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Channel coordination on fixed-term maintenance outsourcing contracts

Author

Listed:
  • Rodrigo Pascual
  • Gabriel Santelices
  • Haitao Liao
  • Sergio Maturana

Abstract

This article studies the positive and negative effects that fixed-term maintenance contracts may have on related decision-making. We present an original model to estimate such effects and select the optimal preventive maintenance intervals and contract terms for pieces of equipment that are serviced by an external party. In the context of the contract, the intention of each party is in general to maximize its own profit, which usually leads to unaligned interests and decisions. To resolve this issue, we propose incentive schemes to ensure the contract sustainability by achieving channel coordination between the client and its service vendor. Special focus is put on how the performed net-present-value analysis of both parties affects decision-making regarding equipment maintenance. Our model considers a new alternative of negotiating contracts with non-constant maintenance intervals. The proposed model helps to identify conditions that justify maintenance deferrals with their associated negligence, in terms of life cycle reduction and performance deterioration, when no channel coordination is promoted. Additionally, we present a simple procedure to settle an optimal contract duration, benefiting both parties. The proposed methodology is tested using a baseline case study from the literature. It illustrates how return-on-investment analysis may significantly impact optimal maintenance intervals during the contract for both parties. Accordingly, incentives need to be re-evaluated to achieve channel coordination. The suggested approach can be easily implemented in commercial spreadsheets, facilitating sensitivity analyses.

Suggested Citation

  • Rodrigo Pascual & Gabriel Santelices & Haitao Liao & Sergio Maturana, 2016. "Channel coordination on fixed-term maintenance outsourcing contracts," IISE Transactions, Taylor & Francis Journals, vol. 48(7), pages 651-660, July.
  • Handle: RePEc:taf:uiiexx:v:48:y:2016:i:7:p:651-660
    DOI: 10.1080/0740817X.2015.1122255
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    Citations

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    Cited by:

    1. 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).
    2. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2019. "Emergency supply contracts for a service provider with limited local resources," Reliability Engineering and System Safety, Elsevier, vol. 189(C), pages 445-460.
    3. Alejandro Mac Cawley & Maximiliano Cubillos & Rodrigo Pascual, 2020. "A real options approach for joint overhaul and replacement strategies with mean reverting prices," Annals of Operations Research, Springer, vol. 286(1), pages 303-324, March.
    4. Sharafali, Moosa & Tarakci, Hakan & Kulkarni, Shailesh & Razack Shahul Hameed, Raja Abdul, 2019. "Optimal delivery due date for a supplier with an unreliable machine under outsourced maintenance," International Journal of Production Economics, Elsevier, vol. 208(C), pages 53-68.
    5. 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).
    6. Qinpeng Wang & Longfei He, 2018. "Managing Risk Aversion for Low-Carbon Supply Chains with Emission Abatement Outsourcing," IJERPH, MDPI, vol. 15(2), pages 1-20, February.

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