An analytical model for manufacturing service supply contracts

The practice of service-based manufacturing, utilized in various industries, particularly in electronics, pharmaceuticals, and automotive, is on the rise as it improves enterprise effectiveness in dynamic markets. The mutual responsibilities between the supplier(s) and user(s) of such services are spelled out in defined-time-horizon contracts. While such contracts define mutual obligations of both parties on a tactical/operational level, the long-term strategic objectives of the parties may be in conflict. This paper is focused on studying the dynamics of manufacturing service contracts. It investigates the factors affecting the shape of the negotiation space for such contracts and also the way the space should be navigated in response to changing market conditions. The paper presents an analytical framework developed to facilitate behavior analysis of the actors involved in the contract.