Production and Pricing Decisions in a Product-Service System Supply Chain

This research investigates a supply chain where a manufacturer sells products bundled with services to customers while satisfying the service level commitment. The demand is random and is sensitive to the selling price and the manufacturer's service level commitment. The manufacturer simultaneously decides the production quantity, the amount of service capacity and the retail price before the selling season. We develop a stylized model to derive the manufacturer's optimal decisions. We get the conditions in which the service capacity and the production quantity increase or decrease with the selling price. Numerical analysis shows that as the responsiveness of demand to the sales price increases, the service capacity and production quantity decrease.