Understanding after-market service channel selection for complex product-services supply chains: A game-theoretical approach

Abstract

Today, cooperation between an OEM (Original Equipment Manufacturer) of Complex Products and Systems (CoPS) and her multiple Key Component Suppliers (KCSs) is characterized by a strategic partnership where long-term benefits are sought for both parties. Since CoPS after-market service can be provided by the KCS, the OEM, or an MRO (Maintenance, Repair, and Overhaul) party, different after-market service channels can be established. In this paper, we model each of these channels using game theory, compare their main features, and discuss the selection of the optimal after-market service channel. We show that the duration of the after-market service is not influenced by the service channel if the service cost remains constant. If the after-market service costs are equal for all parties, each party would prefer the other to perform the service. In the case of different costs, both the cost of the service and potential market size have the same effect on the OEM’s preference for the after-market service channel as on the CoPS ordered quantities. Furthermore, OEM and KCS after-market service channel preferences depend on market size, and “win-win” situations are discussed for the different channels, along with their impact on the long-term stability of the strategic partnership between KCS and OEM. Finally, a sensitivity analysis is carried out to examine the impact of several key parameters. The results presented in the paper serve to deepen the understanding of complex product-service systems and offer a number of managerial insights to select an appropriate after-market service channel for KCSs.