Optimal after-sales service offering strategy : additive manufacturing, traditional manufacturing, or hybrid?

Abstract

In this study, we investigate the effects of additive manufacturing (also known as 3D printing) on the optimal after-sales service offering strategy. A service offering strategy should be selected on the basis of not only its characteristics but also customers’ decisions influenced by the associated costs of each strategy. Two supply chain structures are examined in this study: one in which the service provider is vertically integrated and the other in which an outside agent is involved to adopt additive manufacturing. We find that when the nonavailability cost (associated with traditional manufacturing) is moderate compared to the unreliability cost (associated with additive manufacturing), the service provider should adopt the hybrid strategy that offers both additively and traditionally manufactured parts; otherwise, the pure additive manufacturing or traditional manufacturing strategy dominates when the nonavailability cost is high or low respectively. This key finding is robust in that it holds for both the short-term and long-term problems and is irrelevant to whether the service provider is vertically integrated. In addition, our results indicate that the endogenous service level has different impacts on the equilibrium in the two examined supply chains. Finally, we reveal that allowing an outside agent to adopt additive manufacturing is profitable when the service provider adopts the hybrid strategy in both the investigated supply chain structures; otherwise, deterring the entry of the outside agent is the unique equilibrium for the service provider.