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As a novel supporting approach, performance-based contracting (PBC) ties the service supplier's compensation to the performance outcome of the system owned by the customer. It enables the service supplier to implement an effective maintenance and spare parts inventory policy so as to improve system performance. In this paper, we propose a principal–agent modeling framework for deteriorating production systems operating under PBC, with the objective of maximizing the expected utilities of both stakeholders. The customer (principal) offers PBC with a fixed payment plus performance incentive form to the service supplier (agent), who in turn implements a condition-based maintenance (CBM) policy based on the system prognostic condition at periodic inspections, and sets an investment level of spare parts inventory. Considering the partial observability of the service supplier's actions, the optimal combination of performance incentive in PBC provided by the customer, and the joint CBM and spare parts inventory policy implemented by the service supplier, are determined through a two-stage and heuristic approach. Finally, a numerical example and sensitivity analysis based on a real-world scenario are presented to illustrate and verify the applicability of the proposed model. • Investigate the performance-based contracting (PBC) for degrading production systems. • Analyze condition-based maintenance (CBM) and spare parts inventory policy. • Propose a principal–agent model and a two-stage solution approach. • Determine optimal PBC incentive, joint CBM and spare parts inventory policy. • Verify the applicability of the proposed model. [ABSTRACT FROM AUTHOR]

• An accelerated reliability growth model is developed. • The approach incorporates usage heterogeneity and failure learning effect. • Cost-based optimization model is proposed. • Optimal reliability growth test program is derived. • Applicability of the approach is verified through a numerical example. For products sold with a two-dimensional warranty policy, the warranty servicing cost can be reduced through reliability growth during development. This paper investigates a multi-phase reliability growth test program for repairable products with independent competing failure modes. Considering a test-find-test scheme, an accelerated reliability growth model is developed, allowing different failure modes having distinct accelerated relationships. Taking usage heterogeneity and mode-specific failure learning effect into account, the reliability growth is achieved through periodic fixes on a phase-by-phase basis. From the manufacturer's perspective, the main objective is to achieve the optimal trade-off between the warranty cost and the reliability growth test cost by determining the optimal test program that minimizes the expected total cost per product sold, ensuring that the pre-specified reliability growth requirement is met. Assuming the tri-Weibull product failure distribution, we illustrate the proposed optimization model numerically and study the effect of relevant parameters on the optimal reliability growth test program. The results show that the proposed approach yields significant cost reduction and reliability improvement for the examples studied in this paper, especially when the manufacturer possesses high failure learning ability, and the product has expensive repair cost per a warranty failure and extensive warranty coverage. [ABSTRACT FROM AUTHOR]

The growing market for second-hand products facilitates the acceptance of warranty provided by dealers to promote sales and provide assurance for customers. Offering warranty results in additional cost due to warranty claims servicing. Such cost can be reduced through upgrade and preventive maintenance (PM) that improve the reliability of the product. Reliability improvement is worthwhile only if the cost incurred is less than the reduction in the warranty cost. For repairable second-hand products sold with a two-dimensional warranty, this paper investigates the worthiness of reliability improvement from the dealer’s viewpoint. A new modeling approach is proposed and studied, allowing the same product to have distinct degradation processes due to customer usage intensity variation. The effects of customer usage heterogeneity, upgrade and PM actions on the product reliability and the corresponding expected cost to the dealer are characterized. Optimal reliability program including the upgrade degree and PM policy is derived so that the expected total cost of the second-hand product to the dealer can be minimized. Numerical examples are utilized to illustrate the applicability of the proposed model. In addition, some practical implications from a sensitive analysis regarding the important parameters are elaborated. [ABSTRACT FROM AUTHOR]

For repairable items under the two-dimensional warranty, the manufacturer expenses warranty costs for rectifying the failures occurring over the warranty coverage. Preventive maintenance actions reduce the occurrence intensity of item failures, and hence the warranty cost resulted from corrective maintenance, but bring additional preventive maintenance cost. In this paper, we investigate a periodic and imperfect preventive maintenance strategy for an item covered by a fixed and combined base warranty and extended warranty region from the manufacturer׳s perspective. After the base warranty expires, the buyer purchases an extended warranty service contract from the same manufacturer for extra protection. Over the whole warranty coverage, the item failures are minimally repaired by the manufacturer at no cost to the buyer. The effect of preventive maintenance action is characterized by reducing the item׳s failure intensity proportionally to the maintenance degree at each preventive maintenance action. Then a mathematical model is proposed to derive the optimal preventive maintenance strategy so as to minimize the total expected warranty servicing cost to the manufacturer. A numerical example is presented to illustrate the application of the proposed model and evaluate the impact of different model parameters on the optimal solutions and the corresponding warranty servicing costs. [ABSTRACT FROM AUTHOR]

Condition-based maintenance (CBM) optimization utilizing prognostic information and methods for complex systems has attracted increasing attention. This paper presents a bi-level approach to optimize a CBM policy for multi-component systems subject to stochastic and economic dependencies. The objective of the decision rule at the system level is to address if preventive and/or corrective maintenance actions are necessary regarding the predictive reliability of the system. At the component level, the aim is to identify the optimal group of components to be preventively maintained when maintenance is triggered due to the decision made at the system level. A maintenance efficacy indicator is introduced to prioritize components to be maintained by taking into account both the resulting reliability improvement quantity and the maintenance cost incurred. The optimal inter-inspection interval, the thresholds of system and component conditional reliability for triggering maintenance are jointly determined for minimization of the long-run average cost rate. A numerical study and sensitivity analysis on a 2oo3:G system are carried out to validate the performance of the proposed maintenance policy. Compared to another opportunistic maintenance policy without considering the system health condition, the proposed CBM policy leads to more cost gain and effectiveness in the maintenance decision-making. • A multi-level CBM policy for multi-component systems is proposed. • Stochastic dependence is characterized by degradation "rate–rate" interactions. • A maintenance cost rate model using predictive reliability data is developed. • Importance of components or groups is ranked by a maintenance efficacy indicator. • The optimal CBM policy is derived utilizing MCS and PSO-based heuristic approach. [ABSTRACT FROM AUTHOR]

Abstract: Although configurable products have been common in the market, buyers often receive standard warranty offerings rather than customized ones from manufacturers. In this study, a reliability based method is proposed to specify warranties for certain product configuration schemes. A continuous time Markov model is adopted to measure the vulnerabilities of components involved in configuration. Then the warranty claim probability of a product with multiple components is calculated, and the warranty costs in varied warranty periods are estimated. Under a minimal repair warranty in which only failed components are replaced free of charge, warranty plans can be customized for different configuration schemes on the basis of warranty costs. Next, an example of laptop computer is introduced to illustrate the procedure and effectiveness of the proposed method. Impacts of operating frequency and operating time of products on warranty costs are also measured. In addition, some recommendations are provided in order to deal with issues of replacement policy, pro-rata rebate warranty (PRW) and compatibility between components. [Copyright &y& Elsevier]