Performance-based maintenance contract for mission-critical equipment considering spare parts inventory cost-sharing and suppliers' risk attitudes

ABSTRACT

In capital-intensive industries, it is becoming common practice for operators to outsource the mission-critical equipment maintenance to service suppliers. Performance-based contracts (PBCs) are widely used and the equipment availability is considered as an important performance indicator. In this paper, we studied a kind of mission-critical equipment that has a major component. When a failure occurred in the major component, it is replaced by a spare part and repaired offline. We consider suppliers' risk attitudes (i.e. risk-averse, risk-neutral, and risk-seeking) and the spare parts inventory cost-sharing between the supplier and the operator to design a PBC. Specifically, from the operator's perspective, we use a principal-agent analysis framework to construct a contract model which considers different suppliers' risk attitudes. We further explore the impact of inventory cost-sharing proportion on the operator's profit and contract parameters. The results show that it is more incentive to provide larger fixed payments and performance penalties (rewards) for risk-seeking (risk-averse) suppliers as the increasing of risk coefficient under no cost-sharing. Moreover, a large cost-sharing proportion has no impact on the operator's optimal profit, but affects the contract option of different risk attitudes' suppliers. Finally, a numeric example is used to illustrate the proposed models.

KEYWORDS:

• Maintenance
• performance-based contract
• equipment availability
• risk attitudes
• cost-sharing
• spare parts

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The authors confirm that the data supporting the findings of this study are available within the article.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [grant numbers 72171166, 72032005].

Notes on contributors

Min Zhang

Min Zhang is a Professor in College of Management and Economics, Tianjin University, China. Her research interests focus on operations management and quality management. She has published more than 50 refereed articles in research journals, including Journal of Business Ethics, International Journal of Production Economics, International Journal of Production Research, Information Systems Frontiers, et al. Email: [email protected].

Keke Wei

Keke Wei is a Ph.D. candidate in College of Management and Economics, Tianjin University, China. Her research interests focus on operations management and quality management. Email: [email protected].

Shuguang He

Shuguang He is a Professor in College of Management and Economics, Tianjin University, China. His research interests focus on operations management and quality management. He has published more than 50 academic papers in refereed journals, including Reliability Engineering & System Safety, International Journal of Production Research, Journal of Quality Technology, Decision Support Systems, et al. Email: [email protected].

Zhen He

Zhen He is a Professor in College of Management and Economics, Tianjin University, China. His research interests focus on operations management and quality management. He has published more than 50 academic papers in refereed journals, including European Journal of Operational Research, Reliability Engineering & System Safety, International Journal of Production Research, Journal of Quality Technology, Decision Support Systems, et al. Email: [email protected].

Wei Yan

Wei Yan is the vice general manager in Tianjin Metro Group CO., LTD, Tianjin, China. His research interests focus on operations management. He has published more than 10 refereed articles in research journals including Industrial Engineering and Management, Systems Engineering – Theory & Practice, et al. Email: [email protected].