Manufacturer, Maintenance Contractor and Joint Profits

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A manufacturer earns some revenue as long as the production line is up and running. However, the system is prone to failures, and a contractor is hired to take care of maintenance activities. We assume that the production system has a failure rate that follows the Weibull distribution and that the contractor can minimally repair breakdowns/failures (during the repairs, the failure rate stops increasing). The system also needs preventive maintenance (PM) from time to time to reset the failure rate to zero. The contractor pays for all the maintenance and repair costs, and the manufacturer pays the contractor a certain fixed payment per unit time. The contractor is also responsible for deciding the PM schedule: the contractor would let the system run normally, only doing repairs as needed, until a cumulative uptime of has passed since the last PM.


The manufacturer's expected profit per unit of time, expressed as the total profit in a cycle divided by the expected length of a cycle, can be given by the following:



= revenue per unit of uptime,

= fixed payment per unit time from the manufacturer to the contractor,

= uptime between two successive PMs,

= minimal repair (MR) duration,

= PM duration,

, = scale and shape parameters, respectively, of the Weibull distribution.

The contractor's expected profit per unit of time can be given as:



= PM cost


= MR cost.

This Demonstration presents the profit values of the manufacturer and the contractor as a function of . The joint profit values, which could be attained if the manufacturer and the contractor made joint decisions to act as a coordinated unit, are also included.


Contributed by: Hakan Tarakci (December 2016)
Open content licensed under CC BY-NC-SA



The models described in this Demonstration are based on [1, 2].


[1] H. Tarakci, K. Tang, H. Moskowitz and R. Plante, "Incentive Maintenance Outsourcing Contracts for Channel Coordination and Improvement," IIE Transactions, 38(8), 2007, pp. 671–684. doi:10.1080/07408170600692259.

[2] H. Tarakci, S. Ponnaiyan and S. Kulkarni, "Maintenance-Outsourcing Contracts for a System with Backup Machines," International Journal of Production Research, 52(11), 2014 pp. 3259–3272. doi:10.1080/00207543.2013.870361.

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