A multi-objective model for warranty estimation

Abstract

Almost all consumer products are associated with a certain warranty time as stipulated by the manufacturer. Such a statement of warranty provides the buyer with an assurance on the performance of the product in the stated period. On the other hand, manufacturers use warranties for promotional and protectional purposes. The paper develops a methodology to aid the manufacturer in selecting the price and warranty time of its products. The model considers the case where the products are assumed to be complements of each other. A multi-objective model is formulated where it is assumed that the decision maker is able to prioritize his goals. Some of these goals may be conflicting to each other. The goals considered include the achievement of a specified market share for each product, limitation on the total warranty cost as a given proportion of total sales, limitation of the warranty reserve for a given product as a proportion of the total warranty reserve for all products, and attainment of a minimum level of warranty reserve for a given product as a proportion of the total warranty reserve costs. A goal programming approach is used and the effects of the chosen parameters on the optimal solution, as well as goal achievements, are discussed.