The impact of fleet size on performance-based incentive management

The impact of fleet size on performance-based incentive management

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Article ID: iaor2016533
Volume: 67
Issue: 2
Start Page Number: 165
End Page Number: 175
Publication Date: Feb 2016
Journal: Journal of the Operational Research Society
Authors: , ,
Keywords: allocation: resources, quality & reliability, inventory, simulation, performance
Abstract:

Performance‐based contracting (PBC) is envisioned to lower the asset ownership cost while ensuring desired system performance. System availability, widely used as a performance metric in such contracts, is affected by multiple factors such as equipment reliability, spares stock, fleet size, and service capacity. Prior studies have either focussed on ensuring parts availability or advocating the reliability allocation during design. This paper investigates a single echelon repairable inventory model in PBC. We focus on reliability improvement and its interaction with decisions affecting service time, taking into account the operating fleet size. The study shows that component reliability in a repairable inventory system is a function of the operating fleet size and service rate. A principal‐agent model is further developed to evaluate the impact of the fleet size on the incentive mechanism design. The numerical study confirms that the fleet size plays a critical role in determining the penalty and cost sharing rates when the number of backorders is used as the negative incentive scheme.

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