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Incentive maintenance outsourcing contracts for channel coordination and improvement
IIE Transactions (2006)
  • Hakan Tarakci, Melbourne Business School
  • Kwei Tang, Purdue University
  • Herb Moskowitz, Purdue University
  • Robert Plante, Purdue University
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 incentive contract based on a combination of a target uptime level and a bonus always leads to the desired win-win coordination, and provides flexibility in allocating the extra profit generated from coordination and, importantly, an incentive to the contractor to improve the efficiency of the maintenance operations. The incentive contract can also be used to select the most economically efficient contractor frommultiple contractors with different maintenance capabilities.
  • maintenance outsourcing coordination
Publication Date
Citation Information
Hakan Tarakci, Kwei Tang, Herb Moskowitz and Robert Plante. "Incentive maintenance outsourcing contracts for channel coordination and improvement" IIE Transactions Vol. 38 (2006)
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