Integrating service into supply chain

Kang Li, Burak Eksioglu

Research output: Contribution to conferencePaperpeer-review


In many consumer-driven industries the supply chains do not only include manufacturers, distributors, and retail stores, but they also include service providers as a member of the overall chain. In such supply chains service is an integral part of the product. The service provider and the supplier of the product must coordinate their operations to fulfill a customer demand. Therefore, integrating service into the management of the supply chain is one of the most important factors in gaining a competitive advantage. The work in this paper is motivated by the issues faced by the wood flooring industry in China. The problems faced by the wood industry are representative of supply chain coordination problems in many other industries such as consumer durable goods. The customers of this wood flooring industry in China do not prefer do-it-yourself (DIY) strategies. They want the product (the wood panels) and the service (installing the wood floors). In other words, a customer order is not fulfilled unless the service is also complete. To fill a customer order, two resources: goods and installation service teams should be available at the same time. The customers in such an industry are also quite demanding, requiring high service levels. Customers will place an order if the product can be installed on the exact time/day that they specify and if the price is competitive. Otherwise, they will do business with a competitor. Moreover, the size of an order may change while service is performed. This means until the installation is complete the exact demand will not be known. To overcome product shortage during service extra products may be kept as backup for installation which may lead to a back order later. Customer order backlogs need to be managed by adjusting the inventory level and the level of service resources. Based on this context, the operations managers are faced with the important problem of distributing the right amount of inventories at different levels in a supply chain and also keep the service capacity at a reasonable level. This becomes an inventory management as well as a capacity management problem. The goal is to integrate service into the supply chain and optimize the performance of the chain. The following figure gives a simplified overview of such a supply chain. We investigate the dynamic behavior of this supply chain by developing a two stage serial model based on the assumptions that the customer arrivals follow independent Poisson processes; the distribution of an order size is normally distributed; service capacity and lead times are fixed. Reflecting the reality of the supply chain, the objective is to minimize the inventory levels while maintaining high service levels.

Original languageEnglish (US)
Number of pages1
StatePublished - 2004
Externally publishedYes
EventIIE Annual Conference and Exhibition 2004 - Houston, TX, United States
Duration: May 15 2004May 19 2004


OtherIIE Annual Conference and Exhibition 2004
Country/TerritoryUnited States
CityHouston, TX

All Science Journal Classification (ASJC) codes

  • Engineering(all)


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