Abstract
This paper analyses the life cycle cost of equipment protected by both base and extended warranty policies from a consumer's perspective. We assume that the equipment has two types of failure: minor and catastrophic. A minor failure can be corrected with minimal repair whereas a catastrophic failure can only be removed by a replacement. It is assumed that equipment is maintained at no charge to the consumer during the warranty period, whereas the consumer is fully charged for any maintenance on failures after the extended warranty expires. We formulate the expected life cycle cost of the equipment under a general failure time distribution, and then for special cases we prove that the optimal replacement and extended warranty policies exists where the expected life cycle cost per unit time is minimised. This is examined with numerical examples.
Highlights
The life cycle cost (LCC) of a piece of equipment is the summation of its cost estimates from inception to disposal
According to British Standard (1997), costs associated with equipment safety, reliability, maintainability and maintenance support performance, which are not that apparent but need to be accounted in LCC models, may include the following three elements, as appropriate: (1)Unavailability costs: including maintenance costs and costs associated with loss of equipment function, such as reduced productivity; (2) Warranty costs: for warranty-type agreements, and (3) Liability costs: costs of liabilities due to equipment failure and their injurious effects needs to be considered as part of the LCC
Among the existing maintenance policies, a commonly used policy is a combination of corrective maintenance and opportunity-based age replacement: a piece of equipment is repaired upon a minor failure, and replaced by a new identical one at a predetermined age or on a catastrophic failure
Summary
The life cycle cost (LCC) of a piece of equipment is the summation of its cost estimates from inception to disposal. Maintenance and warranty policies that influence the above three costs should be considered in LCC analysis. Among the existing maintenance policies, a commonly used policy is a combination of corrective maintenance and opportunity-based age replacement: a piece of equipment is repaired upon a minor failure, and replaced by a new identical one at a predetermined age or on a catastrophic failure. We assume that the length of the extended warranty policies is available for selection Under these assumptions, we optimise the opportunity-based age replacement policy and the length of the extended warranty to minimise the expected life cycle cost per unit time.
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