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

Min Zhang, Keke Wei, Shuguang He, Zhen He and Wei Yan

International Journal of Production Research, 2023, vol. 61, issue 21, 7524-7539

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.

Date: 2023
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DOI: 10.1080/00207543.2022.2151661

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