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Cost Models for One-Dimensional Warranties

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Warranty Data Collection and Analysis

Part of the book series: Springer Series in Reliability Engineering ((RELIABILITY))

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Abstract

When a manufacturer offers a warranty, all legitimate claims under warranty must be serviced. The number of claims that might be expected depends on the reliability of the product. Servicing of the claims results in additional costs to the manufacturer. There are several notions of warranty costs, each of which leads to a distinct cost model. In this chapter we focus on models for prediction of warranty costs as a function of product reliability for various one-dimensional warranties. These models play a critical role in warranty management.

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Notes

  1. 1.

    Other cost bases that might be considered are cost per unit of time, other life cycle concepts, and so forth. For further discussions of these, see [2, 3].

  2. 2.

    Reference [12] suggests that the lognormal distribution is appropriate for modeling the repair times for many different products.

  3. 3.

    This is true for most manufacturers. Some manufactures allow for transfer of warranty. In the case of automobiles, this has resulted in higher resale values.

  4. 4.

    See [20] for more on this.

  5. 5.

    For more on the Cobb-Douglas model, see [6].

  6. 6.

    Warranty elasticity for Chrysler is claimed to be 0.14, which is regarded as typical of those reported in the literature [19].

  7. 7.

    This is the simple diffusion model first proposed in [1]. Since then the basic model has been extended to take into account other factors, e.g., advertising effort, negative and positive word-of-mouth effects, etc.). Details of these can be found in [13].

  8. 8.

    We assume that every failure results in an instantaneous claim and that all claims are valid. This results in a simplified model. One can relax these assumptions and the resulting model is more complex.

  9. 9.

    For a complete probabilistic analysis of the warranty costs for some very simple cases, see [21].

  10. 10.

    For an example of such a program, see [7].

  11. 11.

    This includes materials, labor, testing, inventory, administration, and any other costs.

  12. 12.

    The sale price must exceed the sum of the unit manufacturing cost and the expected warranty costs in order to ensure that, in the long run, the manufacturer will not incur a loss.

  13. 13.

    The cost analysis of many other one-dimensional warranty policies can be found in [2]. See also [15] for subsequent warranty cost models.

  14. 14.

    Cost analysis for other servicing strategies involves more complex model formulation and analysis. Details may be found in the following sources:

    • Cost limit policy: [2, 16, 24]

    • Repair versus replace: [9, 10, 17, 18, 22]

    • Imperfect repair: [5, 4, 23]

  15. 15.

    Cost analysis with heterogeneous usage intensity is discussed in [11].

  16. 16.

    For more on this, see [2, 3, 15].

  17. 17.

    The details of the derivations for the results presented in this section can be found in Sect. 5.3.1 of [2].

  18. 18.

    See [2], Sect. 4.5.1 for buyer’s life cycle cost and Sect. 4.5.2 for seller’s profit. Seller’s cost is the difference between the two.

  19. 19.

    See [2], Sect. 5.4.

  20. 20.

    Details of the derivations can be found in Chap. 9 of [2].

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Authors and Affiliations

  1. 5401 Katherine Avenue, 91401-4922, Sherman Oaks, Los Angeles, CA, USA

    Wallace R. Blischke

  2. Department of Statistics, Rajshahi University, Rajshahi, Bangladesh

    M. Rezaul Karim

  3. School of Mechanical and Mining Engineering, The University of Queensland, Brisbane, QLD, 4072, Australia

    D. N. Prabhakar Murthy

Authors
  1. Wallace R. Blischke
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  2. M. Rezaul Karim
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  3. D. N. Prabhakar Murthy
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Correspondence to Wallace R. Blischke .

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Blischke, W.R., Rezaul Karim, M., Prabhakar Murthy, D.N. (2011). Cost Models for One-Dimensional Warranties. In: Warranty Data Collection and Analysis. Springer Series in Reliability Engineering. Springer, London. https://doi.org/10.1007/978-0-85729-647-4_6

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  • DOI: https://doi.org/10.1007/978-0-85729-647-4_6

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