Background: A service center wanted to quote the long term service of a fleet of wheel motors used to propel large haul trucks used in mining. The end customer saw significant value in the repair center assuming all the risk in a five year contract, servicing the motors at recommended intervals and repairing whatever was found to be needed.
Situation: The service center didn't know how to approach the costing of this work on a "hourly" charge for maintenance. The fear of low probability but high expense component failures tended to inflate the risk in the minds of the team.
Analysis: Monte Carlo analysis was used by the service center to predict the likelihood of making a desired profit margin on this work, based on the probability curve for each type of repair – and its associated cost. The probably of achieving a selected profit margin was the output.
Improvement: The service center was able to offer their customer a price based on hours run, eliminating the end customer's concerns about unpredictability.
Result: The agreement is now in its second five-year term. The profit margins have exceeded predictions and the end customer is very happy with the motor availability and cost.