Network and Contract Optimization for Maintenance Services with Remanufacturing

KU Leuven - Faculty of Business and Economics Working Paper No. KBI 1228

33 Pages Posted: 6 Apr 2013

See all articles by Kris Lieckens

Kris Lieckens

Catholic University of Leuven (KUL). Faculty of Business and Economics (FBE). LICOS Centre for Institutions and Economic Performance

Pieter Colen

Catholic University of Leuven (KUL); Faculty of Business and Economics (FBE)

Marc Lambrecht

KU Leuven, Research Center for Operations Management, Faculty of Economics and Business

Date Written: December 4, 2012

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

Suggested Citation

Lieckens, Kris and Colen, Pieter and Lambrecht, Marc, Network and Contract Optimization for Maintenance Services with Remanufacturing (December 4, 2012). KU Leuven - Faculty of Business and Economics Working Paper No. KBI 1228, Available at SSRN: https://ssrn.com/abstract=2244924 or http://dx.doi.org/10.2139/ssrn.2244924

Kris Lieckens (Contact Author)

Catholic University of Leuven (KUL). Faculty of Business and Economics (FBE). LICOS Centre for Institutions and Economic Performance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Pieter Colen

Catholic University of Leuven (KUL); Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Marc Lambrecht

KU Leuven, Research Center for Operations Management, Faculty of Economics and Business ( email )

Leuven, B-3000
Belgium

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