Channel coordination under predictive and corrective maintenance outsourcing

With respect to Industry 4.0, predictive maintenance plays an important role in production systems. A better predictive maintenance strategy is absolutely essential to an efficient, reliable and safe production process. This study considers a supply chain that consists of a manufacturer and an external contractor wherein the manufacturer is willing to outsource the predictive maintenance activities provided by the contractor. In order to achieve channel coordination, we introduce three incentive contracts: 1) maintenance cost subsidisation contract; 2) uptime target and bonus contract; 3) uptime reward contract, which enhance the cooperation willingness of the contractor and increases profit for both parties, thereby leading to a win-win situation. We also discuss the feasibility of the contracts given improvements in the failure rate and maintenance capability. Theoretical results show that the uptime target and bonus and uptime reward contracts can achieve channel coordination under specific conditions given increases in the failures rate and maintenance capacity. Numerical results are further presented to reveal the managerial insights.