Delivery service for a service-oriented manufacturing supply chain with procurement and delivery time decisions

Abstract

This paper proposes a service-oriented manufacturing strategy in a two-echelon supply chain with random demand. When there is no inventory for the retailer to meet demand, customers can choose to order products through the retailer and products will be delivered to them by the manufacturer directly in the promised time, and we call this delivery service in service-oriented manufacturing. We employ a Stackelberg game-theoretic model to analyse the procurement quantity and delivery time decisions by the manufacturer as the leader and the retailer as the follower. Using the performance of the pure-manufacturing strategy as a benchmark, our main results follow. First, the equilibrium strategies of the two players are obtained. Clear decision rules are also given. Second, delivery service in service-oriented manufacturing can be an effective way to reduce the holding cost of the retailer. Third, we describe the customer loss caused by waiting and find how the manufacturer influences procurement quantity of the retailer through the decision of delivery time. Finally, delivery service in service-oriented manufacturing cannot always improve the profit of the manufacturer and the retailer. We give guidance for managers to provide it.