Coordination in maintenance outsourcing

Hakan Tarakci, Purdue University


In the first part of this thesis, we consider a manufacturer who has a process with an increasing failure rate over time. In order to improve the performance of the process, the following two types of maintenance activities are outsourced to an external contractor: (a) Preventive maintenance (PM) is performed periodically to improve the reliability of the process when the process is functional, and (b) corrective maintenance (CM) is used to restore the process to a specified condition when it fails. We consider three incentive contracts for inducing the contractor to select the maintenance policy that optimizes the total profit of the manufacturer and contractor. It is demonstrated that an incentive contract, based on a combination of a target uptime level and a bonus, (i) always leads to the desired win-win coordination, (ii) provides flexibility in allocating the extra profit generated from coordination, (iii) motivates the contractor and the manufacturer to continuously improve efficiency of maintenance operations, and (iv) is able to coordinate the improved system most of the time. In the second part of the thesis, we extend the one manufacturer - one maintenance contractor setting. We consider a manufacturer who has a process consisting of multiple stages. The manufacturer's revenue is determined by the minimum of uptimes among the manufacturing stages. The maintenance functions—preventive maintenance and corrective maintenance—of the manufacturing stages are outsourced to independent contractors. In order to achieve channel coordination in the maintenance chain, the manufacturer may offer incentive contracts to some or all of the contractors, depending on the failure rate functions, costs, and times associated with preventive maintenance and corrective maintenance. We propose using the incentive contract with uptime target level and bonus, defined in the first part of the thesis. In this research, we (a) develop a model for jointly determining the uptime target levels and bonus rates for the contractors which maximize system profit, (b) demonstrate the financial benefits of coordination and added flexibility in allocating the additional profit to the contractors, and (c) show the impact of individual stage maintenance times and costs on channel coordination and profits.




Tang, Purdue University.

Subject Area

Management|Operations research|Business costs

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