Pricing and warranty decisions in a two-period closed loop supply chain

For a two-period closed loop supply chain (CLSC) consisting of a manufacturer and a retailer, Stackelberg game analyses are conducted to examine pricing and warranty decisions under two warranty models depending on who offers warranty for new and remanufactured products and the corresponding benchmark models with warranty for new products only. Next, we identify the conditions under which warranty for remanufactured products is offered and investigate how this warranty affects the CLSC operations. Subsequently, comparative studies are carried out to examine equilibrium decisions, profitability and consumer surplus of the CLSC between the two warranty models. Analytical results show that offering warranty for remanufactured products does not affect new product pricing in period 2, but influences pricing of new products in period 1 and remanufactured products in period 2, thereby enhancing remanufacturing, individual and channel profitability, and consumer surplus. Compared to the retailer warranty for remanufactured products, the manufacturer warranty can attain a more equitable profit distribution. If the warranty cost advantage of the manufacturer (retailer) is significant relative to that of the retailer (the manufacturer), the manufacturer (retailer) arises as a natural choice to offer warranty for remanufactured products as this decision enhances both profitability and consumer surplus

Optimal Warranty Period for Free-replacement Policy of Agm Batteries

The objective of this study is to analyze the suitability of the age-based warranty model and a millage based warranty model for absorbent glass mat batteries (AGM) for the automobile industry. The battery life expectancy can be assessed and described by a combination of different terms such as: state of health (SOH), deep of discharge (DOD), state of energy (SOE) and state of charge (SOC). However, using actual data from the field, the implementation of reliability engineering and statistical modeling we aim to calculate optimal limits for warranty policies that minimize warranty costs. The outcomes of this research will enable battery manufacturers, motor companies and warranty managers in decisions making strategies for cost savings in warranty projects without negatively affecting customer satisfaction

Some contributions to modeling usage sensitive warranty servicing strategies and their analyses

Providing a warranty as a part of a product\u27s sale is a common practice in industry. Parameters of such warranties (e.g., its duration limits, intensity of use) must be carefully specified to ensure their financial viability. A great deal of effort has been accordingly devoted in attempts to reduce the costs of warranties via appropriately designed strategies to service them. many such strategies, that aim to reduce the total expected costs of the warrantor or / and are appealing in other ways such as being more pragmatic to implement - have been suggested in the literature. Design, analysis and optimization of such servicing strategies is thus a topic of great research interest in many fields. In this dissertation, several warranty servicing strategies in two-dimensional warranty regimes, typically defined by a rectangle in the age-usage plane, have been proposed, analyzed and numerically illustrated. Two different approaches of modeling such usage sensitive warranty strategies are considered in the spirit of Jack, Iskandar and Murthy (2009) and Iskandar (2005). An `Accelerated Failure Time\u27 (AFT) formulation is employed to model product degradation resulting due to excessive usage rate of consumers. The focus of this research is on the analysis of warranty costs borne by the manufacturer (or seller or third party warranty providers) subject to various factors such as product\u27s sale price, consumer\u27s usage rate, types and costs of repair actions. By taking into account the impact of the rate of use of an item on its lifetime, a central focus of our research is on warranty cost models that are sensitive to the usage rate. Specifically, except the model in Chapter 4 where the rate at which an item is used is considered to be a random variable; all other warranty servicing policies that we consider, have usage rate as a fixed parameter, and hence are policies conditional on the rate of use. Such an approach allows us to examine the impact of a consumer\u27s usage rate on the expected warranty costs. For the purpose of designing warranties, exploring such sensitivity analysis may in fact suggest putting an upper limit on the rate of use within the warranty contract, as for example in case of new or leased vehicle warranties. A Bayesian approach of modeling 2-D Pro-rated warranty (PRW) with preventive maintenance is considered and explored in the spirit of Huang and Fang (2008). A decision regarding the optimal PRW proportion (paid by the manufacturer to repair failed item) and optimal warranty period that maximizes the expected profit of the rm under different usage rates of the consumers is explored in this research. A Bayesian updating process used in this context combines expert opinions with market data to improve the accuracy of the parameter estimates. The expected profit model investigated here captures the impact of juggling decision variables of 2-D pro-rated warranty and investigates the sensitivity of the total expected profit to the extent of mis-specification in prior information

Dynamic pricing and warranty policies for products with fixed lifetime

Product warranties have been an integral part of production and marketing strategies for a manufacturer to gain market shares and control quality related costs. Since offering aggressive warranty polices could result in a very high cost to a manufacturer, effective design of warranty policies is crucial for him to succeed in today\u27s competitive world. I develop a mathematical model to investigate a policy that jointly considers product pricing and warranty length for a repairable high-tech product over its effective lifetime. It is assumed that the manufacturer provides a commitment to correct problems if the product fails in the warranty period. The customer has to repair the product if the product fails after the warranty expires. It is further assumed that all the customers are risk averse toward uncertain repair costs. The goal of the manufacturer is to determine a joint dynamic pricing and warranty policy that maximizes his profit. My results show that when the manufacturer is a market monopolist, the best strategy is to charge the highest possible price and offer the longest warranty. However, if competition exists in the market imposing some limit on the price or warranty, the manufacturer should pursue a unique optimal combination of pricing and warranty length. In the latter case, the optimal warranty length is positively related to the initial price but negatively related to the price decreasing rate. A further study on the purchase behavior of consumers consistently supports that a consumer\u27s purchase time is affected by both the product price and the warranty length. In particular, more risk-averse consumers tend to make a purchase at a later time. I consider not only dynamic pricing but dynamic warranty policies as well to fit for the situation where the product\u27s remaining lifetime varies in time. My results show that when the manufacturer has an option to change both product price and warranty length, the better policy is to keep the price unchanged but increase the warranty period to attract more risk-averse consumers

Dynamic pricing and warranty policies for products with fixed lifetime

We consider a repairable product with known market entry and departure times. A warranty policy is offered with product purchase, under which a customer can have a failed item repaired free of charge in the warranty period. It is assumed that customers are heterogeneous in their risk attitudes toward uncertain repair costs incurred after the warranty expires. The objective is to determine a joint dynamic pricing and warranty policy for the lifetime of the product, which maximizes the manufacturer's expected profit. In the first part of the analysis, we consider a linearly decreasing price function and a constant warranty length. We first study customers' purchase patterns under several different pricing strategies by the manufacturer and then discuss the optimal pricing and warranty strategy. In the second part, we assume that the warranty length can be altered once during the product lifetime in developing a joint pricing and warranty policy. Numerical studies show that a dynamic warranty policy can significantly outperform a fixed-length warranty policy.Dynamic pricing Dynamic warranty Risk aversion

Essays on Product Acquisition for Value Recovery

This dissertation studies decision problems facing the manufacturer that offers cash incentive to encourage a fraction of its install base to return end-of-use devices. Marketing managers often use such tactics as a promotion tool to motivate sales of new products. Supply chain managers often use such tactics to obtain used products for profitable recovery operations. The first essay, Product Acquisition for Remanufacturing: A Dynamic Analysis, analyzes the performance of buyback and trade-in policies for acquiring products to be remanufactured. A key distinguishing feature of this analysis is the consideration of time dynamics. In particular, both the quantity-condition profile of used products and the market interest in remanufactured products evolve over time, and the manner of evolution is influenced by new product sales. Essay 1 introduces and analyzes a series of models that reflect the dynamics of customer willingness-to-return and willingness-to-pay attitudes, the size and condition of the OEM product install base, the demand for remanufactured product, and the demand for new product. Conventional approaches set trade-in and buyback prices to maximize profits in a single period; however, our analysis show that companies can earn higher profits by adopting a proactive approach. The second essay Final Purchase and End-of-Use Acquisition Decisions in Response to a Component Phase-Out Announcement is motivated by informal talks with supply chain executives from the computer industry. Essay 2 investigates a problem faced by a durable-goods manufacturer of a product that is no longer manufactured but still under warranty. A supplier announces that a component of the product will be phased out and specifies a deadline for the final order. In addition to determining the final order quantity from the supplier, the manufacturer may introduce a trade-in program to generate an alternative supply of the component for the purpose of satisfying warranty claims. We analyze how industry and market characteristics influence the manufactures optimal decisions and profits. The analysis in the second essay lends insight into the determinants of the initial order quantity, the characteristics of a well-designed trade-in program to support component harvesting, and the cost of ignoring a trade-in program for component harvesting. We find that launching a trade-in program and harvesting spare-parts from the returned device is not only a viable response to a supplier\u27s component phase out announcement, under certain conditions, launching a trade-in program is actually profitable

Post-Sale Cost Modeling and Optimization Linking Warranty and Preventive Maintenance

Ph.DDOCTOR OF PHILOSOPH

Architecting Fail-Safe Supply Chains / Networks

Disruptions are large-scale stochastic events that rarely happen but have a major effect on supply networks’ topology. Some examples include: air traffic being suspended due to weather or terrorism, labor unions strike, sanctions imposed or lifted, company mergers, etc. Variations are small-scale stochastic events that frequently happen but only have a trivial effect on the efficiency of flow planning in supply networks. Some examples include: fluctuations in market demands (e.g. demand is always stochastic in competitive markets) and performance of production facilities (e.g. there is not any perfect production system in reality). A fail-safe supply network is one that mitigates the impact of variations and disruptions and provides an acceptable level of service. This is achieved by keeping connectivity in its topology against disruptions (structurally fail-safe) and coordinating the flow through the facilities against variations (operationally fail-safe). In this talk, I will show that to have a structurally fail-safe supply network, its topology should be robust against disruptions by positioning mitigation strategies and be resilient in executing these strategies. Considering “Flexibility” as a risk mitigation strategy, I answer the question “What are the best flexibility levels and flexibility speeds for facilities in structurally fail-safe supply networks?” Also, I will show that to have an operationally fail-safe supply network, its flow dynamics should be reliable against demand- and supply-side variations. In the presence of these variations, I answer the question “What is the most profitable flow dynamics throughout a supply network that is reliable against variations?” The method is verified using data from an engine maker. Findings include: i) there is a tradeoff between robustness and resilience in profit-based supply networks; ii) this tradeoff is more stable in larger supply networks with higher product supply quantities; and iii) supply networks with higher reliability in their flow planning require more flexibilities to be robust. Finally, I will touch upon possible extensions of the work into non-profit relief networks for disaster management

A study of consumers' perceptions of dynamic price strategies for perishable foods and the impact of the strategies on retailer performance

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