Designs of maintenance outsourcing contracts

Under a maintenance outsourcing contract, an external contractor receives a payment from a manufacturer for periodically performing preventive maintenance and for performing minimal repairs whenever process failures occur. In the first part of this thesis, we consider that the payment is fixed. If the contractor\u27s maintenance policy results in a process uptime above a target level specified in the contract, the contractor receives a bonus payment based on the difference between the uptime and the target levels. We study the optimal designs of maintenance outsourcing contracts for achieving channel coordination when the contractor is risk averse toward uncertain repair costs caused by process failures. We find cases in which channel coordination cannot be achieved because of the contractor\u27s risk preference. Furthermore, the contractor\u27s risk preference may make channel coordination more difficult or easier, depending on the parameters considered in the model. The results are extended to a situation where a single contractor is selected from a group of contractors with different levels of risk aversion. We develop a contract that leads to channel coordination and maximization of the manufacturer\u27s profit. In the second part of the thesis, we propose using real options in maintenance contracts to provide flexibility for new technology adoption. It is assumed that a new technology will be available in the future, but the timing is uncertain. The option allows the manufacturer to adopt the new technology at a point in the contract period, if it becomes available, and change the preventive maintenance schedule for the remaining time in the contract period. The optimal design of the contract is studied under three common payment methods: fixed payment, cost plus fixed fee, and cost plus margin. The model is extended to allowing multiple option points in the contract