Performance-based contract price negotiation with maintenance policies and limited resource allocation based on queueing and game theory

Abstract

Servitization has become an important source of improvement in competitiveness and profitability in manufacturing industries providing capital-intensive engineering assets. In recent years, bundled offers of products and services have been referred to as product-service systems (PSS). The customers adopting this approach in their operations are more concerned about the system outcome (e.g. availability) rather than acquiring low-priced isolated assets. To align contractor policies with customer goals, the parties negotiate a performance-based contract (PBC), as an alternative to traditional maintenance contracts from after-sales of purchased engineering assets. Several previous works have described the benefits and challenges of these approaches. However, the models that deal with the problem of optimizing maintenance policies while determining the best price structure that satisfies both parties during asset servitization, are still pending. We formulate a novel framework for manufacturers providing a fleet of engineering assets jointly with preventive maintenance services. A profit-centric approach is proposed to determine the contract price structure using bargaining game formulation to satisfy parties’ expectations, while the operating firm decides on the optimal maintenance interval. Variations on the manufacturer’s resource allocation, and other model parameters, are studied through sensitivity analysis to assess their impact on production economics for both parties.