Comparisons of renewable warranties

Abstract

Two types of warranties are commonly applied. There are replacement-free warranty and pro-rata warranty. The third warranty is the mixing of the above two. That is it has a replacement-free stage followed by a pro-rata stage. In addition to the above classification, warranties can also be a renewable or nonrenewable. No matter which warranty is used, it always incurs certain cost to the manufacturer. Moreover, often manufacturers want to improve the quality of products by burn-in before delivering them to consumers, and this incurs an extra cost. This article considers the random costs for both burn-in and renewable warranty, and derives the mean warranty cost. Then the mean costs corresponding to pure replacement-free warranty, mixing renewable warranty, and pure pro-rata warranty are compared. Furthermore, the mean costs under the same warranty policy associated with different lifetime distributions of products are also compared. © 1999 John Wiley & Sons, Inc. Naval Research Logistics 46: 91–106, 1999