TY - JOUR
T1 - A performance-based warranty for products subject to competing hard and soft failures
AU - Wang, Xiaolin
AU - Liu, Bin
AU - Zhao, Xiujie
N1 - Funding Information:
This work was supported by the Departmental Start-up Fund of The Hong Kong Polytechnic University (grant number P0034462 ) and the National Natural Science Foundation of China (grant numbers 71532008 , 71971181 , 72002149 ). We are grateful to the two anonymous referees for their helpful comments and suggestions on an earlier version of the paper.
Publisher Copyright:
© 2020 Elsevier B.V.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/3
Y1 - 2021/3
N2 - This article studies a performance-based warranty for products subject to competing hard and soft failures. The two failure modes are competing in the sense that either one, on a “whichever-comes-first” basis, can cause the product to fail. A performance-based warranty not only covers the repair or replacement of any defect, but also guarantees the minimum performance level throughout the warranty period. In this article, we propose three compensation policies—that is, free replacement, penalty, and full refund, when a product's performance fails to meet the guaranteed level. The expected warranty servicing costs for the three policies are derived, based on the competing risks concept. A warranty design problem is further formulated to simultaneously determine the optimal product price, warranty length, and performance guarantee level so as to maximize the manufacturer's total profit. Numerical studies are conducted to demonstrate and compare the three performance-based compensation policies. It is shown that the full refund policy always leads to the lowest total profit, whereas neither of the other two policies can dominate each other in all scenarios. In particular, the free replacement policy results in a higher total profit than the penalty policy when the replacement cost is low, the penalty cost coefficient is high, and/or the product reliability is high.
AB - This article studies a performance-based warranty for products subject to competing hard and soft failures. The two failure modes are competing in the sense that either one, on a “whichever-comes-first” basis, can cause the product to fail. A performance-based warranty not only covers the repair or replacement of any defect, but also guarantees the minimum performance level throughout the warranty period. In this article, we propose three compensation policies—that is, free replacement, penalty, and full refund, when a product's performance fails to meet the guaranteed level. The expected warranty servicing costs for the three policies are derived, based on the competing risks concept. A warranty design problem is further formulated to simultaneously determine the optimal product price, warranty length, and performance guarantee level so as to maximize the manufacturer's total profit. Numerical studies are conducted to demonstrate and compare the three performance-based compensation policies. It is shown that the full refund policy always leads to the lowest total profit, whereas neither of the other two policies can dominate each other in all scenarios. In particular, the free replacement policy results in a higher total profit than the penalty policy when the replacement cost is low, the penalty cost coefficient is high, and/or the product reliability is high.
KW - Competing risks
KW - Performance deterioration
KW - Warranty
KW - Warranty policy design
UR - http://www.scopus.com/inward/record.url?scp=85095854889&partnerID=8YFLogxK
U2 - 10.1016/j.ijpe.2020.107974
DO - 10.1016/j.ijpe.2020.107974
M3 - Journal article
AN - SCOPUS:85095854889
SN - 0925-5273
VL - 233
JO - International Journal of Production Economics
JF - International Journal of Production Economics
M1 - 107974
ER -