Network and contract optimization for maintenance services with remanufacturing

Implementing comprehensive service contracts and sustainable supply chains are two recent trends that create the opportunity to develop maintenance contracts with an uptime guarantee for the customer and a remanufacturing process for removed parts. This involves management decisions on the design of the contract (price, uptime guarantee and overhaul interval) and the logistics network (facility locations, capacities and inventories with given service level). These two decision levels are interrelated: the number of contracts is a function of price and machine uptime, while this uptime is affected by the overhaul interval and network responsiveness. Steady-state queueing equations explicitly model the stochastic nature of the problem, e.g. the impact of resource utilization levels on lead time of the remanufacturing process. This approach results in a non-linear mixed integer model, which is solved by a differential evolution algorithm to find the maximum profit that simultaneously optimizes both problems. A real-life application reveals that price sensitivity is a critical determinant and that measures must be taken to tackle the problem of moral hazard.