Abstract
An external contractor receives a payment from a manufacturer for periodically performing preventive maintenance and for performing minimal repairs whenever process failures occur. Suppose a new technology will be available in the future, but the timing is uncertain. We propose specifying one or multiple time points in a maintenance contract, at which the manufacturer can adopt (switch to) the new technology, if it becomes available, and change the preventive maintenance schedule for the remaining time in the contract period. A model is developed to determine the value of using these (switch) points in a maintenance contract to the manufacturer. The numerical results show that, with a higher arrival rate of the new technology, the value becomes greater, and thus, the optimal switch point should be set earlier. Furthermore, if the new technology reduces maintenance costs, using switch points adds more value to a cost-plus-margin method than either the fixed payment or cost-plus-fixed-fee methods. On the other hand, if adopting the new technology results in higher maintenance costs, the value using switch points is higher for the fixed payment method.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
