Decisions On Water-saving Service Outsourcing Of High-water-consumption Manufacturers Based On Game Theory

The establishment of the most stringent national water resource management system has set boundaries for water use in high-water-consumption(HWC)industrial sectors.Coupled with the further increase in consumer environmental awareness,higher standards have been set for HWC manufacturing enterprises to improve water use efficiency and reduce wastewater discharge,making HWC manufacturers face higher water costs and investment costs for water conservation and emission reduction renovation.Therefore,water saving management is playing an increasingly important role in the strategic management of HWC enterprises.In practice,manufacturing companies can rely on their own strength to implement water-saving projects to achieve the goal of water efficiency,but in this self-saving mode,manufacturers often face the challenges of limited technology,high investment and high risk.In this context,the development of environmental services has created a new opportunity for HWC manufacturers to outsource their demand for water efficiency improvement to professional third-party service providers.As an innovative market-based water saving mechanism,water-saving service(WSS)outsourcing management mode has become a common focus of all sectors of society.In the decision-making process of the HWC manufacturers,difficulties arising from WSS suppliers with mixed capabilities,uncertainties in the emerging WSS market,the revenue disputes between stakeholders,the joint decisions in production and water-saving strategies and imperfect government incentive mechanism,etc.indicate that there still exist certain gaps in the field of WSS outsourcing decisions.Therefore in order to realize the HWC manufacturers’ water-saving goals and the benign development of WSS market,it is crucial for the water users to choose suitable WSS supplier to reach an effective partnership under the outsourcing mode,and to make the optimal decisions on production plan and the optimal water-saving mode selection under the government’s water-saving subsidy policies.The main work and innovations of this paper are as follows.(1)A multi-attribute reverse auction based game model between HWC enterprises and multiple WSS providers is constructed for the WSS outsourcing supplier selection in tending and bidding process under a revenue-sharing water-saving management contract(WSMC).According to the characteristics of WSMC projects,three attributes including water-saving efficiency,project duration and water-saving benefit sharing ratio are introduced to the bidding sets of WSS suppliers.The type function of an outsourcing supplier is characterized by the attributes of water-saving efficiency and project duration,and further the share ratio of water-saving benefits is treated as the function of water-saving efficiency and project duration.Finally,the Nash equilibrium solutions are derived,and the equilibrium strategies and the properties of each participant’s benefits are analyzed.The results show that the multi-attribute reverse auction model is proved to be an effective mechanism for WSS suppliers selection in the WSS outsourcing mode.The suppliers bid according to their own conditions,and the HWC manufacturer will choose its cooperator based on the optimal combination of water-saving efficiency and project duration.The optimization of the bidding set provided by WSS supplier will create a win-win situation for both the supply and requisitioning parties.Taking advantage of the multi-attribute reverse auction mechanism,HWC users can find better quality WSS outsourcing providers.In addition,it facilitates the integration and optimization of the WSS supply chain while avoiding the need to negotiate on the parameter of water-saving revenue sharing ratio.(2)Considering the uncertainty of market environment,under the public procurement outsourcing mode,the reverse auction of HWC firm’s WSS procurement contract and the capacity investment of WSS providers in a supply chain composed of an HWC enterprise and two competing WSS providers is considered.And the optimal outsourcing strategy of water user and the decisions on bidding price and investment in water saving capacity of service providers are studied respectively based on a multi-stage dynamic game model,in which the unit operation costs of WSS providers are their private information.Besides,the costs and the market demands are all regarded as independent uncertain variables.After that,the optimal solutions of game participants are derived.That is,the announced outsourcing capacity of the HWC client,the quoted prices of service providers in the bidding competition and vendors’ capacity investment decisions are calculated.Furthermore,the influences of the relevant parameters on the decision of each game player are analyzed by numerical simulation.(3)Considering that water savings per unit of product belongs to one of most important decisions for HWC manufacturers and WSS providers,who aim to optimize the economics of water conservation projects by exerting different levels of watersaving efforts to improve water efficiency.Correspondingly,HWC manufacturers are faced with two common approaches to water conservation: self-saving and outsourcing saving.Therefore,the impacts of government subsidies and consumer environmental awareness on HWC firms’ decisions on water-saving modes selection and production plans are examined.An optimization model in the manufacturer’s self-savings scenario and a Starkelberg game model in the benefit-sharing contract based outsourcing scenario are developed under different subsidy schemes including water-saving effort subsidy and water-saving costs subsidy,respectively.The optimal strategies are obtained with the objective of maximizing the benefits of HWC manufacturers and WSS provider.In addition,by analysis and comparison,we derive the decision rules for the optimal choice of water-saving modes for the HWC manufacturer under a given subsidy policy.Furthermore,the effects of different subsidy policies on water savings per unit of product and benefits for each stakeholder are compared.(4)The optimal strategies of HWC manufacturers,government departments,and WSS providers are discussed when the government provides endogenous subsidies to different objects(water-saving cost subsidy for WSS outsourcing providers/HWC manufacturers and purchase price subsidy for consumers)to maximize overall social welfare.An optimization model and several Starkelberg game models are constructed for the manufacturer’s choice of the self-saving mode and the benefit-sharing outsourcing mode,respectively.In addition,the results are analyzed and compared to derive decision rules for the optimal choice of water-saving mode for the HWC manufacturer under a given subsidy policy.Furthermore,the effects of different subsidy policies are compared in terms of water savings per unit of product,product yield,and benefits for each stakeholder.This study can provide a deeper understanding of a series of decision problems of high-water-consumption manufacturers and water-saving service providers in WSS outsourcing projects in China,and clearer insights of the mechanisms for solving these problems.The findings also provide theoretical and practical basis for effective government supervision of water-saving service outsourcing management projects.