Service outsourcing under different supply chain power structures

This paper studies the impact of service outsourcing under three supply chain power structures: manufacturer-Stackelberg, vertical-Nash and retailer-Stackelberg supply chains. We first investigate price and service decisions by comparing the integrated channel and the decentralized channel with service outsourcing. It is found that a lower retail price or a higher service level could occur in the decentralized channel with service outsourcing compared to those in the integrated channel, but they never occur simultaneously. Next, we examine the manufacturer’s channel strategies, and demonstrate that service outsourcing can always help the manufacturer earn more profit from the decentralized channel than from the integrated channel in the manufacturer-Stackelberg and retailer-Stackelberg markets, as long as the retailer’s service investment is sufficiently efficient. However, in the vertical-Nash supply chain, this occurs only when the manufacturer is inefficient and the retailer is efficient enough in service provision. Finally, comparisons of channel efficiency and numerical analysis are provided.