Determination of production run time and warranty length under system maintenance and trade credits

Abstract

Manufacturers offer a warranty period within which they will fix failed products at no cost to customers. Manufacturers also perform system maintenance when a system is in an out-of-control state. Suppliers provide a credit period to settle the payment to manufacturers. This study considers manufacturer's production and warranty decisions for an imperfect production system under system maintenance and trade credit. Specifically, this study uses the economic production quantity to model the decisions under system maintenance and trade credit. These decisions involve how long the production run time and warranty length should be to maximise total profit. This study provides lemmas for the conditions of optimality and develops a theorem and an algorithm for solving the problems described. Numerical examples illustrate the solution procedures and provide a variety of managerial implications. Results show that simultaneously determining production and warranty decisions is superior to only determining production. This study also discusses the effects of the related parameters on manufacturer's decisions and profits. The results of this study are a useful reference for managerial decision-making and administration.

Keywords:

• EPQ model
• warranty length
• imperfect production system
• system maintenance
• trade credit

Acknowledgements

The author expresses his gratitude to the editor and the anonymous reviewers for their detailed comments and valuable suggestions to improve the exposition of this article. This study was supported in part by the National Science Council under grant NSC 98-2410-H-036-004.