Simultaneous Consideration of System Design and Post-Production Support Network Decisions in the Context of a Performance-Based Contract

Abstract

In times of shrinking margins, researchers are looking for more cost-effective and profitable ways to improve the post-production support of large-scale, complex systems. There is an inherent tradeoff between the system design and the design’s long-term support. A system’s design largely determines its reliability that, in turn, influences the demands on its post-production support network necessary to maintain the proper use of the system over its intended, economic useful-life. Performance-based contracts are a successful financial instrument between suppliers and buyers for long-term support contracts. This research leverages the tenets of performance-based contracting, especially its foundation in transactional cost economics and management control theory, and agency theory, to develop and test an analytical model. This research proposes a novel, analytical model that maximizes the profit margin of a large-scale, complex system simultaneously considering its design and post-production support network. To date, these decisions are largely understudied. This model uses redundancy allocation to represent a design decision, and the post-production support network decisions are the location, quantity of spares, and logistics footprint. The post-production support network is a non-arboreal, multi-echelon sustainment network, and the design is a series-parallel configuration. The model is constrained by customer-specified, minimum reliability, mean-time-between-failure (MTBF), and a maximum logistics footprint (LF) measured in pounds. A meta-heuristic algorithm was used to address the nonlinearity of the objective function and constraints. Afterward, a numerical example was solved, and comparative experiments were conducted to test the algorithm. The results showed a profit for the supplier of ${\$}$ 14,505.12 with 78.45 hrs of MTBF out of the 75 hours minimum allowed and a logistic footprint of 6,285.25 lb. out of the 10,000 lb allowed. The solution demonstrates the economic importance of system engineers, contract personnel, and program managers in understanding the inherent tradeoff space connecting the design and support of a system.

Keywords

• Inventory optimization
• performance-based contracting
• reliability
• supply chain networks
• systems theory