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The impact of fleet size on performance-based incentive management

Author

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  • Hassan Mirzahosseinian

    (Nanyang Technological University, Singapore, Singapore
    The Logistics Institute- Asia Pacific, Singapore, Singapore)

  • Rajesh Piplani

    (Nanyang Technological University, Singapore, Singapore)

  • Tongdan Jin

    (Texas State University, San Marcos, TX, USA)

Abstract

Performance-based contracting (PBC) is envisioned to lower the asset ownership cost while ensuring desired system performance. System availability, widely used as a performance metric in such contracts, is affected by multiple factors such as equipment reliability, spares stock, fleet size, and service capacity. Prior studies have either focussed on ensuring parts availability or advocating the reliability allocation during design. This paper investigates a single echelon repairable inventory model in PBC. We focus on reliability improvement and its interaction with decisions affecting service time, taking into account the operating fleet size. The study shows that component reliability in a repairable inventory system is a function of the operating fleet size and service rate. A principal-agent model is further developed to evaluate the impact of the fleet size on the incentive mechanism design. The numerical study confirms that the fleet size plays a critical role in determining the penalty and cost sharing rates when the number of backorders is used as the negative incentive scheme.

Suggested Citation

  • Hassan Mirzahosseinian & Rajesh Piplani & Tongdan Jin, 2016. "The impact of fleet size on performance-based incentive management," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 165-175, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:165-175
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    Cited by:

    1. Shuai Zhang & Kai Huang & Yufei Yuan, 2021. "Spare Parts Inventory Management: A Literature Review," Sustainability, MDPI, vol. 13(5), pages 1-23, February.

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