Warrantycostanalysiswithvaryingusageintensity.docVIP

WARRANTY COST ANALYSIS WITH VARYING USAGE INTENSITY C.S. Kim* Abstract: Warranty cost analysis for one-dimensional warranties assumes that the usage intensity (or rate) is the same for all buyers. In real life the usage intensity varies across the population of buyers. This paper deals with models to study the expected warranty cost for products with free replacement warranty with varying usage intensity. Keywords: Warranty, Reliability and Stochastic Model. * Department of Industrial Engineering, Sangji University, Wonju, Korea. This research has been partially supported by the Korea Science and Engineering Foundation while Che Soong Kim is a Visiting Scholar in the Department of Mechanical Engineering, The University of Queensland. Email: dowoo@chiak.sangji.ac.kr 1. INTRODUCTION A warranty is a contractual agreement offered by the manufacturer at the point of sale of a product. It requires the manufacturer to rectify all failures occurring within the warranty period or compensate the buyer. In this context, warranty serves as a device to protect the buyer from defective products. Offering warranty results in additional costs to manufacturers from the servicing of the warranty. However, warranties also serve as signals to inform customers about the quality of product. In this context, better warranty terms imply a higher product quality and manufacturers have tended to use warranty as a promotional tool to increase sales and revenue. Hence, from a manufacturer’s perspective, offering a warranty is worthwhile only if the benefits (in terms of greater sales and/or revenue) exceed the additional costs associated with the servicing of warranty. Many different types of warranty policies for both new and second-hand products have been proposed and analysed. A taxonomy for warranty policies for new products was proposed by Blischke and Murthy (1992) and for second-hand products by Murthy and Chattopadhyay (1999). For new products, the cost analysis of various one-