Understanding the Impacts of Length of the Contract and Fleet Size on Spare Parts Level and Reliability Investments in Performance-based Contracting

This essay investigates the impacts of contract features such as contract length and fleet size on reliability investment, spare parts, supplier’s profit, and the annual cost of the system in performance-based contracting (PBC). The impact of each contract feature analyzed using the multi-objective genetic algorithm in a mathematical model. We found that failure rates of the systems and the annual unit cost for the buyer exponentially decrease when the fleet size or contract length becomes larger. Also, an annual profit of suppliers grows substantially with an increase in fleet size and length of contracts. Additionally, we explored that these features have little impact on spare parts in PBC. Findings of this study advance understanding of the impact of fleet size and the length of contracts on decisions made by suppliers for the reliability and inventory investments in PBC. Furthermore, practitioners will benefit from the results to build effective and efficient PBC.