Incentive mechanisms for service supply chains based on the buy-back contract

A service supply chain is established on the basis of service outsourcing. It is hard for the service provider to monitor the service supplier´s behavior, because the service is offered directly to the customers by the supplier. Therefore, the service provider should build up an incentive mechanism to stimulate the supplier to offer high quality service. This paper studies the optimal incentive mechanism for service supply chain based on the buy-back contract. By setting up the incentive model, the research mainly discusses the prior condition for the supplier to offer costly effort, the optimal incentive mechanism and the condition to validate incentive, etc. The result shows that: It is unnecessary to offer an incentive to the service supplier in all service supply chains, and there is a discontinuous point on the incentive payment curve.