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Value-based contract for smart operation and maintenance service based on equitable entropy

Author

Listed:
  • Fang Huang
  • Juhong Chen
  • Linhui Sun
  • Yaqi Zhang
  • Shujun Yao

Abstract

Smart operation and maintenance (O&M) service is the major industrial service in Industry 4.0, but it's not easy for manufacturers to achieve high returns. Regularly manufacturers can't set a higher service price due to customer's perception of the service value; a new revenue model is urgently needed. In this study, we develop a value-based contract for smart O&M service based on equitable entropy. Firstly, we summarise the characteristics of smart O&M service's value creation and acquisition. And the service value is measured under the PaaS model by calculating the maximum revenue gap of the customer in the two cases of customer self-O&M and manufacturer's smart O&M service. Then a revenue-sharing model is built based on equitable entropy which the criterion is the valid data provided by each party. The results show that by signing a value-based contract, the smart O&M service can not only significantly improve the customer's revenue by downtime losses reduction and productivity improvement, but also create higher returns for the manufacturer. In addition, the fairest revenue sharing coefficient and relatively fair interval for revenue sharing decision can be accurately calculated by equitable entropy. These conclusions provide a theoretical basis for the manufacturer to better implement smart O&M service.

Suggested Citation

  • Fang Huang & Juhong Chen & Linhui Sun & Yaqi Zhang & Shujun Yao, 2020. "Value-based contract for smart operation and maintenance service based on equitable entropy," International Journal of Production Research, Taylor & Francis Journals, vol. 58(4), pages 1271-1284, February.
    • Handle: RePEc:taf:tprsxx:v:58:y:2020:i:4:p:1271-1284
    DOI: 10.1080/00207543.2019.1617450
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    Cited by:

    1. Fangzhou Yan & Huaxin Qiu & Dongya Han, 2023. "Lagrangian Heuristic for Multi-Depot Technician Planning of Product Distribution and Installation with a Lunch Break," Mathematics, MDPI, vol. 11(3), pages 1-22, January.
    2. Korkeamäki, Lauri & Kohtamäki, Marko & Parida, Vinit, 2021. "Worth the risk? The profit impact of outcome-based service offerings for manufacturing firms," Journal of Business Research, Elsevier, vol. 131(C), pages 92-102.

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