Warranty cost analysis for second-hand products under a two-stage repair-or-full refund policy

Minjae Park, Ki Mun Jung and Dong Ho Park

Reliability Engineering and System Safety, 2020, vol. 193, issue C

Abstract: With this paper, we consider an optimal warranty policy for second-hand products based on a two-stage repair-or-full-refund maintenance strategy to determine an optimal length of warranty period from the dealer's point of view. Because replacing failed products may not be an option with second-hand products, we newly introduce in this paper the concept of full refund rather than replacement. We pre-specify a repair time threshold and define the length of maintenance period during which the dealer will maintain the product as the product maintenance cycle. Following this policy, if the product failure cannot be repaired within the repair time threshold during the warranty period, the user receives a full refund and the maintenance cycle ends. Otherwise, the user receives only minimal repairs to the product, and if the dealer does not issue a full refund during the warranty period, the maintenance cycle ends when the warranty expires. Given a certain cost structure charged to the dealer, we derive mathematical formulas to evaluate the expected length of a maintenance cycle and the expected total maintenance cost during the cycle. As a criterion for the optimality of the warranty policy, we utilize the expected cost during the product maintenance cycle to propose the optimal warranty policy. Assuming the power law model for product failures and a two-parameter Weibull distribution for the repair times, we illustrate our proposed warranty policy numerically and conduct sensitivity analysis to study the impacts of several relevant parameters on the optimal warranty policy.

Keywords: Maintenance cycle; Optimal warranty period; Power law process; Repair-full refund; Repair time; Second-hand product (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0951832018305404
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reensy:v:193:y:2020:i:c:s0951832018305404

DOI: 10.1016/j.ress.2019.106596

Access Statistics for this article

Reliability Engineering and System Safety is currently edited by Carlos Guedes Soares

More articles in Reliability Engineering and System Safety from Elsevier
Bibliographic data for series maintained by Catherine Liu ().