Two-stage flexible warranty decision-making considering downtime loss

Abstract

Most existing warranty policies are rigid, and the downtime loss is also not taken into account. This study develops a two-stage decision framework to design flexible warranty policies, where the downtime loss is considered. In the first stage, by minimizing the warranty service cost, a fixed warranty policy is provided to determine the baseline of preventive maintenance’s times and effort. In the second stage, customers have three options to increase preventive maintenance times, preventive maintenance effort, or both of them, which results in three types of flexible warranty policies. The additional maintenance cost for the increased preventive maintenance times and/or preventive maintenance effort is paid by the customers. Besides, the flexible policies are optimized to minimize customer’s cost, which is the sum of the downtime loss and shared maintenance cost. A practical example is provided to illustrate the effectiveness of the proposed flexible warranty policies. The results indicate that compared with the fixed warranty policies, both the manufacturer and customers can benefit from the proposed flexible policies, especially when the downtime loss is substantial. Moreover, the proposed policy is more effective when the warranty period is longer.