Can direct finance within a servitizing supply chain reduce the moral hazard associated with the servitized user’s care of the product?

Abstract

AbstractServitizing business models can provide economic benefits in a supply chain by utilizing products more efficiently. However, the transfer of the burden to keep the product operable from the user to the servitizing provider may cause issues. As a result of no longer owning the product, a user may be less inclined to taking care of it thereby increasing the maintenance effort for the servitizing provider. This may induce additional financial stress on the latter, specifically if it is a small company with lack of budget to begin with. In this study we analyze whether direct finance within a supply chain, where the user lends money to the servitizing provider, can alleviate this problem, when compared with a more traditional bank finance option. We find that improved access to finance indeed enables the servitizing provider to induce high effort by the user through lower servitizing fees. This also makes the servitizing model economically more attractive for both firms involved. Besides those economic implications, direct finance increases consumer demand and surplus, while at the same time resource consumption for satisfying this increased demand increases.