Two-stage optimization model for renewing warranty considering warranty deadline

Abstract

Renewing warranty can provide customers with better service, and thus help manufacturers to gain market opportunities. In engineering practice, the cost for replacement is usually higher than the cost for maintenance, hence manufacturers often face huge challenge to reduce the warranty service cost. With consideration of the warranty deadline, we propose a two-stage optimization model for renewing warranty. In the first stage, a renewing warranty with deadline (RWD) policy is implemented, where the deadline represents the cumulative uptime threshold. When the cumulative uptime exceeds the deadline, the product will be minimally repaired and kept to the residual warranty period. When RWD is expired, the replacement warranty with limited repairs (RWLR) policy is applied. Under the free replacement and pro-rata warranty policy, the corresponding two-stage cost optimization model is established from the manufacturer’s perspective, the aim is to minimize the cost rate and obtain the optimal warranty period. A numerical example is provided to illustrate the validity of the proposed model, and the sensitivity analysis is also carried out.