An analytical study on service-oriented manufacturing strategies

Service-Oriented Manufacturing (SOM) strategy is a new manufacturing mode by integrating servitization with the traditional manufacturing industry. The advantages and importance of the SOM strategy are gradually recognized by more and more enterprises. However, the enterprises' specific cost structures and cost configurations for providing customized services have influences on the decisions about whether the SOM strategy should be adopted, how to determine the suitable scope of SOM, and how to set the suitable pricing scheme of their offerings. This paper performs an analytical study on the above objectives and proposes an optimal decision model for designing SOM strategy. Our analysis on the SOM strategy under competition offers some insights into: when enterprises should perform SOM; what the suitable scope of SOM is, and how to design pricing strategies for SOM. From this analytical study, we draw some managerial implications that: for an enterprise in a duopoly market, if the fixed part in the unit cost of service is lower than the one third of the equilibrium price, the enterprise should adopt the SOM strategy; in addition, one half of the enterprise's customers should be covered by the SOM strategy at most. (C) 2012 Elsevier B.V. All rights reserved.