on the analytical results, we also provide several practical insights for business.