Sustaining system coordination in outsourcing the maintenance function of a process having a linear failure rate

An increasing trend in manufacturing is the outsourcing of maintenance and repair activities to an external contractor. An outsourced maintenance contract is presented that details the costs, timing, and possible bonuses for maintaining uptime thresholds and covers both minimal corrective repairs and regularly scheduled preventive replacements. By negotiating an incentive-based maintenance contract, the manufacturer and contractor can achieve system coordination, a mutually beneficial relationship that maximizes system profit. We study the sensitivity of system coordination to the expected cost of minimal corrective process repairs. For a manufacturing process with a linear failure rate, we develop a complete characterization of the intervals for the expected cost of repair and the corresponding contract parameters wherein system coordination is guaranteed for any expected cost of repair that occurs within the interval.