An agent-based approach to quantify the uncertainty in Product-Service System contract decisions: A case study in the machine tool industry

Product-service system (PSS) business models appraise the relationship between different stakeholders and focus on a partnership based on profit. Existing literature discusses servitization and the associated cost-benefit analysis (CBA) models mostly from the perspective of original equipment manufacturers. Additionally, CBA is typically conducted using top-down approaches and standard activity-based costing, with limited available data and without considering uncertainty. As a result, inadequate and under-priced contract decisions may be made. To address the problem, this paper extends the current literature by proposing a novel framework for quantifying uncertainty in cost and benefit estimates of PSS contracts. The framework offers a bottom-up costing approach using the agent-based simulation technique. The framework comprises a stochastic CBA model for PSS. It is developed by considering through-life cost and benefit of products and services with aggregate uncertainty in terms of service costs, service lead-times, and their occurrences. The framework has been tested successfully on a real-world case study with a bespoke service provider in the machine tool industry. The model is applied to include spare-parts and availability-based servitization contracts. The simulation results are validated by real -world measurements and expert knowledge. The results involve a comprehensive stochastic analyses of a through-life CBA under probabilistic uncertainty and provide the opportunity to quantify the uncertainty in PSS contract decisions. Moreover, the results highlight that servitization is more beneficial for bespoke service providers in long-term contracts, and for relatively new or retrofitted products. Further research works are required to apply the model on capability-based contracts.

Automated summary

This study introduces a novel framework that quantifies uncertainty in cost and benefit estimates of PSS contracts using agent-based simulation technique. The results indicate that servitization is more beneficial for bespoke service providers in long-term contracts and relatively new or retrofitted products, emphasizing the importance of quantifying uncertainty in PSS contract decisions.