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Optimal maintenance service contract negotiation with aging equipment

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  • Jackson, Canek
  • Pascual, Rodrigo

Abstract

In recent years, there has been a growing trend to out-source service operations in which the equipment maintenance is carried out by an external agent rather than in-house. Often, the agent (service provider) offers more than one option and the owners of equipment (customers) are faced to the problem of selecting the optimal option, under the terms of a contract. In the current work, we develop a model and report results to determine the agent's optimal strategy for a given type of contract. The model derives in a non-cooperative game formulation in which the decisions are taken by maximizing expected profits. This work extends previous models by considering the realistic case of equipments having an increasing failure intensity due to imperfect maintenance, instead of the standard assumption that considers failure times are exponentially distributed (constant failure intensity). We develop a model using a linear function of time to characterize the failure intensity. The main goal, for the agent, is to determine the pricing structure in the contract and the number of customers to service. On the other hand, for the clients, the main goal is to define the period between planned actions for preventive maintenance and the time to replace equipments. In order to give a complete characterization of the results, we also carry out a sensitivity analysis over some of the factors that would influence over the failure intensity.

Suggested Citation

  • Jackson, Canek & Pascual, Rodrigo, 2008. "Optimal maintenance service contract negotiation with aging equipment," European Journal of Operational Research, Elsevier, vol. 189(2), pages 387-398, September.
    • Handle: RePEc:eee:ejores:v:189:y:2008:i:2:p:387-398
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    3. Pham, Hoang & Wang, Hongzhou, 1996. "Imperfect maintenance," European Journal of Operational Research, Elsevier, vol. 94(3), pages 425-438, November.
    4. Murthy, D. N. P. & Asgharizadeh, E., 1999. "Optimal decision making in a maintenance service operation," European Journal of Operational Research, Elsevier, vol. 116(2), pages 259-273, July.
    5. Murthy, D. N. P. & Solem, O. & Roren, T., 2004. "Product warranty logistics: Issues and challenges," European Journal of Operational Research, Elsevier, vol. 156(1), pages 110-126, July.
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