IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v229y2020ics0925527320301444.html
   My bibliography  Save this article

Multi-resource emergency supply contracts with asymmetric information in the after-sales services

Author

Listed:
  • Rahimi-Ghahroodi, S.
  • Al Hanbali, A.
  • Zijm, W.H.M.
  • Timmer, J.B.

Abstract

In this paper, we investigate the contract design in a multi-resource service supply chain between a first line service provider and an emergency supplier under information asymmetry. The service provider is contractually responsible for the timely repair of the assets that fail, under a given service level agreement with the asset owner. To execute a repair, the service provider needs both engineers and spare parts to replace malfunctioning parts. In case of a spare parts stock out, the service provider can either wait for the regular replenishment of parts from the central depot or decide to hand over the entire call to an emergency supplier. For the latter case, a contract between the service provider and the supplier is necessary that specifies how the emergency supplier is compensated by the service provider. Particularly, we investigate what is the best contract the supplier can offer when information on asset reliability only resides with the service provider but remains hidden for the emergency supplier (information asymmetry). In the first type of contracts, the supplier charges the service provider a price, specified in a so-called price-only contract, for each time he takes over a call. As an alternative, we study the so-called revenue-sharing contracts in which the supplier receives a fraction of the service provider’s annual revenue and in return agrees to charge a lower price per call. In addition to the standard (single) revenue-sharing contract, we study the implementation of a menu of revenue-sharing contracts. We show that finding a menu of revenue-sharing contracts is not always possible and, if possible, does not necessarily give a higher profit to the supplier than a single revenue-sharing contract. In an extensive numerical experiment, we show that the combination of the single and the menu of revenue-sharing contracts results in, on average, less than 5% loss of the supplier profit under perfect (symmetric) information. Additionally, we find that, while having private information on the assets’ failure rates increases the service provider profit, the increase is insignificant, resulting in an additional profit of only 0.06% on average. Finally, we observe that the supplier can increase his profit, on average, up to 14% if he incites the LSP by means of a side-payment mechanism to share his private information.

Suggested Citation

  • Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2020. "Multi-resource emergency supply contracts with asymmetric information in the after-sales services," International Journal of Production Economics, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:proeco:v:229:y:2020:i:c:s0925527320301444
    DOI: 10.1016/j.ijpe.2020.107761
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527320301444
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2020.107761?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Charles J. Corbett, 2001. "Stochastic Inventory Systems in a Supply Chain with Asymmetric Information: Cycle Stocks, Safety Stocks, and Consignment Stock," Operations Research, INFORMS, vol. 49(4), pages 487-500, August.
    2. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Vliegen, I.M.H. & Cohen, M.A., 2019. "Joint optimization of spare parts inventory and service engineers staffing with full backlogging," International Journal of Production Economics, Elsevier, vol. 212(C), pages 39-50.
    3. Nitin Bakshi & Sang-Hyun Kim & Nicos Savva, 2015. "Signaling New Product Reliability with After-Sales Service Contracts," Management Science, INFORMS, vol. 61(8), pages 1812-1829, August.
    4. S. Rahimi-Ghahroodi & A. Al Hanbali & W. H. M. Zijm & J. K. W. Ommeren & A. Sleptchenko, 2017. "Integrated planning of spare parts and service engineers with partial backlogging," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(3), pages 711-748, July.
    5. Yanfei Lan & Zhibing Liu & Baozhuang Niu, 2017. "Pricing and Design of After-Sales Service Contract: The Value of Mining Asymmetric Sales Cost Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-25, February.
    6. Charles J. Corbett & Deming Zhou & Christopher S. Tang, 2004. "Designing Supply Contracts: Contract Type and Information Asymmetry," Management Science, INFORMS, vol. 50(4), pages 550-559, April.
    7. Gary H. Chao & Seyed M. R. Iravani & R. Canan Savaskan, 2009. "Quality Improvement Incentives and Product Recall Cost Sharing Contracts," Management Science, INFORMS, vol. 55(7), pages 1122-1138, July.
    8. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2019. "Emergency supply contracts for a service provider with limited local resources," Reliability Engineering and System Safety, Elsevier, vol. 189(C), pages 445-460.
    9. Quigley, John & Walls, Lesley, 2007. "Trading reliability targets within a supply chain using Shapley's value," Reliability Engineering and System Safety, Elsevier, vol. 92(10), pages 1448-1457.
    10. Shen, Yuelin & Willems, Sean P., 2012. "Coordinating a channel with asymmetric cost information and the manufacturer's optimality," International Journal of Production Economics, Elsevier, vol. 135(1), pages 125-135.
    11. Babich, Volodymyr & Li, Hantao & Ritchken, Peter & Wang, Yunzeng, 2012. "Contracting with asymmetric demand information in supply chains," European Journal of Operational Research, Elsevier, vol. 217(2), pages 333-341.
    12. Xiang Li & Yongjian Li, 2016. "Optimal service contract under cost information symmetry/asymmetry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 269-279, February.
    13. Albert Y. Ha, 2001. "Supplier‐buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(1), pages 41-64, February.
    14. Kerkkamp, R.B.O. & van den Heuvel, W. & Wagelmans, A.P.M., 2018. "Two-echelon supply chain coordination under information asymmetry with multiple types," Omega, Elsevier, vol. 76(C), pages 137-159.
    15. Zissis, Dimitris & Ioannou, George & Burnetas, Apostolos, 2015. "Supply chain coordination under discrete information asymmetries and quantity discounts," Omega, Elsevier, vol. 53(C), pages 21-29.
    16. Deng, Xiaoxue & Xie, Jinxing & Xiong, Huachun, 2013. "Manufacturer–retailer contracting with asymmetric information on retailer's degree of loss aversion," International Journal of Production Economics, Elsevier, vol. 142(2), pages 372-380.
    17. Sven Axsäter & Kaj Rosling, 1993. "Notes: Installation vs. Echelon Stock Policies for Multilevel Inventory Control," Management Science, INFORMS, vol. 39(10), pages 1274-1280, October.
    18. Mukhopadhyay, Samar K. & Yue, Xiaohang & Zhu, Xiaowei, 2011. "A Stackelberg model of pricing of complementary goods under information asymmetry," International Journal of Production Economics, Elsevier, vol. 134(2), pages 424-433, December.
    19. Esmaeili, M. & Zeephongsekul, P., 2010. "Seller-buyer models of supply chain management with an asymmetric information structure," International Journal of Production Economics, Elsevier, vol. 123(1), pages 146-154, January.
    20. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    21. Kostas Selviaridis & Finn Wynstra, 2015. "Performance-based contracting: a literature review and future research directions," International Journal of Production Research, Taylor & Francis Journals, vol. 53(12), pages 3505-3540, June.
    22. Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2008. "Pricing and rebate policies in the two-echelon supply chain with asymmetric information under price-dependent, stochastic demand," International Journal of Production Economics, Elsevier, vol. 113(2), pages 598-618, June.
    23. Yao, Dong-Qing & Yue, Xiaohang & Liu, John, 2008. "Vertical cost information sharing in a supply chain with value-adding retailers," Omega, Elsevier, vol. 36(5), pages 838-851, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shivam Gupta & Sachin Modgil & Ajay Kumar & Uthayasankar Sivarajah & Zahir Irani, 2022. "Artificial intelligence and cloud-based Collaborative Platforms for Managing Disaster, extreme weather and emergency operations," Post-Print hal-04325638, HAL.
    2. Gupta, Shivam & Modgil, Sachin & Kumar, Ajay & Sivarajah, Uthayasankar & Irani, Zahir, 2022. "Artificial intelligence and cloud-based Collaborative Platforms for Managing Disaster, extreme weather and emergency operations," International Journal of Production Economics, Elsevier, vol. 254(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yan, Bo & Wang, Tao & Liu, Yan-ping & Liu, Yang, 2016. "Decision analysis of retailer-dominated dual-channel supply chain considering cost misreporting," International Journal of Production Economics, Elsevier, vol. 178(C), pages 34-41.
    2. Zhang, Shichen & Zhang, Jianxiong, 2018. "Contract preference with stochastic cost learning in a two-period supply chain under asymmetric information," International Journal of Production Economics, Elsevier, vol. 196(C), pages 226-247.
    3. Xin Yun & Hao Liu & Yi Li & Kin Keung Lai, 2023. "Contract design under asymmetric demand information for sustainable supply chain practices," Annals of Operations Research, Springer, vol. 324(1), pages 1429-1459, May.
    4. Matsui, Kenji, 2019. "A supply chain member should set its margin later if another member's cost is highly uncertain," European Journal of Operational Research, Elsevier, vol. 275(1), pages 127-138.
    5. Bin Hu & Anyan Qi, 2018. "Optimal Procurement Mechanisms for Assembly," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 655-666, October.
    6. Dimitris Zissis & George Ioannou & Apostolos Burnetas, 2020. "Coordinating Lot Sizing Decisions Under Bilateral Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 371-387, February.
    7. Sahani Rathnasiri & Pritee Ray & Carlos A. Vega-Mejía & Sardar M. N. Islam & Nripendra P. Rana & Yogesh K. Dwivedi, 2022. "Optimising small-scale electronic commerce supply chain operations: a dynamic cost-sharing contract approach," Annals of Operations Research, Springer, vol. 318(1), pages 453-499, November.
    8. Sri Vanamalla Venkataraman & Dereje Asfaw, 2020. "Buyback contract under asymmetric information about retailer’s loss aversion nature," Annals of Operations Research, Springer, vol. 295(1), pages 385-409, December.
    9. Ni, Jian & Zhao, Jun & Chu, Lap Keung, 2021. "Supply contracting and process innovation in a dynamic supply chain with information asymmetry," European Journal of Operational Research, Elsevier, vol. 288(2), pages 552-562.
    10. İsmail Bakal & Nesim Erkip & Refik Güllü, 2011. "Value of supplier’s capacity information in a two-echelon supply chain," Annals of Operations Research, Springer, vol. 191(1), pages 115-135, November.
    11. Dong Li & Nishant Mishra & Serguei Netessine, 2023. "Contracting for Product Support Under Information Asymmetry," Management Science, INFORMS, vol. 69(8), pages 4627-4645, August.
    12. Amiya K. Chakravarty & Jun Zhang, 2007. "Collaboration in contingent capacities with information asymmetry," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(4), pages 421-432, June.
    13. Mingzhu Yu & Ruina Yang & Zelong Yi & Xuwen Cong, 2020. "Contracting in Ocean Shipping Market Under Asymmetric Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(02), pages 1-24, March.
    14. Fuqiang Zhang, 2010. "Procurement Mechanism Design in a Two-Echelon Inventory System with Price-Sensitive Demand," Manufacturing & Service Operations Management, INFORMS, vol. 12(4), pages 608-626, August.
    15. Yanfei Lan & Zhibing Liu & Baozhuang Niu, 2017. "Pricing and Design of After-Sales Service Contract: The Value of Mining Asymmetric Sales Cost Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-25, February.
    16. Hao Zhang & Stefanos Zenios, 2008. "A Dynamic Principal-Agent Model with Hidden Information: Sequential Optimality Through Truthful State Revelation," Operations Research, INFORMS, vol. 56(3), pages 681-696, June.
    17. Z. Justin Ren & Morris A. Cohen & Teck H. Ho & Christian Terwiesch, 2010. "Information Sharing in a Long-Term Supply Chain Relationship: The Role of Customer Review Strategy," Operations Research, INFORMS, vol. 58(1), pages 81-93, February.
    18. Singham, Dashi I. & Cai, Wenbo & Fügenschuh, Armin, 2021. "Flexible contracting with heterogeneous agents and stochastic demand," International Journal of Production Economics, Elsevier, vol. 231(C).
    19. Ehsan Bolandifar & Tianjun Feng & Fuqiang Zhang, 2018. "Simple Contracts to Assure Supply Under Noncontractible Capacity and Asymmetric Cost Information," Manufacturing & Service Operations Management, INFORMS, vol. 20(2), pages 217-231, May.
    20. Jin, Yi & Zeng, Zhixiong, 2016. "Risk, risk aversion, and a finance-augmented neoclassical economic model of production," International Journal of Production Economics, Elsevier, vol. 176(C), pages 82-91.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:229:y:2020:i:c:s0925527320301444. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.