Joint optimization of design, warranty and price for products sold with maintenance service contracts

Abstract

In this paper a modeling framework for optimal design, warranty and price for new products sold with a maintenance service contract is developed. The model considers situations with one customer and a unique service provider which is the Original Equipment Manufacturer (OEM). The latter intends to offer with each sold product a service contract according to which he commits to perform all maintenance actions over the product lifecycle. Four contract options are to be investigated by the manufacturer depending on the coverage period and the nature of the maintenance activities to be performed. Two scenarios, related to product warranty and price, are considered. The learning effects arising from the impact of the total sales volume on the product price, as well as the impact of the experience gained in the product maintenance on the preventive maintenance cost are also considered. The model allows the manufacturer to set the optimal combination of the product design (reliability), sale price and warranty period which maximizes the discounted profit over the product lifecycle for each option and for the two scenarios of pricing and warranty. The necessary optimality conditions for each scenario are derived.