Contracting for Infrequent Restoration and Recovery of Mission-Critical Systems

Kim, Sang-Hyun; Cohen, Morris A.; Netessine, Serguei; Veeraraghavan, Senthil K.

doi:10.1287/mnsc.1100.1193

Cited by 138 publications

(89 citation statements)

References 21 publications

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“…Huber and Spinler (2014) extend the latter model to account for learning, optimized maintenance, and information asymmetry between customers and service providers. In an alternative setting where customers design the maintenance contracts, Kim et al (2010) introduce contractual structures that mitigate service providers' moral hazards associated with their capacity investments. Zeng and Dror (2015) extend the analysis of this problem in several directions.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Hezarkhani

2017

European Journal of Operational Research

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An uptime-guarantee contract commits a service provider to maintain the functionality of a customer's equipment at least for certain fraction of working time during a contracted period. This paper addresses the optimal design of uptime-guarantee contracts for the service provider when the customer's valuation of a contract with a given guaranteed uptime level has an Increasing Generalized Failure Rate (IGFR) distribution. We first consider the case where the service provider proposes only one contract and characterize the optimal contract in terms of price as well as guaranteed uptime level assuming that the service provider's cost function is convex. In the second part, the case where the service provider offers a menu of contracts is considered. Given the guaranteed uptime levels of different contracts in the menu, we calculate the corresponding optimal prices. We also give the necessary and sufficient conditions for the existence of optimal contract menus with positive expected profits.

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Section: Literature Reviewmentioning

confidence: 99%

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Hezarkhani

2017

European Journal of Operational Research

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“…PBL is receiving increased attention in supply chain research (Kim et al, 2010(Kim et al, , 2007Ng et al, 2009;Nowicki et al, 2008;Randall et al, 2010;Sols et al, 2007). Quite often the logistics ecosystem associated with PBL is a three-tier system comprised of suppliers, system integrators, and customers.…”

Section: Background On Pblmentioning

confidence: 99%

“…It does so by laying out a multi-year contractual framework, typically a firm-fixed price (FFP) contract, that rewards suppliers when they make smart investments in material, technology, and logistics processes which drive down life cycle cost (Kim et al, 2010;Sols et al, 2007). Key to the PBL strategy is an innovation and investment governance structure (Geary and Vitasek, 2008).…”

Section: Introductionmentioning

confidence: 99%

Explaining the effectiveness of performance‐based logistics: a quantitative examination

Randall

Nowicki

Hawkins

2011

The International Journal of Logistics Management

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Purpose -Performance-based logistics (PBL) strategies are providing governments and for-profit organizations with a contractual mechanism that reduces the life cycle costs of their systems. PBL accomplishes this by establishing contracts that focus on the delivery of performance not parts. PBL establishes a metric based governance structure where suppliers make more profit when they invest in logistics process improvements, or system redesign, that reduces total cost of ownership. While work has been done to outline an overall PBL theoretical framework, the underlying theory explaining the enablers that lead to organizational and team-level, team-goal alignment associated with the PBL governance structure requires testing. The purpose of this paper is to quantitatively test previously posited relationships between enablers of PBL and PBL effectiveness. An additional objective is to explore any differences in PBL effectiveness between different business sectors. Design/methodology/approach -A multiple regression model was developed, tested and validated to explain the effectiveness of PBL. The model was externally validated with exploratory cross-sectional survey data of 61 practitioners. Findings -This study strongly supports recent PBL theory explaining PBL effectiveness. Key antecedents include investment climate, relational exchange, PBL leadership, and business sector. Further, government organizations lag behind their commercial counterparts in PBL effectiveness and PBL leadership. Practical implications -PBL business arrangements are more effective in more favorable investment climates. Thus, leaders should welcome new ideas, empower employees, and encourage entrepreneurship. Since PBL effectiveness increases with relational exchange, building trust and communicating with suppliers is key. Leadership is also important to PBL effectiveness. Leaders should accept risk, focus on long-term affordability and performance, and align activities to achieve end-user goals. Originality/value -This research is the first quantitative test of previously posited factors affecting PBL effectiveness. Additionally, this research unveils key differences in business sectors' use of PBL strategies.Keywords Logistics management, Leadership, Performance-based logistics, Investment climate, Sustainment, Outcome-based contracting, Post-production support, Logistics, Supportability Paper type Research paper IntroductionThe post-production logistics and product support costs associated with sustaining large-scaled, complex systems such as aircraft fleets, rail, and power generation facilities quite often exceed two to three times the research, development, and production costs associated with these systems (Berkowitz et al., 2003). Adding complexity to this costly reality is the fact that as systems age post-production logistics and support costs tend to increase (MaClean et al., 2005). These costs represent a significant logistics-related segment of the economy. For instance, the US commercial airline industry spends in ex...

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“…While studies (Cohen and Whang, 1997;Guajardo et al, 2011;Kim et al, 2007;Kim et al, 2010) demonstrate the benefits of servicing for the performance of the product itself and for the creation of customer value, the impact of this innovation on the performance of the product-service provider is less well understood. While anecdotal evidence suggests strategic and economic potential (Agrawal et al, 2012;Chesbrough, 2011;Tuli et al, 2007;Wise and Baumgartner, 1999), empirical studies yield mixed results (Fang et al, 2008;Neely, 2008;Suarez et al, 2011), which may be due to the challenges manufacturers face in formulating and implementing a service-oriented business model (Bowen et al, 1989;Gebauer, 2009;Gebauer et al, 2005;Martinez et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

Servitization: Disentangling the Impact of Service Business Model Innovation on Manufacturing Firm Performance

Visnjic¹,

Looy

2014

SSRN Journal

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As manufacturing businesses operate in an ever more competitive, global economy where products are easily commoditized, innovating by adding services to the core product offering has become a popular strategy. Contrary to the economic benefits expected, recent findings pinpoint implementation hurdles that lead to a potential performance decline, the so-called 'servitization paradox'. In this paper, we analyze this paradox by disentangling the value creation and value appropriation processes of 44 national subsidiaries of a global manufacturing firm turned product-service provider, in the 2001-07 period. Our findings show that the firm under study is able to successfully transcend the inherent substitution of products by services and to enact complementary sales dynamics between the two activities. Moreover, labor-intensive services such as maintenance, which imply higher levels of customer proximity, further enhance product sales. Empirical results also reveal a positive yet non-linear relationship between the scale of service activities and profitability: while initial levels of servicing result in a steep increase in profitability, a period of relative decline is observed before the positive relationship between the scale of services and profitability re-emerges. These findings suggest the presence of initial short-term gains but also indicate the existence of a 'profitability' hurdle; profitable growth seems feasible only to the extent that investments in service capability are translated into economies of scale. In helping to clarify the performance implications of service innovation, our findings suggest pathways to sustainable growth through servitization for manufacturing firms.

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Contracting for Infrequent Restoration and Recovery of Mission-Critical Systems

Abstract: doi 10.1287/mnsc.1100.119

Cited by 138 publications

References 21 publications

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Explaining the effectiveness of performance‐based logistics: a quantitative examination

Servitization: Disentangling the Impact of Service Business Model Innovation on Manufacturing Firm Performance

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