Monitoring aggregate warranty claims with dynamically designed CUSUM and EWMA charts

Abstract

Statistical monitoring of warranty claims data using dynamic probability control limits has been shown to be effective in early detection of unforeseen reliability problems that emerge at the design and manufacturing phases. As the discrepancy between abnormal patterns and the normal pattern in aggregate warranty claims is usually small (especially at the early stage), we develop two new dynamic monitoring schemes that adopt CUSUM-type and EWMA-type statistics, named DyCUSUM and DyEWMA, respectively, to better address the warranty claims monitoring problem. Three effective algorithms – that is, the Monte Carlo simulation, Markov chain, and near-enumeration algorithms – are proposed to progressively determine control limits for the two schemes. In particular, comparison studies show that the near-enumeration algorithm can attain a higher approximation accuracy with a lower computational burden and is thus recommended. In-depth simulation experiments are then conducted to assess the performance of the schemes. We find that the DyEWMA scheme has superior and robust detection performance in various situations, whereas the DyCUSUM scheme is less effective and could even be ineffective in certain cases, compared with a Shewhart-type counterpart. Some specific suggestions are also provided to facilitate implementation of the proposed monitoring schemes. Improved schemes by combining the moving window approach to mitigate the ‘inertia’ problem is further discussed. Finally, a real case study is presented.