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Maintenance outsourcing coordination with risk-averse contractors

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  • Fu-Shiang Tseng

    (National Central University, Jhongli City, Taiwan)

  • Yingchieh Yeh

    (National Central University, Jhongli City, Taiwan)

Abstract

Under a maintenance outsourcing contract, an external contractor receives a fixed payment from a manufacturer for periodically performing preventive maintenance and for performing minimal repairs whenever process failures occur. If the contractor’s maintenance policy results in a process uptime above a target level specified in the contract, the contractor receives a bonus payment based on the difference between the uptime and the target levels. We study the optimal designs of maintenance outsourcing contracts for achieving channel coordination when the contractor is risk averse towards uncertain repair costs caused by process failures. We find cases in which channel coordination cannot be achieved because of the contractor’s risk preference. Furthermore, the contractor’s risk preference may make channel coordination more difficult or easier, depending on the parameters considered in the model.

Suggested Citation

  • Fu-Shiang Tseng & Yingchieh Yeh, 2014. "Maintenance outsourcing coordination with risk-averse contractors," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 65(11), pages 1760-1769, November.
  • Handle: RePEc:pal:jorsoc:v:65:y:2014:i:11:p:1760-1769
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    Cited by:

    1. Zhong-Zhong Jiang & Na He & Xuwei Qin & Minghe Sun & Pengfei Wang, 2022. "Optimizing production and maintenance for the service-oriented manufacturing supply chain," Annals of Operations Research, Springer, vol. 316(1), pages 33-58, September.
    2. Jackson, Canek & Pascual, Rodrigo, 2021. "Joint pricing and maintenance strategies in availability-based product-service systems under different overhaul conditions," Reliability Engineering and System Safety, Elsevier, vol. 216(C).
    3. Jackson, Canek & Pascual, Rodrigo & Mac Cawley, Alejandro & Godoy, Sergio, 2023. "Product–service system negotiation in aircraft lease contracts with option of disagreement," Journal of Air Transport Management, Elsevier, vol. 107(C).
    4. Xiaoyan Xu & Yanan Ji & Yiwen Bian & Yanhong Sun, 2017. "Service outsourcing under co-opetition and information asymmetry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(6), pages 666-677, June.

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