Modeling flexible two-dimensional warranty contracts for used products considering reliability improvement actions

In this article, a new pre-sale reliability improvement model is proposed for repairable used products sold with a two-dimensional free repair warranty policy. Using bivariate failure modeling framework, this model can describe the effect of reliability improvement action on the past age and past usage of a used product separately. Under the two-dimensional free repair warranty policy, product failures within the warranty coverage are rectified minimally by the dealer at no cost to new buyers. The optimal reliability improvement policy is determined to minimize the total expected servicing cost per unit sale from the dealer's perspective. Moreover, a four-step approach is developed to design flexible warranty contracts with optimized reliability improvement policies for used products. Numerical example and sensitivity analysis are provided to demonstrate the effectiveness of the proposed model and approach.