Optimizing upgrade level and preventive maintenance policy for second-hand products sold with warranty

Abstract

With the steady growth of second-hand products’ market, offering warranty for second-hand products is becoming popular for dealers in order to meet customers’ requirement. During that process, upgrade actions and maintenance policies are of great importance. In this article, an optimization model for second-hand items sold with non-renewing free repair warranty is proposed from the view of dealers, in which a second-hand product is subjected to upgrade action at the end of its past life and during the warranty period, preventive maintenance actions are carried out when the age of the product reaches a pre-specified threshold value. Optimal upgrade level and preventive maintenance policy are jointly derived so that the dealer’s expected profit can be maximized. The structural properties of the optimal policies are investigated. Finally, a numerical example and sensitivity analysis are provided to demonstrate the proposed approach.