Network and Contract Optimization for Maintenance Services with Remanufacturing

Abstract

Comprehensive long term maintenance contracts are a recent trend in equipment industries. At the same time increasing environmental concerns and high prices for raw materials stress the importance of remanufacturing activities. Hence, maintenance contracts often result in remanufacturing of some critical components. We consider the situation in which an industrial equipment manufacturer offers multi-year maintenance contracts with an uptime guarantee. To provide these service contracts profitably, the company needs to decide on the contract design: selling price, overhaul interval and uptime guarantee. Moreover, the company has to invest in the required logistics network. The logistics network is determined by the locations, number and capacity level of the remanufacturing facilities and the number of field technicians in each service region. The network design and the overhaul interval affect the level of service in terms of machine uptime, and consequently, the price that customers are willing to pay for the service contract. The lead times throughout the network are stochastic in nature and modeled with steady-state queueing equations. We formulate a non-linear, mixed integer model to optimize the contract and logistics network with the objective of profit maximization for the service provider. The model is applied in a real-life case study and solved by means of a differential evolution algorithm.

Keywords: Contract Design, Remanufacturing, Network Design, Queueing