Calculation of the Cost of Warranty Policies as a Function of Estimated Life Distributions,
UNIVERSITY OF SOUTHERN CALIFORNIA LOS ANGELES DEPT OF QUANTITATIVE BUSINESS ANALYSIS
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Two types of warranties are analyzed. These are the free-replacement warranty, under which failed items are replaced free of charge until a specified total operating time has been achieved, and the pro rata warranty, under which items that fail prior to a specified time are replaced at pro rata cost to the buyer. Both the buyers and sellers points of view are considered. The basis of the analysis is a comparison of warrantied and unwarrantied otherwise identical items with regard to long-run cost to the buyer and long-run profit to the seller. Application of the results requires knowledge of certain characteristics of the life distribution of the items in question. Parametric and nonparametric methods of estimation of these characteristics from incomplete data are discussed. Single and multiple failure-mode situations are considered. Some solutions to the problem are illustrated using incomplete data on failure time of aircraft component.
- Manufacturing and Industrial Engineering and Control of Production Systems