IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v233y2021ics0925527320303637.html
   My bibliography  Save this article

An agent-based approach to quantify the uncertainty in Product-Service System contract decisions: A case study in the machine tool industry

Author

Listed:
  • Farsi, Maryam
  • Erkoyuncu, John Ahmet

Abstract

Product-service system (PSS) business models appraise the relationship between different stakeholders and focus on a partnership based on profit. Existing literature discusses servitization and the associated cost-benefit analysis (CBA) models mostly from the perspective of original equipment manufacturers. Additionally, CBA is typically conducted using top-down approaches and standard activity-based costing, with limited available data and without considering uncertainty. As a result, inadequate and under-priced contract decisions may be made. To address the problem, this paper extends the current literature by proposing a novel framework for quantifying uncertainty in cost and benefit estimates of PSS contracts. The framework offers a bottom-up costing approach using the agent-based simulation technique. The framework comprises a stochastic CBA model for PSS. It is developed by considering through-life cost and benefit of products and services with aggregate uncertainty in terms of service costs, service lead-times, and their occurrences. The framework has been tested successfully on a real-world case study with a bespoke service provider in the machine tool industry. The model is applied to include spare-parts and availability-based servitization contracts. The simulation results are validated by real-world measurements and expert knowledge. The results involve a comprehensive stochastic analyses of a through-life CBA under probabilistic uncertainty and provide the opportunity to quantify the uncertainty in PSS contract decisions. Moreover, the results highlight that servitization is more beneficial for bespoke service providers in long-term contracts, and for relatively new or retrofitted products. Further research works are required to apply the model on capability-based contracts.

Suggested Citation

  • Farsi, Maryam & Erkoyuncu, John Ahmet, 2021. "An agent-based approach to quantify the uncertainty in Product-Service System contract decisions: A case study in the machine tool industry," International Journal of Production Economics, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:proeco:v:233:y:2021:i:c:s0925527320303637
    DOI: 10.1016/j.ijpe.2020.108014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527320303637
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2020.108014?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. Jin Shen & John Ahmet Erkoyuncu & Rajkumar Roy & Bin Wu, 2017. "A framework for cost evaluation in product service system configuration," International Journal of Production Research, Taylor & Francis Journals, vol. 55(20), pages 6120-6144, October.
    2. Vandermerwe, Sandra & Rada, Juan, 1988. "Servitization of business: Adding value by adding services," European Management Journal, Elsevier, vol. 6(4), pages 314-324, December.
    3. Settanni, Ettore & Newnes, Linda B. & Thenent, Nils E. & Parry, Glenn & Goh, Yee Mey, 2014. "A through-life costing methodology for use in product–service-systems," International Journal of Production Economics, Elsevier, vol. 153(C), pages 161-177.
    4. Baines, Tim & Ziaee Bigdeli, Ali & Sousa, Rui & Schroeder, Andreas, 2020. "Framing the servitization transformation process: A model to understand and facilitate the servitization journey," International Journal of Production Economics, Elsevier, vol. 221(C).
    5. Youngjung Geum & Sungjoo Lee & Daekook Kang & Yongtae Park, 2011. "The customisation framework for roadmapping product-service integration," Service Business, Springer;Pan-Pacific Business Association, vol. 5(3), pages 213-236, September.
    6. Ali Ziaee Bigdeli & Oscar F. Bustinza & Ferran Vendrell-Herrero & Tim Baines, 2018. "Network positioning and risk perception in servitization: evidence from the UK road transport industry," International Journal of Production Research, Taylor & Francis Journals, vol. 56(6), pages 2169-2183, March.
    7. Bustinza, Oscar F. & Vendrell-Herrero, Ferran & Baines, Tim, 2017. "Service implementation in manufacturing: An organisational transformation perspective," International Journal of Production Economics, Elsevier, vol. 192(C), pages 1-8.
    8. Visnjic, Ivanka & Neely, Andy & Jovanovic, Marin, 2018. "The path to outcome delivery: Interplay of service market strategy and open business models," Technovation, Elsevier, vol. 72, pages 46-59.
    9. Saccani, Nicola & Visintin, Filippo & Rapaccini, Mario, 2014. "Investigating the linkages between service types and supplier relationships in servitized environments," International Journal of Production Economics, Elsevier, vol. 149(C), pages 226-238.
    10. Arnold Tukker, 2004. "Eight types of product–service system: eight ways to sustainability? Experiences from SusProNet," Business Strategy and the Environment, Wiley Blackwell, vol. 13(4), pages 246-260, July.
    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. Amir Karbassi Yazdi & Yong Tan & Cristi Spulbar & Ramona Birau & Jorge Alfaro, 2022. "An Approach for Supply Chain Management Contract Selection in the Oil and Gas Industry: Combination of Uncertainty and Multi-Criteria Decision-Making Methods," Mathematics, MDPI, vol. 10(18), pages 1-20, September.
    2. Cledson Oliveira Lanzilotti & Luiz Fernando Rodrigues Pinto & Francesco Facchini & Salvatore Digiesi, 2022. "Embedding Product-Service System of Cutting Tools into the Machining Process: An Eco-Efficiency Approach toward Sustainable Development," Sustainability, MDPI, vol. 14(3), pages 1-19, January.

    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. Bustinza, Oscar F. & Lafuente, Esteban & Rabetino, Rodrigo & Vaillant, Yancy & Vendrell-Herrero, Ferran, 2019. "Make-or-buy configurational approaches in product-service ecosystems and performance," Journal of Business Research, Elsevier, vol. 104(C), pages 393-401.
    2. Bustinza, Oscar F. & Opazo-Basaez, Marco & Tarba, Shlomo, 2022. "Exploring the interplay between Smart Manufacturing and KIBS firms in configuring product-service innovation performance," Technovation, Elsevier, vol. 118(C).
    3. Tian, Jiamian & Coreynen, Wim & Matthyssens, Paul & Shen, Lei, 2022. "Platform-based servitization and business model adaptation by established manufacturers," Technovation, Elsevier, vol. 118(C).
    4. Zhou, Dan & Yan, Tingting & Zhao, Lilong & Guo, Jingjing, 2020. "Performance implications of servitization: Does a Manufacturer's service supply network matter?," International Journal of Production Economics, Elsevier, vol. 219(C), pages 31-42.
    5. Vendrell-Herrero, Ferran & Bustinza, Oscar F. & Opazo-Basaez, Marco, 2021. "Information technologies and product-service innovation: The moderating role of service R&D team structure," Journal of Business Research, Elsevier, vol. 128(C), pages 673-687.
    6. Martinez, Veronica & Neely, Andy & Velu, Chander & Leinster-Evans, Stewart & Bisessar, Dav, 2017. "Exploring the journey to services," International Journal of Production Economics, Elsevier, vol. 192(C), pages 66-80.
    7. David Hidalgo-Carvajal & Ruth Carrasco-Gallego & Gustavo Morales-Alonso, 2021. "From Goods to Services and from Linear to Circular: The Role of Servitization’s Challenges and Drivers in the Shifting Process," Sustainability, MDPI, vol. 13(8), pages 1-26, April.
    8. Li, Ai Qiang & Kumar, Maneesh & Claes, Björn & Found, Pauline, 2020. "The state-of-the-art of the theory on Product-Service Systems," International Journal of Production Economics, Elsevier, vol. 222(C).
    9. Lee, Sunghee & Yoo, Shijin & Kim, Daeki, 2016. "When is servitization a profitable competitive strategy?," International Journal of Production Economics, Elsevier, vol. 173(C), pages 43-53.
    10. Mosch, Philipp & Schweikl, Stefan & Obermaier, Robert, 2021. "Trapped in the supply chain? Digital servitization strategies and power relations in the case of an industrial technology supplier," International Journal of Production Economics, Elsevier, vol. 236(C).
    11. Zhou, Dan & Yan, Tingting & Dai, Weiqi & Feng, Junzheng, 2021. "Disentangling the interactions within and between servitization and digitalization strategies: A service-dominant logic," International Journal of Production Economics, Elsevier, vol. 238(C).
    12. Bustinza, Oscar F. & Vendrell-Herrero, Ferran & Gomes, Emanuel, 2020. "Unpacking the effect of strategic ambidexterity on performance: A cross-country comparison of MMNEs developing product-service innovation," International Business Review, Elsevier, vol. 29(6).
    13. Lino Cinquini & Cristina Campanale & Alessandro Marelli & Sara Giovanna Mauro & Andrea Tenucci, 2020. "La misurazione di costi e performance nei La misurazione di costi e performance nei modelli di business orientati ai servizi: una ricerca esplorativa modelli di business orientati ai servizi: una rice," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2020(3), pages 59-85.
    14. Chankook Park, 2022. "Expansion of servitization in the energy sector and its implications," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 11(4), July.
    15. Jovanovic, Marin & Raja, Jawwad Z. & Visnjic, Ivanka & Wiengarten, Frank, 2019. "Paths to service capability development for servitization: Examining an internal service ecosystem," Journal of Business Research, Elsevier, vol. 104(C), pages 472-485.
    16. Mar’atus Sholihah & Tatsuru Maezono & Yuya Mitake & Yoshiki Shimomura, 2020. "Formulating Service-Oriented Strategies for Servitization of Manufacturing Companies," Sustainability, MDPI, vol. 12(22), pages 1-30, November.
    17. Wang, Yanping & Gao, Jie & Wei, Zelong, 2022. "The double-edged sword of servitization in radical product innovation: The role of latent needs identification," Technovation, Elsevier, vol. 118(C).
    18. Kapoor, Kawaljeet & Bigdeli, Ali Ziaee & Schroeder, Andreas & Baines, Tim, 2022. "A platform ecosystem view of servitization in manufacturing," Technovation, Elsevier, vol. 118(C).
    19. Sabrina Weigel & Karsten Hadwich, 2019. "Erfolgsfaktoren von Dienstleistungsnetzwerken im Kontext der Servicetransformation – Eine qualitative Analyse [Success Factors of Service Networks in the Context of Servitization – A Qualitative An," Schmalenbach Journal of Business Research, Springer, vol. 71(1), pages 1-43, March.
    20. Grubic, Tonci & Jennions, Ian, 2018. "Do outcome-based contracts exist? The investigation of power-by-the-hour and similar result-oriented cases," International Journal of Production Economics, Elsevier, vol. 206(C), pages 209-219.

    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:233:y:2021:i:c:s0925527320303637. 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.