Analysis of a hybrid warranty policy for discrete-time operating products

Abstract

This article considers a warranty policy consisting of a renewable free-replacement period and a rebate period for products operating in discrete time. Under such a Hybrid Warranty Policy (HWP), if a product fails during the first N periods (from period 1 to period N), it is replaced with either a new or a repaired unit for free (or at the manufacturer's expense) and the policy is renewed; if it fails in the next W − N periods (from period N + 1 to period W), then the manufacturer refunds a pre-specified proportion of the sales price to the buyer. A pure rebate warranty policy and a pure renewable replacement policy can be considered as special cases of the HWP. With the HWP, customer service and warranty cost can be traded off. The conditions under which the HWP is more cost-effective are derived from the perspective of the manufacturer or seller. Some structural properties of the HWP are examined. Furthermore, how to choose between using new and repaired products to replace failed products is discussed. A numerical example is presented to demonstrate the computation of the optimal N*, the decision variable of the HWP, and a sensitivity analysis is performed to gain some managerial insights for practitioners.

Keywords:

• Hybrid warranty policy
• renewable replacement
• rebate
• discrete-time operations
• replacement options
• cost model

Additional information

Notes on contributors

Yu-Hung Chien

Yu-Hung Chien is a Professor in the Department of Applied Statistics at the National Taichung University of Science and Technology. He obtained a B.Sc. degree from the Department of Applied Mathematics at the National Chung Hsing University and an M.Sc. degree from the Institute of Statistical Science at the National Chung Cheng University. He received his Ph.D. degree from the Department of Industrial Management at the National Taiwan University of Science and Technology. His current research interests include quality and reliability management, warranty strategy, and maintenance policy.

Zhe George Zhang

Zhe George Zhang is a Professor of Operations Research in the Department of Decision Sciences at Western Washington University and an Adjunct Professor of Management Science in the Faculty of Business Administration at Simon Fraser University. He received a B.Sc. degree in Computer Engineering from Nankai University, an MBA degree from Schulich School of Business at York University, and a Ph.D. degree in Operations Research from the University of Waterloo. His research interests include queuing theory and applications, stochastic dynamic programming, probability models in reliability, and supply chain management issues. His publications have appeared in journals such as Management Science, Operations Research, Manufacturing & Service Operations Management, Interfaces, Queueing Systems, Journal of Applied Probability, Naval Research Logistics, and several others.