Abstract: The traditional weaponry support function is performed within the military
system. Suppliers only provide weapons, thus they have no motive to improve the
weaponry reliability. The cost of weaponry support is high. To solve this problem, we
bring forward a new mechanism of the entire supply outsourcing based on the
performance. The suppliers are responsible for the whole supply chain tasks from
providing weapons to weaponry support. The military gives rewards or punishments
according to the suppliers’ performance. The advantages of this kind of mechanism
are analyzed through a principal-agent model. The results show that the military can
use certain incentive policies to induce the suppliers to improve the weaponry
reliability and meanwhile enhance their incomes. The total cost of the military’s
weaponry supports also can be reduced, and the performance of the whole supply
chain is improved.

Key words: weaponry support, service outsourcing, principal-agent, service parts
inventory