The service sector is the largest and a fast growing sector of the US economy accounting for 80% of the Gross Domestic Product (GDP). Specifically, warranty and repair services form a major component of the manufacturing and retail industry and there has been a rising trend to outsourcing the warranty services. This provides an opportunity for the original equipment manufacturer (OEM) to improve turnaround times by using the core competencies of the vendors specializing in repairs and maintenance. However, it also poses downward risks in terms of customer satisfaction, particularly in cases where poor experience in repair services may translate into future lost sales. The investigators plan to explore the following main issues faced by the OEMs. (1) Contract: The original manufacturer's contract with the service provider could be based on a fixed or variable fee per repair, or a lump sum amount of money per customer for the duration of the contract or other combinations. The contracts could have quality of service requirements associated with it. The OEM also has to determine how many service providers to contract with and whether or not to treat all of them in an identical fashion. Furthermore, the vendors of warranty services typically compete among themselves for the outsourcing business from the OEM. The OEM needs to understand the implication of this competition while designing contracts. (2) Allocation: How should the OEM allocate its customers to the different service providers? One commonly used approach is to perform static allocation of customers based on costs, proximity, etc. Another approach is to route the customer (in need of service) to an appropriate service provider based on the current workload of all providers. A third option is to differentiate the customers based on priorities and treat them accordingly. While performing the allocation the manufacturer needs to balance the cost benefits of allocating more jobs to less expensive service provider with the service delays customers may experience when there is congestion at a service provider.
Motivated by interaction with the PC industry, the investigators plan to model and optimize the contracts and allocations. The investigators strongly believe that this research will provide novel qualitative insights on effectively outsourcing warranty and repair services. In addition, the investigators plan to develop fast solution methods that can handle industry size problems and can provide a real-time decision support for managers.
