Learning and Maintenance Outsourcing

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

Abstract

In this paper, we discuss learning in maintenance outsourcing. We consider a manufacturer that outsources its maintenance activities to a contractor. We find that a payment scheme consisting of a fixed amount along with cost subsidization (CS) can maximize the manufacturer’s profit under no learning. If the contractor achieves learning through experience, CS still maximizes the manufacturer’s profit. If learning happens with costly effort, CS is still effective under special conditions.