Analysis of extended warranty policies with different repair options

Abstract In recent years, extended warranty has received extensive attention from both manufacturers and customers. In this paper, two types of extended warranty policies are proposed from the manufacturer’s perspective, i.e., one-dimensional extended warranty policy (OEW) and two-dimensional non-renewing extended warranty policy (TNEW). The corresponding warranty cost and profit models are presented. In order to calculate the warranty cost, three kinds of repair options for failed component are considered based on failure rate function, including minimal repair (MR), imperfect repair combined with minimal repair (IMR), and complete repair combined with minimal repair (CMR). The characteristics of the two policies are compared based on the extended warranty cost. The optimal extended warranty policy and repair options are obtained using the criterion of expected profit. Numerical examples of automobiles are given to illustrate the proposed models. The results indicate that TNEW is more rational than OEW, MR is suitable for short term warranty, while CMR is more applicable for long term warranty.

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