The effects of cyber threats on maintenance outsourcing and age replacement policy

Abstract

This research examines maintenance outsourcing in the presence of cyber-attacks. The research findings contribute to the literature on maintenance outsourcing by considering how cyber-attacks affect channel coordination and, specifically, cost subsidization. The Internet of Things assumes the risk that a “smart” or connected manufacturing system could become the target of a cyber-attack. Manufacturers have to face the difficult decision of adopting increasingly costly security technologies or having the manufacturing system remain vulnerable to cyber threats. This study develops a model addressing this dilemma by providing insight into the effects of cost subsidization and tools that manufacturers may use to evaluate the impact that installation of a security system has on a manufacturing system’s profit. The research also analyzes the effect of a cyber-attack on the system when using an age replacement policy. Under such a system, repairs may cost more than replacement which suggests that new components are required immediately after failure. For “smart” manufacturing systems that use either maintenance outsourcing or an age replacement policy, the study provides optimal solutions for firms to maximize the manufacturing system’s profit with consideration of the firms’ physical equipment failure and cyber-attack rates. The findings help determine the value of a security system by providing guidelines that address the effects of the cost, failure rate, and “successful” cyber-attack rate parameters.