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Option model for joint production and preventive maintenance system

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  • Jin, Xiaoning
  • Li, Lin
  • Ni, Jun

Abstract

Traditionally, optimal preventive maintenance strategies are derived under deterministic and constant rate demand. Using "option", a powerful financial derivative tool to tackle optimization problem under uncertain environment, this paper presents an analytical, option-based cost model for scheduling joint production and preventive maintenance when demand is uncertain. The manufacturing enterprise can balance the tradeoff between reduced risk from uncertainty that options afford and the increased price premium paid to invest preventive maintenance resources. The optimal number of preventive maintenance work-orders is obtained and numerical examples are included to validate the importance and the effectiveness of the proposed methodology. The comparison with the conventional periodic preventive maintenance policy is also analytically performed. The proposed option-based model is found to add flexibility to the production system and thus reduce the risk of shortage or overage of demand when conventional assumption of constant rate demand is released to stochastic demand.

Suggested Citation

  • Jin, Xiaoning & Li, Lin & Ni, Jun, 2009. "Option model for joint production and preventive maintenance system," International Journal of Production Economics, Elsevier, vol. 119(2), pages 347-353, June.
    • Handle: RePEc:eee:proeco:v:119:y:2009:i:2:p:347-353
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    References listed on IDEAS

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    Cited by:

    1. Houda Ghamlouch & Mitra Fouladirad & Antoine Grall, 2019. "The use of real option in condition-based maintenance scheduling for wind turbines with production and deterioration uncertainties," Post-Print hal-02365402, HAL.
    2. Xu, He, 2010. "Managing production and procurement through option contracts in supply chains with random yield," International Journal of Production Economics, Elsevier, vol. 126(2), pages 306-313, August.
    3. Díaz Cazañas Ronald & Delgado Sobrino Daynier Rolando & De La Paz Martínez Estrella María & Košťál Peter & Mudriková Andrea, 2018. "Integrating Production and Maintenance Planning as an Element of Success at the Tactical Level: A Fuzzy Control Theory Approach," Research Papers Faculty of Materials Science and Technology Slovak University of Technology, Sciendo, vol. 26(42), pages 109-117, June.
    4. P Viveros & E Zio & F Kristjanpoller & A Arata, 2012. "Integrated system reliability and productive capacity analysis of a production line. A case study for a Chilean mining process," Journal of Risk and Reliability, , vol. 226(3), pages 305-317, June.
    5. Fitouhi, Mohamed-Chahir & Nourelfath, Mustapha, 2014. "Integrating noncyclical preventive maintenance scheduling and production planning for multi-state systems," Reliability Engineering and System Safety, Elsevier, vol. 121(C), pages 175-186.
    6. Wu, Jun & Xie, Min & Adam Ng, Tsan Sheng, 2011. "On a general periodic preventive maintenance policy incorporating warranty contracts and system ageing losses," International Journal of Production Economics, Elsevier, vol. 129(1), pages 102-110, January.
    7. Xia, Tangbin & Xi, Lifeng & Zhou, Xiaojun & Lee, Jay, 2012. "Dynamic maintenance decision-making for series–parallel manufacturing system based on MAM–MTW methodology," European Journal of Operational Research, Elsevier, vol. 221(1), pages 231-240.
    8. Kort, Peter & Lavrutich, Maria & Nunes, Cláudia & Oliveira, Carlos, 2023. "Preventive investment, malfunctions and liability," International Journal of Production Economics, Elsevier, vol. 263(C).
    9. Ko, Chuan-Chuan & Lin, Tyrone T. & Yang, Chyan, 2011. "The venture capital entry model on game options with jump-diffusion process," International Journal of Production Economics, Elsevier, vol. 134(1), pages 87-94, November.
    10. Fitouhi, Mohamed-Chahir & Nourelfath, Mustapha, 2012. "Integrating noncyclical preventive maintenance scheduling and production planning for a single machine," International Journal of Production Economics, Elsevier, vol. 136(2), pages 344-351.
    11. Ram Niwas & M. S. Kadyan & Jitender Kumar, 2016. "MTSF (mean time to system failure) and profit analysis of a single-unit system with inspection for feasibility of repair beyond warranty," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 7(1), pages 198-204, December.
    12. Pinciroli, Luca & Baraldi, Piero & Zio, Enrico, 2023. "Maintenance optimization in industry 4.0," Reliability Engineering and System Safety, Elsevier, vol. 234(C).
    13. Hu, Fei & Lim, Cheng-Chew & Lu, Zudi, 2014. "Optimal production and procurement decisions in a supply chain with an option contract and partial backordering under uncertainties," Applied Mathematics and Computation, Elsevier, vol. 232(C), pages 1225-1234.
    14. Ghamlouch, Houda & Fouladirad, Mitra & Grall, Antoine, 2019. "The use of real option in condition-based maintenance scheduling for wind turbines with production and deterioration uncertainties," Reliability Engineering and System Safety, Elsevier, vol. 188(C), pages 614-623.

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