A game-theoretical approach for optimizing maintenance, spares and service capacity in performance contracting

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)31-43
Journal / PublicationInternational Journal of Production Economics
Online published24 Nov 2014
Publication statusPublished - Mar 2015


Recently the service industry is transitioning from material-based contracting to performance-based contracting. This paradigm shift enables the supplier to maximize the profit by attaining the system performance goal, while the customer is able to lower the asset ownership cost with assured system availability. Prior studies usually focus on a single stakeholder, either the supplier or the customer, in searching for the optimal decisions. Under game-theoretical framework, this paper proposes a multi-party, multi-criteria, and multi-item service delivery mechanism to maximize the utilities of all the stakeholders. The goals are achieved by jointly optimizing the maintenance, the spares inventory, and the repair capacity under the game-theoretical framwork. We prove that the supplier's actions on parts replacement time, spares stock level and repair cycle times are fully observable to the customer. Hence a first-best solution is guaranteed without moral hazard issue. Numerical studies from wind industry show that a single or a consolidated multi-item contract could be advantageous over multiple single-item contracts as it ensures a higher profit margin at a lower customer's cost.

Research Area(s)

  • First-best solution, Game theory, Operational availability, Performance-based contracting, Repairable inventory