Maintenance outsourcing of a multi-process manufacturing system with multiple contractors

Consider a manufacturer with a manufacturing system that consists of multiple processes. The manufacturer's revenue is determined by the minimum of the uptimes among the processes. The maintenance functions of the processes are outsourced to independent contractors so that each contractor is responsible only for one process. A performance-based incentive contract is offered to each contractor, consisting of an uptime target level and a bonus rate for exceeding the uptime target. Under the incentive contract, a contractor receives a bonus only when the achieved uptime exceeds the target level specified in the contract. We develop a model for jointly determining the uptime target levels and bonus rates for the contractors which maximize system profit. We also demonstrate the financial benefits of coordination and added flexibility in allocating the additional profit to the contractors. In addition we show the impact of the variation in individual process maintenance times and costs on channel coordination and profits.
1. Introduction Traditionally, maintenance has been a core in-house activity. However, it is now being viewed by many organizations as a non-core business function, and outsourcing of the maintenance function [...]