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doi: 10.3934/jimo.2021165
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## Effect of service quality on software sales and coordination mechanism in IT service supply chain

 1 School of Business Administration, Guizhou University of Finance and Economics, Guiyang 550001 2 School of Economics and Management, Harbin Engineering University, Harbin 150001

*Corresponding author: Tinghai Ren

Received  April 2021 Revised  July 2021 Early access September 2021

Currently, the upstream software developer usually cooperates with the downstream service provider to sell software and related services to client enterprises. Furthermore, the quality of pre-sale services provided by the provider has significant impact on software sales and on the performance of IT service supply chain (ITSSC). However, the existing research on IT service supply chain management (ITSSCM) lacks attention to this issue. In this study, we consider an ITSSC with a software developer, a service provider and client enterprises. Two scenarios are discussed in this study. Our study finds that the quality of pre-sale services provided by the provider and the price of extended warranty service (EWS) provided by the developer (in centralized decision-making (CDM)) are both higher than those in decentralized decision-making (DDM); when the sensitivity of clients to the software price is lower than a certain critical value, the software sales price (in CDM) is unexpectedly higher than that in DDM; however, when it is higher than the certain value, the software sales price (in CDM) is lower than that in DDM. Due to the double marginal effect between the developer and the provider, the total profit of ITSSC (in DDM) is always lower than that in CDM. By providing a combined coordination contract based on "guiding price $+$ service cost sharing $+$ product revenue sharing", not only the total profit of ITSSC can be increased, but also the profit of ITSSC members can be Pareto improved.

Citation: Tinghai Ren, Kaifu Yuan, Dafei Wang, Nengmin Zeng. Effect of service quality on software sales and coordination mechanism in IT service supply chain. Journal of Industrial and Management Optimization, doi: 10.3934/jimo.2021165
##### References:
 [1] G. P. Cachon and M. A. Lariviere, Capacity allocation using past sales: When to turn-and-earn, Management Science, 45 (1999), 686-702. [2] Y. Che and I. Gale, Optimal design of research contests, American Economic Review, 93 (2003), 646-671. [3] M. G. Chen, Q. Y. Hu and H. Wei, Interaction of after-sales service provider and contract type in a supply chain, International Journal of Production Economics, 514 (2017), 1-527. [4] X. Chen, L. Li and M. Zhou, Manufacturer's pricing strategy for supply chain with warranty period-dependent demand, Omega, 40 (2012), 807-816. [5] X. Chen, N. N. Wang and X. J. Wang, Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement, International Journal of Production Economics, 193 (2017), 183-192. [6] B. Dan, S. G. Zhang and M. S. Zhou, Strategies for warranty service in a dual-channel supply chain with value-added service competition, International Journal of Production Research, 56 (2018), 5677-5699. [7] D. Debabrata, F. Ming and Z. Conglei, Design and analysis of contracts for software outsourcing, Information Systems Research, 1 (2010), 93-114. [8] M. Deepa, B. Anitesh and B. W. Andrew, Outsourcing contracts and equity prices, Information Systems Research, 24 (2013), 1028-1049. [9] B. Ehsan, K. Panos and F. Zhang, Delegation vs. control in supply chain procurement under competition, Production and Operations Management, 25 (2016), 1528-1541. [10] M. Esmaeili, N. S. Gamchi and E. Asgharizadeh, Three-level warranty service contract among manufacture, agent and customer: A game-theoretical approch, European J. Oper. Res., 239 (2014), 177-186.  doi: 10.1016/j.ejor.2014.04.045. [11] Q. Feng and G. J. Shanthikumar, How research in production and operations management may evolve in the era of big data, Production and Operations Management, 9 (2018), 1670-1684. [12] H. Haijing, P. Rema, S. Baohong and T. Rahul, Quantifying the impact of social influence on the information technology implementation process by physicians: A hierarchical bayesian learning approach, Information Systems Research, 29 (2018), 25-41. [13] B. He, G. Li and M. Q. Liu, Impacts of decision sequences on a random yield supply chain with a service level requirement, Ann. Oper. Res., 268 (2018), 469-495.  doi: 10.1007/s10479-016-2275-4. [14] J. Heydari, Coordination supplier's reorder point: A coordination mechanism for supply chains with long supplier lead time, Comput. Oper. Res., 48 (2014), 89-101.  doi: 10.1016/j.cor.2014.03.011. [15] X. P. Hong, L. Wang, Y. M. Gong and W. Y. Chen, What is the role of value-added service in a remanufacturing closed-loop supply chain?, International Journal of Production Research, 58 (2020), 3342-3361. [16] B. W. Jaime, M. Likoebe and V. Viswanath, Technical systems development risk factors: The role of empowering leadership in lowering developers' stress, Information Systems Research, 28 (2017), 775-796. [17] S. Kalyan, Q. Feng and G. Ram, Introduction to the special issue on perspectives on big data[J], Production and Operations Management, 9 (2018), 1639-1641. [18] K. Keumseok, H. Jungpil and D. Prabuddha, Learning effect of domain, technology, and customer knowledge in information systems development: An empirical study, Information Systems Research, 28 (2017), 797-811. [19] G. Li, F. F. Huang, T. C. Cheng, Q. Zheng and P. Ji, Make-or-buy service capacity decision in a supply chain providing after-sales service, European J. Oper. Res., 239 (2014), 377-388.  doi: 10.1016/j.ejor.2014.05.035. [20] K. P. Li, Y. Li, Q. N. Gu and A. Ingersoll, Joint effects remanufacturing channel design and after-sales service pricing: An analytical study, International Journal of Production Research, 57 (2019), 1066-1081. [21] R. Lotfi, N. Mardani and G. W. Weber, Robust bi-level programming for renewable energy location, International Journal of Energy Research, 45 (2021), 7521-7534. [22] R. Lotfi, Y. Z. Mehrjerdi and N. Mardani, A multi-objective and multi-product advertising billboard location model with attraction factor mathematical modeling and solutions, International Journal of Applied Logistics, 7 (2017), 64-86. [23] R. Lotfi, M. Nayeri, S. Sajadifar and N. Mardani, Determination of start times and ordering Plans for two-period projects with interdependent demand in project-oriented organizations: A case study on molding industry, Journal of Project Management, 2 (2017), 119-142. [24] S. M. Miranda and C. B. Kavan, Monments of governance in IS outsourcing: Conceptualizing effects of contracts on value capture and creation, Journal of Information Technology, 20 (2005), 152-169. [25] L. Nishtha, A. S. Sandra and M. Tridas, Project managers' practical intelligence and project performance in software offshore outsourcing: A field study, Information Systems Research, 25 (2014), 364-384. [26] A. K. Sangaiah, E. B. Tirkolaee, A. Goli and S. Dehnavi-Arani, Robust optimization and mixed-integer linear programming model for LNG supply chain planning problem, Soft Computing, 24 (2020), 7885-7905.  doi: 10.1007/s00500-019-04010-6. [27] S. Suprateek, S. Saonoe and S. Arvin, Exploring value cocreation in relationships between an ERP vendor and its partners: A revelatory case study, Mis Quarterly, 1 (2012), 317-338. [28] E. B. Tirkolaee, A. Goli, A. Faridnia, M. Soltani and G.-W. Weber, Multi-objective optimization for the reliable pollution-routing problem with cross-dock selection using Pareto-based algorithms, Journal of Cleaner Production, 276 (2020). doi: 10.1016/j.jclepro.2020.122927. [29] V. Viswanath, R. Arun and M. M. Likoebe, Information systems projects and individual developer outcomes: Role of projects managers and process control, Information Systems Research, 29 (2018), 127-148. [30] B. Weber, T. Fischer and René Riedl, Brain and autonomic nervous system activity measurement in software engineering: A systematic literature review, J. Systems & Software, 178 (2021), 1-51. [31] Y. L. Wang, W. Wallace, B. Shen and T. M. Choi, Service supply chain management: A review of operational models, European Journal of Operational Research, 247 (2015), 685-697. [32] T. Xiao and T. Xu, Coordination price and service level decisions for a supply chain with deteriorating under vendor manange inventory, International J. Production Economics, 145 (2013), 743-752. [33] W. Q. Xiao and Y. Xu, The impact of royalty contract revision in a multistage strategic research and development, Management Science, 12 (2012), 2251-2271. [34] W. B. Xie, Z. B. Jiang, Y. Zhao and X. Shao, Contract design for cooperative product service system with information asymmetry, International J. Production Research, 52 (2014), 1658-1680. [35] W. M. Xie, Y. G. Zhao, Z. B. Jiang and P. S. Chow, Optimizing product service system by franchise fee contracts under information asymmetry, Ann. Oper. Res., 240 (2016), 709-729.  doi: 10.1007/s10479-013-1505-2. [36] H. Yili and A. P. Paul, On buyer selection of service providers in online outsourcing platforms for IT services., Information Systems Research, 28 (2017), 547-562. [37] China Industry Information (2020). Research report on SAP industry Operation status quo and Development Strategy in China 2020–2026, https://www.chyxx.com/research/202003/843843.html. [38] Cniteyes (2018). http://www.cniteyes.com/archives/33379. [39] Research Center for Mobile Informatization (2018). http://www.cniteyes.com/.

show all references

##### References:
 [1] G. P. Cachon and M. A. Lariviere, Capacity allocation using past sales: When to turn-and-earn, Management Science, 45 (1999), 686-702. [2] Y. Che and I. Gale, Optimal design of research contests, American Economic Review, 93 (2003), 646-671. [3] M. G. Chen, Q. Y. Hu and H. Wei, Interaction of after-sales service provider and contract type in a supply chain, International Journal of Production Economics, 514 (2017), 1-527. [4] X. Chen, L. Li and M. Zhou, Manufacturer's pricing strategy for supply chain with warranty period-dependent demand, Omega, 40 (2012), 807-816. [5] X. Chen, N. N. Wang and X. J. Wang, Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement, International Journal of Production Economics, 193 (2017), 183-192. [6] B. Dan, S. G. Zhang and M. S. Zhou, Strategies for warranty service in a dual-channel supply chain with value-added service competition, International Journal of Production Research, 56 (2018), 5677-5699. [7] D. Debabrata, F. Ming and Z. Conglei, Design and analysis of contracts for software outsourcing, Information Systems Research, 1 (2010), 93-114. [8] M. Deepa, B. Anitesh and B. W. Andrew, Outsourcing contracts and equity prices, Information Systems Research, 24 (2013), 1028-1049. [9] B. Ehsan, K. Panos and F. Zhang, Delegation vs. control in supply chain procurement under competition, Production and Operations Management, 25 (2016), 1528-1541. [10] M. Esmaeili, N. S. Gamchi and E. Asgharizadeh, Three-level warranty service contract among manufacture, agent and customer: A game-theoretical approch, European J. Oper. Res., 239 (2014), 177-186.  doi: 10.1016/j.ejor.2014.04.045. [11] Q. Feng and G. J. Shanthikumar, How research in production and operations management may evolve in the era of big data, Production and Operations Management, 9 (2018), 1670-1684. [12] H. Haijing, P. Rema, S. Baohong and T. Rahul, Quantifying the impact of social influence on the information technology implementation process by physicians: A hierarchical bayesian learning approach, Information Systems Research, 29 (2018), 25-41. [13] B. He, G. Li and M. Q. Liu, Impacts of decision sequences on a random yield supply chain with a service level requirement, Ann. Oper. Res., 268 (2018), 469-495.  doi: 10.1007/s10479-016-2275-4. [14] J. Heydari, Coordination supplier's reorder point: A coordination mechanism for supply chains with long supplier lead time, Comput. Oper. Res., 48 (2014), 89-101.  doi: 10.1016/j.cor.2014.03.011. [15] X. P. Hong, L. Wang, Y. M. Gong and W. Y. Chen, What is the role of value-added service in a remanufacturing closed-loop supply chain?, International Journal of Production Research, 58 (2020), 3342-3361. [16] B. W. Jaime, M. Likoebe and V. Viswanath, Technical systems development risk factors: The role of empowering leadership in lowering developers' stress, Information Systems Research, 28 (2017), 775-796. [17] S. Kalyan, Q. Feng and G. Ram, Introduction to the special issue on perspectives on big data[J], Production and Operations Management, 9 (2018), 1639-1641. [18] K. Keumseok, H. Jungpil and D. Prabuddha, Learning effect of domain, technology, and customer knowledge in information systems development: An empirical study, Information Systems Research, 28 (2017), 797-811. [19] G. Li, F. F. Huang, T. C. Cheng, Q. Zheng and P. Ji, Make-or-buy service capacity decision in a supply chain providing after-sales service, European J. Oper. Res., 239 (2014), 377-388.  doi: 10.1016/j.ejor.2014.05.035. [20] K. P. Li, Y. Li, Q. N. Gu and A. Ingersoll, Joint effects remanufacturing channel design and after-sales service pricing: An analytical study, International Journal of Production Research, 57 (2019), 1066-1081. [21] R. Lotfi, N. Mardani and G. W. Weber, Robust bi-level programming for renewable energy location, International Journal of Energy Research, 45 (2021), 7521-7534. [22] R. Lotfi, Y. Z. Mehrjerdi and N. Mardani, A multi-objective and multi-product advertising billboard location model with attraction factor mathematical modeling and solutions, International Journal of Applied Logistics, 7 (2017), 64-86. [23] R. Lotfi, M. Nayeri, S. Sajadifar and N. Mardani, Determination of start times and ordering Plans for two-period projects with interdependent demand in project-oriented organizations: A case study on molding industry, Journal of Project Management, 2 (2017), 119-142. [24] S. M. Miranda and C. B. Kavan, Monments of governance in IS outsourcing: Conceptualizing effects of contracts on value capture and creation, Journal of Information Technology, 20 (2005), 152-169. [25] L. Nishtha, A. S. Sandra and M. Tridas, Project managers' practical intelligence and project performance in software offshore outsourcing: A field study, Information Systems Research, 25 (2014), 364-384. [26] A. K. Sangaiah, E. B. Tirkolaee, A. Goli and S. Dehnavi-Arani, Robust optimization and mixed-integer linear programming model for LNG supply chain planning problem, Soft Computing, 24 (2020), 7885-7905.  doi: 10.1007/s00500-019-04010-6. [27] S. Suprateek, S. Saonoe and S. Arvin, Exploring value cocreation in relationships between an ERP vendor and its partners: A revelatory case study, Mis Quarterly, 1 (2012), 317-338. [28] E. B. Tirkolaee, A. Goli, A. Faridnia, M. Soltani and G.-W. Weber, Multi-objective optimization for the reliable pollution-routing problem with cross-dock selection using Pareto-based algorithms, Journal of Cleaner Production, 276 (2020). doi: 10.1016/j.jclepro.2020.122927. [29] V. Viswanath, R. Arun and M. M. Likoebe, Information systems projects and individual developer outcomes: Role of projects managers and process control, Information Systems Research, 29 (2018), 127-148. [30] B. Weber, T. Fischer and René Riedl, Brain and autonomic nervous system activity measurement in software engineering: A systematic literature review, J. Systems & Software, 178 (2021), 1-51. [31] Y. L. Wang, W. Wallace, B. Shen and T. M. Choi, Service supply chain management: A review of operational models, European Journal of Operational Research, 247 (2015), 685-697. [32] T. Xiao and T. Xu, Coordination price and service level decisions for a supply chain with deteriorating under vendor manange inventory, International J. Production Economics, 145 (2013), 743-752. [33] W. Q. Xiao and Y. Xu, The impact of royalty contract revision in a multistage strategic research and development, Management Science, 12 (2012), 2251-2271. [34] W. B. Xie, Z. B. Jiang, Y. Zhao and X. Shao, Contract design for cooperative product service system with information asymmetry, International J. Production Research, 52 (2014), 1658-1680. [35] W. M. Xie, Y. G. Zhao, Z. B. Jiang and P. S. Chow, Optimizing product service system by franchise fee contracts under information asymmetry, Ann. Oper. Res., 240 (2016), 709-729.  doi: 10.1007/s10479-013-1505-2. [36] H. Yili and A. P. Paul, On buyer selection of service providers in online outsourcing platforms for IT services., Information Systems Research, 28 (2017), 547-562. [37] China Industry Information (2020). Research report on SAP industry Operation status quo and Development Strategy in China 2020–2026, https://www.chyxx.com/research/202003/843843.html. [38] Cniteyes (2018). http://www.cniteyes.com/archives/33379. [39] Research Center for Mobile Informatization (2018). http://www.cniteyes.com/.
The ITSSC structure
The cooperation process and decision sequence
The relationship between $s^{C\ast}$, $s^{D\ast}$ and $b$
The relationship between $p_{p}^{C\ast}$, $p_{p}^{D\ast}$ and $b$
The relationship between $p_{s}^{C\ast}$, $p_{s}^{D\ast}$ and $b$
The relationship between $D_{p}^{C\ast}$, $D_{p}^{D\ast}$ and $b$
The relationship between $\pi^\text{TC}$, $\pi^\text{TD}$ and $b$
The relationship between $p^\text{D1}_{\text{g}}$ and $\sigma$
The relationship between ($\pi^\text{TD}$, $\pi^{TD1}$), ($\pi ^\text{MD}$, $\pi^{MD1}$, $\pi^\text{RD}$, $\pi^{RD1}$) and $\sigma$
The literature related to IT service supply chain management
 Topic type Reference Problem Research Method ITSSCM Miranda and Kavan (2005) CPEO Optimization Debabrate et al. (2010) CDO and CPEO. Optimization Deepa et al. (2013) CDO and CSO. Empirical study Yili and Paul (2017) Partner selection. Empirical study Jamie et al. (2017) CPEO and SMM. Empirical study Suprateek et al. (2012) Partner selection and VCR. Case study Nishtha et al. (2014) CPEO and VCR. Field study Keumseok et al. (2017) CPEO and VCR. Empirical study Viswanath et al. (2018) CPEO and VCR. Empirical study Haijing et al. (2018) CPEO and VCR. Empirical study
 Topic type Reference Problem Research Method ITSSCM Miranda and Kavan (2005) CPEO Optimization Debabrate et al. (2010) CDO and CPEO. Optimization Deepa et al. (2013) CDO and CSO. Empirical study Yili and Paul (2017) Partner selection. Empirical study Jamie et al. (2017) CPEO and SMM. Empirical study Suprateek et al. (2012) Partner selection and VCR. Case study Nishtha et al. (2014) CPEO and VCR. Field study Keumseok et al. (2017) CPEO and VCR. Empirical study Viswanath et al. (2018) CPEO and VCR. Empirical study Haijing et al. (2018) CPEO and VCR. Empirical study
The literature related to optimization and mechanism design of PSSC
 Topic type Reference Problem Research Method Li et al. (2014) Service delivery model Optimization Chen et al. (2017) Service delivery model; Product and service decision. Optimization Dan et al. (2018) Service delivery model; Service decision. Optimization Esmaeili et al. (2014) Product and service decision. Optimization Li et al. (2019) Channel design; Service decision; Channel selection. Optimization Hong et al. (2019) Service delivery model; Supply chain performance evaluation. Optimization Xie et al. (2016) Demand information asymmetry; Product and service decision. Optimization He et al. (2018) The random output; Constraint of service level; Service decision. Optimization Chen et al. (2017) Product and service decision; PSSC coordination. Optimization; Coordination Xiao and Xu (2013) R&D capability information asymmetry; PSSC coordination. Optimization; Coordination Heydari (2014) Service decision; PSSC coordination. Optimization; Coordination Xie et al. (2014) Service cost information asymmetry; Product and service decision. Optimization; Coordination
 Topic type Reference Problem Research Method Li et al. (2014) Service delivery model Optimization Chen et al. (2017) Service delivery model; Product and service decision. Optimization Dan et al. (2018) Service delivery model; Service decision. Optimization Esmaeili et al. (2014) Product and service decision. Optimization Li et al. (2019) Channel design; Service decision; Channel selection. Optimization Hong et al. (2019) Service delivery model; Supply chain performance evaluation. Optimization Xie et al. (2016) Demand information asymmetry; Product and service decision. Optimization He et al. (2018) The random output; Constraint of service level; Service decision. Optimization Chen et al. (2017) Product and service decision; PSSC coordination. Optimization; Coordination Xiao and Xu (2013) R&D capability information asymmetry; PSSC coordination. Optimization; Coordination Heydari (2014) Service decision; PSSC coordination. Optimization; Coordination Xie et al. (2014) Service cost information asymmetry; Product and service decision. Optimization; Coordination
The relationship between the developer's decisions ($p_{\text{g}}^{\ast}$) and ($p_{s}^{D\ast}$, $p_{s}^{C\ast}$) and parameters ($c_{1}$, $\gamma$)
 Decisions Monotonicity on $c_{1}$ Monotonicity on $\gamma$ $p_{\text{g}}^{\ast}$ $\uparrow$ $\uparrow$ $p_{s}^{D\ast}$ $\uparrow$ $\downarrow$ $p_{s}^{C\ast}$ $\uparrow$ $\downarrow$ Note: "$\uparrow$" represents "increasing" and "$\downarrow$" represents "decreasing".
 Decisions Monotonicity on $c_{1}$ Monotonicity on $\gamma$ $p_{\text{g}}^{\ast}$ $\uparrow$ $\uparrow$ $p_{s}^{D\ast}$ $\uparrow$ $\downarrow$ $p_{s}^{C\ast}$ $\uparrow$ $\downarrow$ Note: "$\uparrow$" represents "increasing" and "$\downarrow$" represents "decreasing".
The relationship between the provider's decisions ($s^{C\ast }$, $s^{D\ast}$) and ($p_{p}^{C\ast}$, $p_{p}^{D\ast}$) and parameters ($c_{1}$, $\gamma$)
 Decisions Monotonicity on $c_{1}$ Monotonicity on $\gamma$ $s^{C\ast}$ $\downarrow$ $\downarrow$ $s^{D\ast}$ $\downarrow$ $\downarrow$ $p_{p}^{C\ast}$ $\downarrow,$ if ${1}/{2}  Decisions Monotonicity on$ c_{1} $Monotonicity on$ \gamma  s^{C\ast}  \downarrow  \downarrow  s^{D\ast}  \downarrow  \downarrow  p_{p}^{C\ast}  \downarrow, $if$ {1}/{2}
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