Conceptual Model for Outsourcing Rail Network Asset Using Long-Term Service Contracts

Abstract

There is a growing trend for asset intensive industries to outsource maintenance services. Various industries such as mining, sugarcane, jute and steel plants outsource their rail assets using service contracts. Outsourcing reduces upfront investments in infrastructure, expertise and specialised maintenance facilities. The service providers for such service can be one of their rail operators or manufacturers of rail or third parties, interested in investment for rail infrastructure. Estimation of costs for these contracts is very complex and it is important to the user and the service providers for economic variability. The service provider's profit is influenced by many factors such as the terms of the contract, reliability of rails, the servicing strategies, costs of resources needed to carryout maintenance and to provide such services. There is a need to develop mathematical models for understanding future costs to build it into the contract price. Failure to do so may result in loss to the service provider or the user because of uncertainties associated with failures rectification and their implication on business. Three strategies for short-term and long-term service contracts are proposed in this paper considering the concepts of outsourcing assets to the service providers. Conceptual models are developed for estimating servicing costs to those contracts.