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Abstract
Lifetime buys are a common practice in the electronics and telecommunication industries. Under this practice, manufacturers procure their repair parts inventory in one order to support the spare part needs of a product for the duration of its warranty repair period. In this paper, we consider a repair operation in which defective items under warranty are returned to a manufacturer who either repairs these items using its spare parts inventory or replaces each defective unit with a new product. We show how fixed repair capability costs, variable repair costs, inventory holding costs, and replacement costs affect a firm's optimal repair and replacement decisions. The model is used to gain insights for products from a major mobile device manufacturer in the United States.
Acknowledgements
The authors wish to thank Larry Maye for his expert insights and for providing industry data. This research was supported in part by a National Science Foundation Grant (number DMI-0457503) and an Office of Naval Research Grant (number N00014-05-1-0190). In addition, the first author was supported by a National Science Foundation Graduate Research Fellowship. This support is gratefully acknowledged.