Channel coordination on fixed-term maintenance outsourcing contracts

Rodrigo Pascual, Gabriel Santelices, Haitao Liao, Sergio Maturana

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This article studies the positive and negative effects that fixed-term maintenance contracts may have on related decision-making. We present an original model to estimate such effects and select the optimal preventive maintenance intervals and contract terms for pieces of equipment that are serviced by an external party. In the context of the contract, the intention of each party is in general to maximize its own profit, which usually leads to unaligned interests and decisions. To resolve this issue, we propose incentive schemes to ensure the contract sustainability by achieving channel coordination between the client and its service vendor. Special focus is put on how the performed net-present-value analysis of both parties affects decision-making regarding equipment maintenance. Our model considers a new alternative of negotiating contracts with non-constant maintenance intervals. The proposed model helps to identify conditions that justify maintenance deferrals with their associated negligence, in terms of life cycle reduction and performance deterioration, when no channel coordination is promoted. Additionally, we present a simple procedure to settle an optimal contract duration, benefiting both parties. The proposed methodology is tested using a baseline case study from the literature. It illustrates how return-on-investment analysis may significantly impact optimal maintenance intervals during the contract for both parties. Accordingly, incentives need to be re-evaluated to achieve channel coordination. The suggested approach can be easily implemented in commercial spreadsheets, facilitating sensitivity analyses.

Original languageEnglish (US)
Pages (from-to)651-660
Number of pages10
JournalIIE Transactions (Institute of Industrial Engineers)
Volume48
Issue number7
DOIs
StatePublished - Jul 2 2016
Externally publishedYes

Fingerprint

Outsourcing
Decision making
Value engineering
Preventive maintenance
Spreadsheets
Deterioration
Sustainable development
Life cycle
Profitability

Keywords

  • channel coordination
  • Fixed term contracts
  • net-present-value analysis
  • non-constant intervals
  • preventive maintenance

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering

Cite this

Channel coordination on fixed-term maintenance outsourcing contracts. / Pascual, Rodrigo; Santelices, Gabriel; Liao, Haitao; Maturana, Sergio.

In: IIE Transactions (Institute of Industrial Engineers), Vol. 48, No. 7, 02.07.2016, p. 651-660.

Research output: Contribution to journalArticle

Pascual, Rodrigo ; Santelices, Gabriel ; Liao, Haitao ; Maturana, Sergio. / Channel coordination on fixed-term maintenance outsourcing contracts. In: IIE Transactions (Institute of Industrial Engineers). 2016 ; Vol. 48, No. 7. pp. 651-660.
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