Optimising Age-Replacement and Extended Non-Renewing Warranty Policies in Lifecycle Costing

This paper analyses the life cycle cost of equipment protected by both base and extended warranty policies from a consumer's perspective. We assume that the equipment has two types of failure: minor and catastrophic. A minor failure can be corrected with minimal repair whereas a catastrophic failure can only be removed by a replacement. It is assumed that equipment is maintained at no charge to the consumer during the warranty period, whereas the consumer is fully charged for any maintenance on failures after the extended warranty expires. We formulate the expected life cycle cost of the equipment under a general failure time distribution, and then for special cases we prove that the optimal replacement and extended warranty policies exists where the expected life cycle cost per unit time is minimised. This is examined with numerical examples. © 2011 Elsevier B.V. All rights reserved

A performance-based warranty for products subject to competing hard and soft failures

This article studies a performance-based warranty for products subject to competing hard and soft failures. The two failure modes are competing in the sense that either one, on a "whichever-comes-first" basis, can cause the product to fail. A performance-based warranty not only covers the repair or replacement of any defect, but also guarantees the minimum performance level throughout the warranty period. In this article, we propose three compensation policies—that is, free replacement, penalty, and full refund, when a product's performance fails to meet the guaranteed level. The expected warranty servicing costs for the three policies are derived, based on the competing risks concept. A warranty design problem is further formulated to simultaneously determine the optimal product price, warranty length, and performance guarantee level so as to maximize the manufacturer's total profit. Numerical studies are conducted to demonstrate and compare the three performance-based compensation policies. It is shown that the full refund policy always leads to the lowest total profit, whereas neither of the other two policies can dominate each other in all scenarios. In particular, the free replacement policy results in a higher total profit than the penalty policy when the replacement cost is low, the penalty cost coefficient is high, and/or the product reliability is high

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

Ph.DDOCTOR OF PHILOSOPH

Warranty service contracts design for deteriorating products with maintenance duration commitments

With the increasing diversification of customers’ demand and purchasing behaviors, more and more manufacturers have focused their attention on the warranty service contracts design. The maintenance duration of the sold product, which plays an important role in the normal production and operation process of the user, is frequently taken into consideration in warranty contracts. In this study, we design different warranty contracts with various combinations of maintenance duration and availability requirements. The manufacturer commits to compensate for each overdue repair or failing to satisfy the availability target. The customers’ choice behavior is described by the multinomial logit (MNL) model, and customers often form their own minimum acceptable levels (also referred to as reference points) of maintenance duration and availability when making purchasing decisions, which have an impact on the contract choice. The expected warranty servicing profit is maximized to determine the optimal price, maintenance duration and availability. Finally, the proposed warranty contracts are demonstrated by numerical examples. We find that the maintenance duration affects not only the warranty cost but also the customer choice, which further affects the optimal contract pricing and profits

Optimal Burn-In under Complex Failure Processes: Some New Perspectives

Ph.DDOCTOR OF PHILOSOPH

Supply chain coordination contracts with free replacement warranty

This thesis investigates a coordination mechanism for a supply chain with one manufacturer and one retailer in a single period, single product newsvendor model. It looks beyond the conventional supply chain coordination problem by incorporating a specific form of warranties. The manufacturer provides a free replacement warranty in case of product failure within a specified after-sale interval. We assume that the expected value of stochastic market demand is an increasing function of this warranty period length. The supply chain is coordinated if its optimal actions (production quantity and warranty length) are realized while each party maximizes its own respective profit. Any deviation by either party from the terms of a coordinated contract cannot improve its performance.We consider different types of contracts between the two parties: a wholesale price only or a revenue sharing contract with shared warranty costs or such costs borne by the manufacturer alone. The manufacturer decides the warranty period, K, and other contract parameters, such as the wholesale price, shares of revenue, and warranty cost sharing arrangements. The retailer accepts the contract and determines the order amount, as long as it is able to make positive profit. The manufacturer then produces and delivers the order quantity for the selling season. Each party makes its decisions to maximize its own profit, hence the realized decisions may differ from the supply chain’s optimal solutions, if the contract is not coordinated. Thus, we examine whether the supply chain can be coordinated under each type of contract outlined above. For coordinated contracts we focus on the issue of profit allocation. If a contract type is non-coordinating, we attempt to highlight the factors that affect its efficiency, where the efficiency of a non-coordinating contract is defined as the ratio of realized supply chain profit over its optimal profit.The results obtained from this research leads to some interesting managerial insights. Under the wholesale price only contract types, we find that even if the retailer is willing to share the warranty fulfillment costs with the manufacturer, the resulting supply chain profit is less than the optimal value, leading to suboptimal performance. Under a revenue sharing contract, however, the production/ order quantity and the warranty length are coordinated, if the warranty costs are shared by the two parties in the same proportion as the profits. The profit allocation of each party under coordination is flexible from 0 to 100% of chain profit. This concept is illustrated by a numerical example of additive demand case followed by an extensive sensitivity analysis, which leads to some important insight.The major contribution of this thesis is its novel aspect of considering warranty period optimization towards supply chain coordination. We provide the guidelines for designing a contract between a manufacturer and a retailer so that the supply chain’s performance is optimized in terms of the production/ order quantity and the warranty period, while each party in the chain achieves its maximal profit. Without the presence of a third party, the contract coordinates the supply chain with less cost. A non-coordinating contract may still be desirable if it entails relatively low administrative cost while achieving a high degree of efficiency, as defined before. The concepts developed here are easy to implement in real world supply chain, and can provide valuable insights into more complex types of supply chain contracts.Ph.D., Decision Sciences -- Drexel University, 200

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