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Extended warranty strategies for online shopping supply chain with competing suppliers considering component reliability

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Abstract

This article presents the issue of extended warranty and management strategies in a three-echelon competing online shopping supply chain with price- and base warranty period-dependent demand. We employ game theory to develop decision models to explore the interactions between component suppliers and the manufacturer, as well as competition between two component suppliers. Products and extended warranty are sold by an online store, which is the leader in the Stackelberg game. Two scenarios are considered: either the manufacturer offers a prepaid extended warranty to customers or doses not. In each scenario, base warranties are assumed to be bundled with products. Our results show that when the manufacturer’s repair costs change in a proper range, providing extended warranty can benefit both the manufacturer and the online store; otherwise, the manufacturer has no incentive to offer the extended warranty. Reducing repair costs, improving component reliability, or shortening the base warranty period allows the manufacturer to realize significantly better value of the extended warranty. High component reliability benefits both the manufacturer and the online store, with the manufacturer reaping more benefit. Extending the length of the base warranty adversely affects profit of the manufacturer and the value of the extended warranty.

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Acknowledgements

The authors are grateful for comments and suggestions by two anonymous referees which helped improving the paper. This work was supported by "the Key Program of National Natural Science Foundation of China" (No. 71432007), "Scientific and Technological Research Program of Chongqing Municipal Education Commission" (No. KJ1706160), "Chongqing Society Project Planning doctoral program" (No. 2016BS004), "High Level Introduction of Talent Research Start-up Foundation of the Chongqing Technology and Business University" (No. 1755009).

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Authors and Affiliations

  1. School of Economics and Management, Tongji University, Shanghai, 200092, China

    Xinghong Qin & Qiang Su

  2. School of Business Planning, Chongqing Technology and Business University, Chongqing, 400067, China

    Xinghong Qin

  3. Department of Mechanical and Materials Engineering, University of Cincinnati, Cincinnati, OH, 45221, USA

    Samuel H. Huang

Authors
  1. Xinghong Qin
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  2. Qiang Su
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  3. Samuel H. Huang
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Corresponding author

Correspondence to Qiang Su.

Additional information

Xinghong Qin is a lecturer in the Department of Logistics Management, School of Planning at Chongqing Technology and Business University. He received his Ph.D. degree from the Tongji University, China. His research and teaching interests include service supply chain management, service operation management in e-commerce environment and quality management. He published in Operational Research - An International Journal, Journal of Industrial Engineering and Engineering Management, Operations Research and Management Science, Journal of Tongji University (Natural Science), Nankai Business Review, etc. He is a visiting scholar at the Department of Mechanical and Materials Engineering of University of Cincinnati.

Qiang Su is a professor in the Department of Management Science and Engineering, School of Economics and Management at Tongji University. He received his Ph.D. degree from the Xi’an Jiaotong University, China. His research and teaching interests include quality management, service operation management, and medical service operation management, service supply chain management. He published in Annals of Operations Research, IEEE Transactions on Systems, Man, and Cybernetics, Part A: Systems & Humans, Expert Systems with Applications, International Journal of Production Economics, International Journal of Production Research, Computer Methods and Programs in Biomedicine, Advanced Materials Research, Journal of Healthcare Engineering, Computer-Aided Design, Total Quality Management & Business Excellence, etc.

Samuel H. Huang is a professor in the Department of Mechanical and Materials Engineering, College of Engineering and Applied Science at University of Cincinnati. He received his Ph.D. degree from the Texas Tech University, USA. His research and teaching interests include health service, elder medical service, knowledge-based modeling, system monitoring, diagnosis, and prognosis, supplier-based manufacturing, workflow and process optimization. He published in International Journal of Production Economics, International Journal of Production Research, Supply Chain Management: An International Journal, International Journal of Industrial and Systems Engineering, International Journal of Manufacturing Technology and Management, IEEE Transactions on Components, Packaging, and Manufacturing Technology - Part C: Manufacturing, Transactions of the North American Manufacturing Research Institution/SME, IEEE Transactions on Components, Packaging, and Manufacturing Technology - Part I, etc.

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Qin, X., Su, Q. & Huang, S.H. Extended warranty strategies for online shopping supply chain with competing suppliers considering component reliability. J. Syst. Sci. Syst. Eng. 26, 753–773 (2017). https://doi.org/10.1007/s11518-017-5355-3

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  • DOI: https://doi.org/10.1007/s11518-017-5355-3

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