IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v349y2025i1d10.1007_s10479-023-05331-4.html
   My bibliography  Save this article

An outcome-based maintenance contracting model by considering multi-criteria and risk equilibrium

Author

Listed:
  • Jong-Jang Lin

    (China University of Science and Technology)

  • Yi-Kuei Lin

    (National Yang Ming Chiao Tung University
    Chaoyang University of Technology
    China Medical University Hospital, China Medical University
    Asia University)

  • Louis Cheng-Lu Yeng

    (National Yang Ming Chiao Tung University)

  • Ruey-Huei Yeh

    (National Taiwan University of Science and Technology)

Abstract

In recent years, the system maintenance service has been transitioning from the resource-based contract (RBC) approach towards a new outcome-based contract (OBC) approach, enabling better profits for the service provider and lower cost and risk equilibrium for the service buyer. Prior studies usually focus on a single criterion as a service outcome for a complex and repairable system. This paper proposes a novel risk equilibrium OBC model with a given multi-outcome in maintenance service. The proposed model solves the multi-criteria obligation problem in a complex repairable system maintenance service to achieve three objectives: searching for a dominant risk equilibrium and inner cost, attaining the system's expected outcome, and controlling the multi-outcome and risk equilibrium. The proposed model can apply to disparate maintenance policies comprising various preventive and corrective maintenance methods. Furthermore, the proposed model presents a comparative mechanism to different contract types by game-theoretical analysis, which leads to a first-best solution and avoids moral hazard problems. The case study shows that the proposed OBC model forms a game-theoretical equilibrium for both parties, ensuring the risk equilibrium with the optimal cost.

Suggested Citation

  • Jong-Jang Lin & Yi-Kuei Lin & Louis Cheng-Lu Yeng & Ruey-Huei Yeh, 2025. "An outcome-based maintenance contracting model by considering multi-criteria and risk equilibrium," Annals of Operations Research, Springer, vol. 349(1), pages 47-66, June.
  • Handle: RePEc:spr:annopr:v:349:y:2025:i:1:d:10.1007_s10479-023-05331-4
    DOI: 10.1007/s10479-023-05331-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-023-05331-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s10479-023-05331-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jin, Tongdan & Tian, Zhigang & Xie, Min, 2015. "A game-theoretical approach for optimizing maintenance, spares and service capacity in performance contracting," International Journal of Production Economics, Elsevier, vol. 161(C), pages 31-43.
    2. Houyuan Jiang & Zhan Pang & Sergei Savin, 2012. "Performance-Based Contracts for Outpatient Medical Services," Manufacturing & Service Operations Management, INFORMS, vol. 14(4), pages 654-669, October.
    3. Sang-Hyun Kim & Morris A. Cohen & Serguei Netessine, 2007. "Performance Contracting in After-Sales Service Supply Chains," Management Science, INFORMS, vol. 53(12), pages 1843-1858, December.
    4. George J. Feeney & Craig C. Sherbrooke, 1966. "Correction to "(s - 1, s) Inventory Policy Under Compound Poisson Demand"," Management Science, INFORMS, vol. 12(11), pages 908-908, July.
    5. R. Ahmadi, 2016. "An optimal replacement policy for complex multi-component systems," International Journal of Production Research, Taylor & Francis Journals, vol. 54(17), pages 5303-5316, September.
    6. Ruey Yeh & Wen Chang & Hui-Chiung Lo, 2010. "Optimal threshold values of age and two-phase maintenance policy for leased equipments using age reduction method," Annals of Operations Research, Springer, vol. 181(1), pages 171-183, December.
    7. Yash Daultani & Sushil Kumar & Omkarprasad S. Vaidya & Manoj K. Tiwari, 2015. "A supply chain network equilibrium model for operational and opportunism risk mitigation," International Journal of Production Research, Taylor & Francis Journals, vol. 53(18), pages 5685-5715, September.
    8. Grubic, Tonci & Jennions, Ian, 2018. "Do outcome-based contracts exist? The investigation of power-by-the-hour and similar result-oriented cases," International Journal of Production Economics, Elsevier, vol. 206(C), pages 209-219.
    9. Richard Barlow & Larry Hunter, 1960. "Optimum Preventive Maintenance Policies," Operations Research, INFORMS, vol. 8(1), pages 90-100, February.
    10. Rommert Dekker & Ralph Wildeman & Frank Duyn Schouten, 1997. "A review of multi-component maintenance models with economic dependence," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 45(3), pages 411-435, October.
    11. Richard Lackes & Philipp Schlüter & Markus Siepermann, 2016. "The impact of contract parameters on the supply chain performance under different power constellations," International Journal of Production Research, Taylor & Francis Journals, vol. 54(1), pages 251-264, January.
    12. T Jin & P Wang, 2012. "Planning performance based contracts considering reliability and uncertain system usage," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 63(10), pages 1467-1478, October.
    13. Fangruo Chen, 2005. "Salesforce Incentives, Market Information, and Production/Inventory Planning," Management Science, INFORMS, vol. 51(1), pages 60-75, January.
    14. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    15. Öner, K.B. & Kiesmüller, G.P. & van Houtum, G.J., 2010. "Optimization of component reliability in the design phase of capital goods," European Journal of Operational Research, Elsevier, vol. 205(3), pages 615-624, September.
    16. Roger A McCain, 2014. "Game Theory:A Nontechnical Introduction to the Analysis of Strategy," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9044, February.
    17. D Nowicki & U D Kumar & H J Steudel & D Verma, 2008. "Spares provisioning under performance-based logistics contract: profit-centric approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(3), pages 342-352, March.
    18. Nakagawa, Toshio & Kowada, Masashi, 1983. "Analysis of a system with minimal repair and its application to replacement policy," European Journal of Operational Research, Elsevier, vol. 12(2), pages 176-182, February.
    19. Jaturonnatee, J. & Murthy, D.N.P. & Boondiskulchok, R., 2006. "Optimal preventive maintenance of leased equipment with corrective minimal repairs," European Journal of Operational Research, Elsevier, vol. 174(1), pages 201-215, October.
    20. Yi-Kuei Lin & Cheng-Fu Huang & Chin-Chia Chang, 2022. "Reliability of spare routing via intersectional minimal paths within budget and time constraints by simulation," Annals of Operations Research, Springer, vol. 312(1), pages 345-368, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jin, Tongdan & Tian, Zhigang & Xie, Min, 2015. "A game-theoretical approach for optimizing maintenance, spares and service capacity in performance contracting," International Journal of Production Economics, Elsevier, vol. 161(C), pages 31-43.
    2. Xian Zhao & Jing Zhang & Xiaoyue Wang, 2019. "Joint optimization of components redundancy, spares inventory and repairmen allocation for a standby series system," Journal of Risk and Reliability, , vol. 233(4), pages 623-638, August.
    3. Korkeamäki, Lauri & Kohtamäki, Marko & Parida, Vinit, 2021. "Worth the risk? The profit impact of outcome-based service offerings for manufacturing firms," Journal of Business Research, Elsevier, vol. 131(C), pages 92-102.
    4. Patra, Pradipta & Kumar, U. Dinesh & Nowicki, David R. & Randall, Wesley S., 2019. "Effective management of performance-based contracts for sustainment dominant systems," International Journal of Production Economics, Elsevier, vol. 208(C), pages 369-382.
    5. Qin, Xuwei & Jiang, Zhong-Zhong & Sun, Minghe & Tang, Liang & Liu, Xiaoran, 2021. "Repairable spare parts provisioning for multiregional expanding fleets of equipment under performance-based contracting," Omega, Elsevier, vol. 102(C).
    6. Ge, Qianru & Peng, Hao & van Houtum, Geert-Jan & Adan, Ivo, 2018. "Reliability optimization for series systems under uncertain component failure rates in the design phase," International Journal of Production Economics, Elsevier, vol. 196(C), pages 163-175.
    7. Pradipta Patra & U. Dinesh Kumar, 2024. "Availability contracts under hierarchical maintenance," Annals of Operations Research, Springer, vol. 340(1), pages 389-423, September.
    8. Qin, Xuwei & Shao, Lusheng & Jiang, Zhong-Zhong, 2020. "Contract design for equipment after-sales service with business interruption insurance," European Journal of Operational Research, Elsevier, vol. 284(1), pages 176-187.
    9. Jin, Tongdan & Tian, Yu, 2012. "Optimizing reliability and service parts logistics for a time-varying installed base," European Journal of Operational Research, Elsevier, vol. 218(1), pages 152-162.
    10. Sang-Hyun Kim & Morris A. Cohen & Serguei Netessine, 2007. "Performance Contracting in After-Sales Service Supply Chains," Management Science, INFORMS, vol. 53(12), pages 1843-1858, December.
    11. Canek Jackson & Rodrigo Pascual & Fredy Kristjanpoller, 2024. "Performance-based contracting in the airline industry from the standpoint of risk-averse maintenance providers," Journal of Risk and Reliability, , vol. 238(5), pages 972-982, October.
    12. Guan Jun Wang & Yuan Lin Zhang, 2016. "Optimal replacement policy for a two-dissimilar-component cold standby system with different repair actions," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(5), pages 1021-1031, April.
    13. Wang, Yukun & Gao, Weizheng & Li, Xiaopeng & Liu, Yiliu, 2024. "Joint optimization of performance-based contracting, condition-based maintenance and spare parts inventory for degrading production systems," Reliability Engineering and System Safety, Elsevier, vol. 243(C).
    14. Mirzahosseinian, H. & Piplani, R., 2011. "A study of repairable parts inventory system operating under performance-based contract," European Journal of Operational Research, Elsevier, vol. 214(2), pages 256-261, October.
    15. Qianru Ge & Willem van Jaarsveld & Zümbül Atan, 2020. "Optimal redesign decisions through failure rate estimates," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(4), pages 254-271, June.
    16. Caiyun Niu & Xiaolin Liang & Bingfeng Ge & Xue Tian & Yingwu Chen, 2016. "Optimal replacement policy for a repairable system with deterioration based on a renewal-geometric process," Annals of Operations Research, Springer, vol. 244(1), pages 49-66, September.
    17. Wang, Xiaolin & Liu, Bin & Zhao, Xiujie, 2021. "A performance-based warranty for products subject to competing hard and soft failures," International Journal of Production Economics, Elsevier, vol. 233(C).
    18. Sheu, Shey-Huei, 1998. "A generalized age and block replacement of a system subject to shocks," European Journal of Operational Research, Elsevier, vol. 108(2), pages 345-362, July.
    19. Briš, Radim & Byczanski, Petr & Goňo, Radomír & Rusek, Stanislav, 2017. "Discrete maintenance optimization of complex multi-component systems," Reliability Engineering and System Safety, Elsevier, vol. 168(C), pages 80-89.
    20. Wei Zhang & Deke Zhou & Liwen Liu, 2014. "Contracts for Changing Times: Sourcing with Raw Material Price Volatility and Information Asymmetry," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 133-148, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:349:y:2025:i:1:d:10.1007_s10479-023-05331-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.