Customization degree is a very important field of mass customization. Its improvement could enhance customer satisfaction and further increase customer demand while correspondingly it will increase service price and decrease customer satisfaction and demand. Therefore this paper discusses how to deal with such issues in logistics service supply chain (LSSC) with a logistics service integrator (LSI) and a customer. With the establishment of customer demand function for logistics services and profit functions of the LSI and the customer, three different decision modes are proposed (i.e., customization degree dominated by LSI, customization degree dominated by customer, and customization degree decided by concentrated supply chain); many interesting findings are achieved. Firstly, to achieve customization cooperation between LSI and customer, measures should be taken to make the unit increase cost of the customized logistics services lower than a certain value. Secondly, there are differences between the optimal customization degree dominated by LSI and that dominated by customer. And in both cases, the dominator could realize more profit than the follower. Thirdly, with the profit secondary distribution strategy, the modified decentralized decision mode could accomplish the maximum profit achieved in centralized decision mode and meanwhile get the optimal customization degree.
Currently, customer requirements for specialized and customized logistics services have increased. So, many logistics enterprises begin to explore the way that can meet the specialized service [
In mass customization service, the customization degree is a very important parameter which will directly affect the cooperation between the LSI and the customer. From the customer’s perspective, the improvement of customization degree can enhance customer satisfaction and then increase the customer demand. However, the customization degree also will lead to service price rising, which can result in the reduction of customer satisfaction and demand. And from the LSI’s perspective [
This paper is also motivated by the existing literature shortages. From the literature research, on the one hand, most of the research on mass customization degree is for qualitative analysis (e.g., da Silveira et al. [
The organizational structure of this paper is shown as follows. Section
At present, the research on mass customization degree mainly focuses on manufacturing supply chain, while the research on service supply chain, especially logistics service supply chain, is still relatively lacking. Hence, according to the research contents of this paper, the literature review section mainly includes two aspects. (1) Summarize the related research results about Mass customization production mode and customization degree; (2) Review the literatures of mass customization service mode.
Since the concept of mass customization production mode was proposed, many enterprises have implemented this advanced mode of production. Mass customization has become a key competitive advantage for many companies, and many enterprises have benefited from the production mode [
In mass customization, the coordination of customization degree is very important. The implementation of mass customization will cause the price of customized products increased [
While the existing researches on customization degree are reviewed, it is found that most of them are about qualitative analysis. Though some scholars have turned to quantitative research, generally the conclusion is about a relationship between customization degree and a certain influence factor which does not give the exact expression of customization degree.
In the service industry, especially logistics services industry, with large-scale logistics service turned to mass customization logistics service, some scholars have begun to research mass customization service problems. But the literatures still lack research on the optimal customization degree of service. For example, van Hoek [
The literature review indicates that now the study of the optimal customization degree is relatively lack in mass customization service. Although scholars have focused on the optimal customization degree of production, these studies have focused on the relationship between customization degree and a certain influence factor which does not give the exact customization degree.
Therefore, for the deficiency of previous literatures, this paper will focus on the coordinated issue of customization degree in mass customization service. And from the perspective of maximizing profit of the LSI and the customer, the optimal service customization degree would be determined.
This part mainly studies model building. In Section
In a LSSC with mass customization service, the coordination issue of customization degree between a LSI and a customer (e.g., a certain manufacturing enterprise) would be discussed. The LSI can provide large-scale service and customized service to customer, and the customer’s demand consists of a certain customization degree. When the LSI receives the order of customer, he will analyze the customization degree and then provide the corresponding logistics services to the customer.
The customer who has chosen mass customization service improved the market reaction speed, compared with the merchants that did not choose mass customization service. Therefore, it will increase product customers and sales volume of product and greatly improve the customer satisfaction. Figure
Logistics service supply chain (LSSC) model.
Table In fact, when the LSI It is assumed that the customization degree is The LSI’s cost includes the cost of large-scale service and the cost of customization service. When the customer accepts the mass customization service, the production cost of the customer’s product Generally, the unit cost of customization service is higher than that of large scale service. Therefore, if the cost of the customization service of the LSI is too high, it will result in an excessive price to customer, which will also decrease customer demand. The profit of the LSI may be decreased. So it is assumed that the increased cost, compared with complete large-scale logistics service, should be shared with the customer and the LSI together; the proportion, respectively, is
Model notations.
Notations | Description |
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Customization degree |
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Customization degree factor |
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Potential demand of customer |
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The price sensitive parameter of customer |
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The change rate of demand |
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The unit cost of complete large-scale logistics service that the LSI provides to customer |
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The unit increased cost, compared with complete large-scale logistics service that the LSI provides to customer |
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The total unit cost of MCLS that the LSI provides to customer |
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The unit price of MCLS that the LSI provides to customer |
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Besides the cost of MCLS, the production cost of the customer’s products |
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The unit price of the product, when the customer accepted MCLS |
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The total demand of customer for MCLS |
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The increased demand caused by customization |
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The demand of customer when the LSI provides complete large-scale logistics service to customer |
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Marginal profit ratio that the LSI provides complete large-scale logistics service to customer |
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The proportion that borne by customer for increased cost of customization |
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The total profit of LSI |
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The total profit of customer |
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The total profit of LSI and customer |
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The optimal total profit of LSI |
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The optimal total profit of customer |
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The optimal total profit of LSI and customer |
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The profit-loss when customization degree decided by concentrated supply chain, compared with customization degree dominated by LSI |
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The profit-loss when customization degree decided by concentrated supply chain, compared with customization degree dominated by customer |
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The final profit of LSI after profits secondary distribution |
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The final profit of customer after profits secondary distribution |
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The profit paid to LSI in profits secondary distribution |
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The profit paid to customer in profits secondary distribution |
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The profit of LSI in the three different decision modes of A, B, C |
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The profit of customer in the three different decision modes of A, B, C |
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The total profit of LSI and customer in the three different decision modes of A, B, C |
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The customization degree factor that can make the profit of the LSI is maximum, when the customization degree dominated by LSI |
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The customization degree factor that can make the profit of the customer is maximum, when the customization degree dominated by customer |
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The customization degree factor that can make the profit of the LSI and the customer is maximum, when the customization degree decided by concentrated supply chain |
In the MCLS, the demand of customer will increase with the increase of customization degree, but with the increase of customized price, it will reduce. The demand function of economics
In (
When providing MCLS to customer, the LSI’s total cost mainly includes the cost of large-scale logistics
And in this equation,
According to the assumption (4), the increased cost, compared with complete large-scale logistics service, should be borne by the customer and the LSI corporately, and the proportion, respectively, is
With (
To further study the impact of customized services on the demand of customer, take the first-order derivative of
Equation (
The total demand of customer for logistics service is influenced by both the price and the customization degree. And it will increase with the increase of customization degree, but with the increase of price, it will decrease.
The state of Theorem
When the increased demand caused by the increasing customization degree is higher than the decreased demand caused by the increasing price, the change rate of demand will be positive; namely,
When
Hence, considering the LSI and the customer pursuing the maximum profit, when
The profit of the LSI is the difference between its total income and total cost, it can be expressed as follows:
Substituting (
In order to determine the optimal customization degree that can maximize the profit of the LSI, the first-order and the second-order derivative of
As
Therefore, to optimize profit of the LSI,
In the mathematical calculation,
As When When
Therefore, in order to ensure the LSI provides MCLS to customer, it should be ensured that
Then it only needs to ensure
According to the description of the model, when the customer received the products which uses the MCLS, he will sell these products to the product customers to gain the profits. Hence, the profit of the customer is the difference between his total income and total cost as follows:
Substituting (
To further study the impact of the customization degree on customer service profit and determine the optimal customization degree that can maximize the profit of the customer, the first-order and the second-order derivative of
From Theorem
Therefore, finding the optimal profit of the customer only requires first-order condition
Similar to the LSI, in the mathematical calculation, When When
Therefore, to ensure that the customer chooses MCLS,
Then it only needs to ensure
Considering the conditions that the LSI provides the MCLS and the customer chooses the MCLS, Theorem
Only when
In order to ensure that both LSI and the customer choose the MCLS,
From Section
As a leader in the coordination of the supply chain, the LSI will provide logistics service to customer with the customization degree factor
The profit of the LSI is
The profit of the customer is
The profit of whole supply chain is
When the customization degree is dominated by customer, the customer will choose logistics service with the customization degree factor
The profit of the LSI is
The profit of the customer is
The profit of whole supply chain is
In this case, the LSI and the customer form a joint venture to achieve the goal of optimizing the supply chain as a whole. The total profit of the whole supply chain is the difference between the LSI and the customer’s total income and total cost. That is
Substituting (
To further study the impact of the customization degree on the profit of the whole supply chain, take the first-order and the second-order derivative of
Let
Similar to the above, in the mathematical calculation,
From Theorem
In the LSSC with centralized decision mode, the target is to get the maximal profit of the whole supply chain. So in this case, the customization degree factor is
The profit of the LSI is
The profit of the customer is
The profit of the whole supply chain (i.e., the centralized supply chain) is
Table
Profits comparing in different LSSC decision mode.
Decision mode | The optimal customization degree | The profit of LSI |
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Customization degree dominated by LSI (Case A) |
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Customization degree dominated by customer (Case B) |
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Customization degree decided by concentrated supply chain (Case C) |
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Decision mode | The profit of customer | The profit of whole LSSC |
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Customization degree dominated by LSI (Case A) |
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Customization degree dominated by customer (Case B) |
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Customization degree decided by concentrated supply chain (Case C) |
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The profit of the centralized supply chain is greater than that of LSSC dominated by LSI or customer.
Whether LSSC is dominated by LSI or customer, the dominator will obtain more profit than he is a partner: That is to say
For more detailed proof of Theorems
Through calculation of Table
At first, the profit losses of the LSI and the customer is calculated when the centralized decision mode is chosen. And the profit losses of the LSI are
The profit losses of the customer are
Obviously,
A good profit coordinate mechanism is to decrease the loss as little as possible. It is necessary for us to make profit secondary distribution in order to make both of them choose a common customization degree which can maximize the profit of the whole supply chain. Assumption in the cooperative enterprise is composed of the LSI and the customer, the profit given to the LSI is
With (
In order to determine the optimal
Let
Obviously,
Therefore,
Hence, the customization degree factor is
In Section
First of all, the range of the unit increased cost
When the unit increased cost
The change of the LSI’s profit with
The change of the customer’s profit with
From Figures
In order to further explore the impact of the customization degree on the profit and the best way to coordinate, the unit increased cost
The optimal customization degree factor and the optimal profit when the customization degree is dominated by LSI.
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1.57 | 0.4 | 52704.6 | 5250.3 | 47454.3 |
1.5 | 3.1 | 54492.2 | 5273.4 | 49218.8 |
1.3 | 10.6 | 61550.9 | 5531.3 | 56019.6 |
1.1 | 18.5 | 72212.4 | 6090.2 | 66122.2 |
0.9 | 28.0 | 88403.4 | 7055.7 | 81347.7 |
0.7 | 41.4 | 114524.5 | 8708.5 | 105816.0 |
0.5 | 64.1 | 162207.4 | 11816.4 | 150391.0 |
0.3 | 115.1 | 274272.4 | 19229.4 | 255043.0 |
0.1 | 365.9 | 836409.9 | 56656.9 | 779753.0 |
0.01 | 3741.2 | 8432878.0 | 562878.0 | 7870000.0 |
Because
The optimal customization degree factor and the optimal profit when the customization degree is dominated by customer.
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1.57 | 30.2 | 58952.1 | 3167.8 | 55784.3 |
1.5 | 34.4 | 61523.4 | 2929.7 | 58593.7 |
1.3 | 46.7 | 71286.6 | 2286.2 | 69000.4 |
1.1 | 61.1 | 85635.7 | 1615.8 | 84019.9 |
0.9 | 80.1 | 107153.7 | 805.7 | 106348.0 |
0.7 | 108.4 | 141645.3 | −331.7 | 141977.0 |
0.5 | 157.8 | 204394.9 | −2246.1 | 206641.0 |
0.3 | 271.3 | 351616.2 | −6551.8 | 358168.0 |
0.1 | 834.6 | 1089532.0 | −27718.1 | 1117250.0 |
0.01 | 8428.7 | 11056187.0 | −312513.0 | 11368700.0 |
Because
The optimal customization degree factor and profit when the customization degree decided by concentrated supply chain, after applying secondary distribution strategy.
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1.57 | 24.25 | 59368.6 | 3917.5 | 55451.1 | 499.8 | −499.8 | 4417.3 | 54951.3 |
1.5 | 28.12 | 61992.2 | 3773.4 | 58218.8 | 562.5 | −562.5 | 4335.9 | 57656.3 |
1.3 | 39.46 | 71935.6 | 3454.4 | 68481.2 | 778.8 | −778.8 | 4233.2 | 67702.4 |
1.1 | 52.56 | 86530.5 | 3226.5 | 83304.0 | 1073.9 | −1073.9 | 4300.4 | 82230.1 |
0.9 | 69.66 | 108403.7 | 3055.7 | 105348 | 1500.0 | −1500.0 | 4555.7 | 103848 |
0.7 | 94.99 | 143452.7 | 2922.7 | 140530 | 2169.6 | −2169.6 | 5092.3 | 138360.4 |
0.5 | 139.06 | 207207.4 | 2816.4 | 204391 | 3375.0 | −3375.0 | 6191.4 | 201016 |
0.3 | 240.06 | 356772.4 | 2729.4 | 354043 | 6187.5 | −6187.5 | 8916.9 | 347855.5 |
0.1 | 740.88 | 1106407 | 2656.9 | 1103750 | 20250.0 | −20250.0 | 22906.9 | 1083500 |
0.01 | 7491.21 | 11231228 | 2628.0 | 11228600 | 210094 | −210094 | 212722 | 11018506 |
Because
From Table
From Table
From Table When the customization degree is decided by concentrated supply chain, the total profit of the LSI and the customer ( When the customization degree is dominated by LSI, the profit of the LSI ( In addition, it is found that
While a LSSC with mass customization service is considered, this paper discussed the coordination issue of customization degree between the LSI and the customer. First, demand function of the customer for logistics services is built, and on this basis, the LSI and the customer’s profit function is provided. And then three different decision modes about customization degree are presented. After that, in different decision modes, how the profit of the LSI, custome, and the overall supply chain changes with the customization degree is analyzed in detail. The main conclusions are listed as follows. The total demand of customer for logistics service is influenced by both the price and the customization degree. And it will increase with the increase of customization degree, but with the increase of price, it will decrease. When the increased demand caused by the increasing customization degree is higher than the decreased demand caused by the increasing price, the change rate of demand will be positive; and when the increased demand caused by the increasing customization degree is lower than the decreased demand caused by the increasing price, the change rate of demand will be negative. To achieve MCLS cooperation between the LSI and the customer, the LSI should make the unit increase cost of the customized logistics services lower than a certain value; that is, Whoever dominates the customization degree realizes more profit than as a participator in decentralized LSSC or as partner in centralized LSSC. In the LSSC with centralized decision mode, the profit of the whole supply chain is greater than decentralized decision mode. And a profits secondary distribution strategy could be used to obtain maximum profit which is the same as the profit of LSSC with centralized decision mode.
There are some limitations in the profit model of the LSI and the customer. For example, it is assumed that the unit price of the product
when the customer chooses complete large-scale logistics service, the customization degree factor is 0; that is,
When the customer chooses mass customization logistics service, according to (
By comparison, when
In conclusion, when
Because that change rate of demand is expressed as
According to
Subtract the whole profit of supply chain in two conditions that the LSI dominates the decision mode and the customer dominates the decision mode, respectively, from the whole profit of supply chain in the LSSC with centralized decision mode.
We can get
Because of the change rate of demand is
Firstly, compare the profit of the LSI in different decision modes:
Because of change rate of demand
Then, compare the profit of the customer in different coordination modes. Consider
Because change rate of demand
Above all, a conclusion can be obtained that whoever dominates the customization degree realizes greater profit than the partner and also greater than the LSSC with centralized decision.
The authors declare that there is no conflict of interests regarding the publication of this paper.
This research is supported by the National Natural Science Foundation of China (Grant number 71372156), supported by Humanity and Social Science Youth foundation of Ministry of Education of China (Grant number 2013YJC630098), and sponsored by China State Scholarship Fund and Independent Innovation Foundation of Tianjin University. The reviewers’ comments are also highly appreciated.