Learning and Forgetting in Maintenance Outsourcing

Hakan Tarakci, Melbourne Business School
Sunantha Teyarachakul, ESSEC Business School
Kwei Tang, Purdue University

Abstract

We study the effects of learning and forgetting on maintenance outsourcing in this paper. This is an extension of the paper by Tarakci et al. (2009), which analyzed the effects of learning on maintenance outsourcing. In our model, a manufacturer offers a short-term outsourcing contract, where payment includes a fixed value along with cost subsidization for each preventive maintenance activity, to an external contractor. The contractor schedules and performs preventive maintenance activities as well as repairs the system if there is a failure. We consider two types of learning: natural learning and learning by costly efforts. We then analyze the system when forgetting takes place under each learning type. We assume that the forgetting follows the “realistic forgetting function” properties. We demonstrate that a well-designed payment scheme can motivate the contractor to select the maintenance schedule that maximizes the manufacturer’s profit.