WARRANTY AND OPTIMAL UPGRADE STRATEGY FOR USED SYSTEMS: AN ELECTRIC DRILL CASE STUDY

Mahmood Shafiee (), Stefanka Chukova () and Maxim Finkelstein ()
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Mahmood Shafiee: Department of Mathematical Sciences, Chalmers University of Technology and University of Gothenburg, SE-412 96 Göteborg, Sweden
Stefanka Chukova: School of Mathematics, Statistics and Operations Research, Victoria University of Wellington, Wellington, New Zealand
Maxim Finkelstein: Department of Mathematical Statistics, University of the Free State, 339 Bloemfontein 9300, South Africa;

Asia-Pacific Journal of Operational Research (APJOR), 2012, vol. 29, issue 04, 1-21

Abstract: Offering warranty for a second-hand item stimulates the sales of the item, but at the same time, it accumulates additional warranty servicing cost. This additional cost can be reduced through actions that improve the reliability of the item, such as overhaul and upgrade. An upgrade action brings the second-hand item to an improved functional state and it effectively reduces the age of the item. In this paper, we propose a model aiming to determine the optimal upgrade action strategies that achieve a sensible trade-off between the cost of an upgrade action and the reduction of the expected warranty cost due to this action. A practical application case on electric drills is used to illustrate our findings.

Keywords: Reliability; second-hand item; upgrade action; warranty (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1142/S0217595912500236

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