A Cost Sharing Warranty Policy for Products With Deterioration

Abstract

Warranties play an important role for marketing products in the intensly competitive market, since an attractive policy can dramatically increase market share. However, offering an unlimited warranty with intent to monopolize the market is unrealistic because of the extremely high cost for maintaining such a policy. This paper considers a decision problem under the policy of a pro-rata warranty (PRW), and a Bayesian decision model in determining the optimal warranty proportion is proposed, where a periodic preventive maintenance (PM) program is performed during the warranty term to slow down the product deterioration, and a nonhomogeneous Poisson process is employed to describe the successive breakdown times of the deteriorating product. The proposed approach provides decision-making techniques, not only for taking action in the light of all available relevant information, but also for maximizing expected profits. Finally, an application case is utilized to demonstrate the feasibility and validity of the proposed approach, and sensitivity analyses regarding the important factors that may have impacts on the warranty proportion are also discussed.Index Terms-Bayesian analysis, deterioration, minimal repair, nonhomogeneous poisson process (NHPP), power law intensity.

Warranty implementation and evaluation: a global firm's case

“…A budgeted rate and usage should be used at the beginning of the period in order for the profit centers to budget their overhead rate into their product or service. The implementation of this proposed approach and procedure is needed to allow business firms to better understand resource consumption and profitability of the product and services they provide their clientele (for further discussion on this topic, see (for example) Talha et al , 2010; Federowicz et al , 2010; Huang and Fang, 2008; Capps and Timlin, 1998).…”

“…The warranty administrator should hold a review session with the responsible parties for discovered inefficiencies. For maximized effectiveness, top management involvement is essential (for additional information on activity based costs (ABC), see for example Vaughn et al , 2010; Talha et al , 2010; Federowicz et al , 2010; Huang and Fang, 2008).…”

“…warranty) performance on a regular basis (Kleyner, 2010; Vigoroso, 2006; Chu and Chintagunta, 2011; Boyd and Walker, 1990; Tse, 1999). Warranties are a significant influence on a customer's product assessment (Huang and Fang, 2008; Rahman and Chattopadhyay, 2004; Kleyner, 2010; Biswas et al , 2009). Products with limited warranties have consistently received less positive customer evaluations compared to products offering a full warranty (Kerin et al , 2009).…”

Design of a flexible preventive maintenance strategy for two-dimensional warranted products

“…In reality, most manufacturers are prone to consider sharing a fraction of the PM cost, especially for relatively high-priced products such as plant facilities and large-scale machines. 20 For example, in the after-sales service market of China, the pro rata PM is most often used. Although the pro rata PM policy is usually costly to manufacturers, it encourages customers to invest in maintenance actions and thus slow down the product degradation.…”