Mechanical Engineering Commons^™

Incentive Maintenance Outsourcing Contracts For Channel Coordination And Improvement, Hakan Tarakci, Kwei Tang, Herb Moskowitz, Robert Plante

Hakan Tarakci

Consider a manufacturer who has a process with an increasing failure rate over time. In order to improve the process performance, the following two types of maintenance activity are outsourced to an external contractor: (i) preventive maintenance is performed periodically to improve the reliability of the process when the process is functional; and (ii) corrective maintenance is used to restore the process to a specified condition when it fails. We consider the use of incentive contracts to induce the contractor to select the maintenance policy that optimizes the total profit of the manufacturer and contractor. It is demonstrated that an …