Optimizing maintenance service contracts under imperfect maintenance and a finite time horizon

When a company decides to outsource a service, the most important reasons for doing so usually are to focus on core business, to be able to access high‐quality services at lower costs, or to benefit from risk sharing. However, service contracts typically follow a structure whereby both owner and contractor attempt to maximize expected profits in a noncoordinated way. Previous research has considered supply chain coordination by means of contracts but is based on unrealistic assumptions such as perfect maintenance and infinite time‐span contracts. In this work, these limitations are overcome by defining the supply chain through a preventive maintenance strategy that maximizes the total expected profit for both parties in a finite time‐span contract. This paper presents a model to establish such conditions when maintenance is imperfect, and the contract duration is fixed through a number of preventive maintenance actions along a significant part of the asset life cycle under consideration. This formulation leads to a win–win coordination under a set of restrictions that can be evaluated a priori. The proposed contract conditions motivate stakeholders to continually improve their maintenance services to reach channel coordination in which both parties obtain higher rewards. Copyright © 2012 John Wiley & Sons, Ltd.