Warranty Contracts Research Articles

ServiceMaster Co. (THE)

Mergent's Dividend AchieversVolume 3, Issue 3 p. 246-246 U.S. Company Reports ServiceMaster Co. (THE)† First published: 30 June 2006 https://doi.org/10.1002/div.4472 † Contact: : Johnathan P. Ward — Chmn. , C.E.O. Address: : 3250 Lacey Road, Suite 600, Downers Grove, IL 60515-1700 Web Site: : www.servicemaster.com AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Abstract Accounting & Management Consulting Services (MIC: 12.2 SIC: 8741 NAIC: 561110) ServiceMaster provides outsourcing services to residential and commercial customers. The TruGreen segment provides lawn care services and landscape maintenance services. The Terminix segment includes domestic termite and pest control services. The American Residential Services and American Mechanical Services (ARS/AMS) segment provides plumbing, drain cleaning, heating, ventilation, air conditioning and electrical services. The American Home Shield segment offers warranty contracts on home systems and appliances and home inspection services. The Other Operations segment includes ServiceMaster Clean, Merry Maids and Furniture Medic franchise operations. Volume3, Issue3Summer 2006Pages 246-246 RelatedInformation

Effectiveness of neuro-fuzzy recognition approach in evaluating steel bridge paint conditions

The development of digital image recognition techniques has contributed to increased precision in pattern recognition and led to numerous applications in industries. In September 1999, the Indiana Department of Transportation (INDOT) first tried out digital image recognition techniques to steel bridge coating assessment. The purpose of this tryout was to obtain a rust percentage, which was required in the INDOT bridge painting warranty contract, when conducting steel bridge coating investigation. Despite the advantages of digital image recognition, some problems that may cause inaccurate recognition results still exist. Nonuniform illumination (i.e., brightness or darkness or shadow) is one of them. The neuro-fuzzy recognition approach (NFRA) was developed to minimize the effect of nonuniform illumination. In this technical note, the framework of NFRA, its application to steel bridge coating assessment, and its performance comparison to three other image recognition methods will be presented.Key words: neuro-fuzzy recognition approach (NFRA), artificial neural network (ANN), double sampling plan, multiresolution pattern classification (MPC), iterated conditional modes (ICM).

Outsourcing prioritized warranty repairs

Purpose – To consider the problem of outsourcing warranty repairs to outside vendors when items have priorities in service.Design/methodology/approach – The repair allocation problem is formulated as a convex minimum‐cost network flow problem and solve it by the successive shortest path algorithm. The computation issues involved with the problem are also discussed.Findings – Examples are provided to illustrate the cost benefits achieved due to the priority structure.Research limitations/implications – The research uses a closed static allocation model. Future research efforts can expand our model by considering a dynamic allocation method or an open population model.Practical implications – The paper can be a valuable resource to warranty managers who make decisions regarding the negotiations of warranty contracts and the allocation of items to outside repair vendors.Originality/value – A warranty manager can apply our results to receive insight on the value of giving priority in service to special custom...

Quality Implications of Warranties in a Supply Chain

We examine a supply chain in which the final product consists of components made by a buyer and a supplier. In the single moral-hazard case, the buyer’s quality is observable, whereas in the double moral-hazard case, the buyer’s quality is not observable. The supplier’s quality is not observable in both the single and double moral-hazard cases. In each case, we examine a warranty/penalty contract between the buyer and the supplier based on information from incoming inspection and external failures. When the warranty contract is based on information from external failures in the single moral-hazard case, the first-best quality is achieved, whereas in the double moral-hazard case, the first-best quality is achieved if the supplier is not held responsible for the buyer’s defects. When the warranty contract is based on information from incoming inspection, the first-best is achieved in both the single and double moral-hazard cases, even when the incoming inspection does not identify all of the supplier’s defectives. An analysis of whether the penalty on the supplier in each case meets a fairness criterion—that is, the penalty does not exceed the manufacturer’s external failure cost—indicates that the fairness criterion is met by the warranty contract based on information from incoming inspection when the first-best incoming inspection is sufficiently high. However, if the first-best incoming inspection is low and the precision of pinpointing the supplier’s responsibility for external failure is sufficiently high, the warranty contract based on external failures could satisfy the fairness criterion.

ServiceMaster Co. (THE)

AbstractAccounting & Management Consulting Services (MIC: 12.2 SIC: 741 NAIC: 61110)ServiceMaster provides outsourcing services to residential and commercial customers. The TruGreen segment provides lawn care services and landscape maintenance services. The Terminix segment includes domestic termite and pest control services. The American Residential Services and American Mechanical Services (ARS/AMS) segment provides plumbing, drain cleaning, heating, ventilation, air conditioning and electrical services. The American Home Shield segment offers warranty contracts on home systems and appliances and home inspection services. The Other Operations segment includes ServiceMaster Clean, Merry Maids and Furniture Medic franchise operations.

Optimal replacement and overhaul decisions with imperfect maintenance and warranty contracts

In this article, we develop a model to help a maintenance decision making situation of a given equipment. We propose a novel model to determine optimal life-cycle duration and intervals between overhauls by minimizing global maintenance costs. We consider a situation where the costumer, which owns the equipment, may negotiate a better warranty contract by offering an improved preventive maintenance program for the equipment. The equipment receives three kind of actions: repairs, overhauls, and replacement. An overhaul represents an imperfect maintenance action, that is, the failure rate is improved but not a point that the equipment is as good as new. Corrective maintenance actions are minimal, in the sense that the failure rate after each repair is the same as before the failure. The proposed strategy surpasses others seen in the literature since it considers at the same time the warranty negotiation situation and the optimal life-cycle duration under imperfect preventive actions. We also propose a simplified approach that facilitates the task of implementing the method in standard solvers.

Performance Comparison of Bridge Coating Defect Recognition Methods

Abstract Digital image recognition methods are now being utilized for steel bridge painting surface assessment. Through the use of digital image processing methods, the rust percentage on steel bridge surfaces can be objectively computed. The rust percentage may be crucial for the successful implementation of steel bridge painting warranty contracting since it can be used to decide whether painting contractors should repair painting defects at the end of the warranty period or at any regular inspection. To implement painting warranty contracting, however, appropriately designed recognition methods must be developed first. In this paper, several recognition methods are proposed and evaluated based on their rust recognition performance, and these methods fall into two categories. One uses artificial intelligence methods such as neural networks and fuzzy logic as the backbone for recognition, while the others apply statistical approaches to detect rust areas. Illumination is considered in some of the proposed methods to determine how it affects the recognition results. To test the performance of the proposed methods, a series of comparisons were made based on different environmental conditions.

ServiceMaster Co. (The)

AbstractAccounting & Management Consulting Services (MIC: 12.2 SIC: 8741 NAIC:561110)ServiceMaster provides outsourcing services to residential and commercial customers. The TruGreen segment provides lawn care services and landscape maintenance services. The Terminix segment includes domestic termite and pest control services. The American Residential Services and American Mechanical Services (ARS/AMS) segment provides plumbing, drain cleaning, heating, ventilation, air conditioning and electrical services. The American Home Shield segment offers warranty contracts on home systems and appliances and home inspection services. The Other Operations segment includes ServiceMaster Clean, Merry Maids and Furniture Medic franchise operations.

ServiceMaster Co. (The)

AbstractAccounting & Management Consulting Services (MIC: 12.2 SIC: 8741 NAIC:561110)ServiceMaster provides outsourcing services to residential and commercial customers. The TruGreen segment provides lawn care services and landscape maintenance services. The Terminix segment includes domestic termite and pest control services. The American Residential Services and American Mechanical Services (ARS/AMS) segment provides plumbing, drain cleaning, heating, ventilation, air conditioning and electrical services. The American Home Shield segment offers warranty contracts on home systems and appliances and home inspection services. The Other Operations segment includes ServiceMaster Clean, Merry Maids and Furniture Medic franchise operations.

State-of-Practice of Warranty Contracting in the United States

This paper presents the results of a comprehensive survey on warranty practices in the United States and a summary of the impact of warranty implementation on highway projects, based on questionnaire responses and interviews of State Department of Transportation (DOT) representatives, contractors, and surety companies. According to the results of the survey, the initial bid price increases due to warranty provisions are estimated to be somewhere between 0 and 15%, while the changes in maintenance and project life-cycle costs are expected to be minimal. Warranty provisions increased the quality of the projects and reduced the need for site inspection and record keeping for state DOTs. The study also revealed the unwillingness of surety companies to underwrite small contractors when the project calls for long term warranty durations.

Guidelines for Warranty Contracting for Highway Construction

This paper presents guidelines for implementing the construction warranty contracting method in the highway construction industry. A logical, step-by-step method for effectively applying the warranty contracting program for use in the highway construction industry is developed. Relevant issues that may present obstacles to the implementation are addressed, while the best practices, compiled from an evaluation of the current industry's state-of-the-art practices, will assist an interested state highway agency in creating a warranty specification. In performing this research, the current use of warranty specifications among state highway agencies was examined, and an in-depth case study of the Wisconsin Department of Transportation's warranty program was conducted.

Extended Warranties, Adverse Selection, and Aftermarkets

ABSTRACT This article investigates whether the contractual exclusion of third-party extended warranties should be legally permissible, using a model incorporating consumer heterogeneity. The welfare effects of competition in the market for extended warranties are shown to depend on the degree of competition in the product market. In contrast to the approach typically adopted by the courts, the article argues that manufacturers should not generally be permitted to practice requirements contracting in extended warranties, even when the product market is competitive. INTRODUCTION Competition authorities and economists have recently been wrestling with the question of whether manufacturers should have the right to monopolize aftermarkets for their products. An important class of such aftermarkets, characterized by adverse selection, is extended warranties and service contracts. This paper investigates the problem of whether the contractual exclusion of third-party extended warranties should be legally permissible. Consumer heterogeneity sometimes leads manufacturers to offer a menu of warranty contracts, typically implemented as a base warranty and an optional extended warranty. For most products on which a manufacturer offers an extended warranty, it faces competition from third-party service contracts. Some manufacturers, however, make it a condition of supplying a retailer that she carry only the manufacturer's extended warranty. A recent case is typical of the legal dilemma. Ford of Canada announced that as a condition for the use of its financing plan, dealers had to commit to exc lusive sales of Ford's extended warranty program. When the Federal Automobile Dealers Association threatened to take it before the Competition Bureau, Ford withdrew the condition, leaving dealers free to continue selling third-party extended service contracts. Should manufacturers generally have the right to impose such exclusivity conditions on retailers? This article argues that competition in extended warranties has an important effect on the base warranty, and therefore on welfare. In both the United States and Canada, the legality of such requirements contracting is still uncertain, despite the magnitude of the extended warranty and service contract markets. Extended warranties are one of the most commonly purchased forms of insurance and marketed along with most large and many small appliances. Sears alone is reported to have sold over $1 billion worth of extended warranties in 1991 in the United States. Ford recorded profits in excess of $100 million from sales of extended warranties in 1988, despite fierce competition from independent insurers. [1] Around 40 percent of all automobiles and major appliances are sold with some form of extended warranty, typically with a large profit margin. [2] For retailers of products carrying extended warranties, the profits can be significant: Some analysts estimate that around half of operating profits for big consumer electronics chains come from sales of extended warranties. [3] Although extended warranties are a form of insurance, they have quite unique features. Unlike most other forms of insurance, warranty contracts do not usually vary by amount of insurance but by duration instead. The reason for variation in the duration could be heterogeneity in consumer risk aversion or heterogeneity in the consumer's expected intensity of use. I model it as the latter in this article. This suggests that there will be opportunities for third degree price discrimination and the resulting welfare losses that come from distorting contracts for low intensity users to keep high intensity users from buying those contracts. The presence of third party extended warranties complicates the situation and may increase or decrease welfare. What is critical here is that because the warranty contract varies by duration and not by amount of coverage, the standard screening analysis employed in most insurance problems (beginning with Michael Rothschild and Joseph Stiglitz (1976) and Charles Wilson (1977)) doe s not apply directly to the warranty case. …

THE PRICE‐QUALITY RELATIONSHIP UNDER MONOPOLY AND COMPETITION

AbstractThe standard economic approaches (screening and signalling) to product quality imply an upward sloping relationship between price and product quality. In the case of screening models it is a relationship which applies to the product line of each individual firm. In the case of signalling models it applies across firms. Both types of model have their shortcomings. An alternative approach is presented which involves endogenising the quality control process. Firms voluntarily provide a warranty contract for their products and this, in turn generates an incentive to control quality. The model compares monopolistic and competitive markets in respect of warranties. quality control and the price‐quality relationship. Under monopoly, the price‐quality relationship is always upward‐sloping or flat. Under competition, however, cost shifts or certain demand side shifts can generate a downward‐sloping relationship between price and quality.

Warranty Policy and Extended Service Contracts: Theory and an Application to Automobiles

This paper characterizes the manufacturer warranty policy and its effect on consumer behavior under the following conditions: consumers are heterogeneous in risk-preferences, consumer actions affecting the probability of warranty redemption are unobservable to the manufacturer, and the product reliability is known. We obtain the “menu” of warranty contracts, and then make connections with its institutional counterpart: the extended service contract. The model's implications for consumer behavior are examined using data obtained from a sample of recent buyers of new cars. The role of risk in consumer behavior with respect to choice of extended service contracts, and the allocation of effort for maintenance are found to be consistent with the model's predictions. The empirical analysis permits quantifying the demand for extended service contracts as a function of the extent of manufacturer warranty. The estimates show that for our sample of buyers a manufacturer warranty of three years is optimal in the sense of overcoming the role of risk-aversion in the choice of extended service contracts.

Hidden actions and hidden characteristics in warranty markets

Warranties are investigated in a market setting with adverse selection and buyer and seller moral hazard. Competitive equilibrium contracts involve a positive correlation between price and warranty coverage. The relative benefits and costs of input supply for buyers and sellers determine how the warranty contract terms, consumer type and effort, product quality, and product reliability relate. Productivity and cost parameters, along with consumer characteristics, also influence the relative slopes of consumers' indifference curves over price-warranty pairs. The observed reliability of a product may vary inversely or directly with price and warranty coverage.

THE THEORY OF WARRANTY CONTRACTS

Abstract. This paper surveys theories of the existence and design of warranty contracts. Insurance, signalling, and incentive motives are used to explain the existence of warranties. The incorporation of imperfections that prevent warranties from serving their basic purposes in a first‐best way describes actual warranty practices.

Discounted and Per Unit Costs of Product Warranty

This paper proposes a detailed model of the costs and benefits to producers and consumers of product warranty. Three common types of product warranty contract are considered. In addition, we explicitly allow for randomness in consumer repurchase behavior and for the possibility of an independent damage process acting on products sold under warranty. The cost criteria considered are discounted costs (profits) and per unit costs (and profits). The model is used to analyze the trade-off between warranty and quality control, and to illustrate the sensitivity of warranty costs to environmental variables.

Product Warranties and Double Moral Hazard

This article explores a model of warranties in which moral hazard problems play a key role. The goal is to understand the important characteristics of warranties, including their provision of incomplete insurance and the relationship between product quality and coverage. We analyze a model in which buyers and sellers take actions that affect a product's performance. Since these actions are not cooperatively determined, an incentives problem arises. We characterize the optimal warranty contract and undertake comparative statics to determine the predicted correlation of warranty coverage and product quality.