Optimal warranty policy for repairable products with a three-dimensional renewable combination warranty

Abstract

Nowadays, the post-sale warranty has become a crucial marketing strategy, and how to design and determine the optimal warranty policy has become one of the important issues for manufacturers. In the existing literature, warranty design and optimization mainly focus on one-dimensional and two-dimensional policies. However, as competition intensifies and customer requirements increase, product warranty terms usually involve three or more factors. In this paper, we propose a three-dimensional warranty policy for repairable products, in which limitations on failure time, repair time, and repair number are integrated. Considering the conflict between manufacturers and consumers, a novel renewable combination replacement warranty is further designed. By developing the corresponding sale price and warranty cost models, a profit optimization model is proposed. From the manufacturer’s perspective, the optimal warranty policy is obtained by maximizing the expected profit. A numerical example with sensitivity analysis and comparison studies is conducted to illustrate the proposed model. The results show that the proposed warranty policy can make the manufacturer more profitable and help to reduce the conflict between the manufacturer and the consumer.