۱- Introduction

۲- Literature review

۳- Model formulation

۴- Heuristic solution algorithm

۵- Numerical study

۶- Sensitivity analyses

۷- Conclusions

References

Abstract

In a Use-Oriented Product Service System, the customers pay for a particular service without owning the product, and the profitability of the service provider (usually also the owner of the product) is determined by the product availability and how replacement and inventory control are implemented. With the advances in modern sensor and wireless communication technologies, service providers can monitor the health status of each product in use and then conduct condition-based maintenance accordingly. Meanwhile, the waste of the remaining life of replaced products should also be considered in the system’s operation due to the increasing concerns about environmental impact and lean production. To improve the profitability of a Use-Oriented Product Service System, we formulate a discrete-time Markov Decision Process that maximizes the long-term revenue per period. To overcome the computational challenge of this problem, we propose a sequential heuristic solution incorporating a heuristic replacement policy along with a heuristic inventory control approach to solve the integrated model. The heuristic replacement policy is derived from the optimal control policy for the subsystem of a single customer. The inventory control heuristic determines the target inventory level according to a one-period look-ahead myopic optimization policy. The performance of the proposed solution and some useful management insights are investigated in a numerical study. In addition, sensitivity analyses by varying the replacement costs, holding cost, unit service revenue and deterioration rates are also conducted.

Introduction

A Product Service System (PSS) is a novel business model relying on the value flow of function or service delivered by the service provider rather than the individual products themselves (Yang, Moore, Pu, & Wong, 2009; Reim, Parida, & Örtqvist, 2015). In Use-Oriented PSS or Product-as-a-Service, the ownership of the tangible product is retained by the service provider who collects revenue from customers according to the length and quality of the intangible service provided (Gaiardelli, Resta, Martinez, Pinto, & Albores, 2014). The typical patterns of Use-Oriented PSS are product leasing, renting, sharing, or pooling. Unexpected failures and associated downtime will negatively affect the productivity of customers and the future development of the service provider. On the other hand, if the frequency of replacement is too high, the profitability of the service provider decreases because the operation costs rise without necessarily adding revenue. In practice, the replacement policy is a function of the availability of spare parts. If the service provider needs to maintain the inventory by cooperating with some upstream companies, the system becomes an integrated system of Use-Oriented PSS and a traditional supply chain, where the innovation of the new business model endows the service provider with a dominant position in the competitive market. However, a Use-Oriented PSS involving both a replacement policy and an inventory control policy with the objective of maximizing the expected net revenue has not been well studied in the existing literature.