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Joint optimization of design, warranty and price for products sold with maintenance service contracts

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  • Darghouth, M.N.
  • Ait-kadi, D.
  • Chelbi, A.

Abstract

In this paper a modeling framework for optimal design, warranty and price for new products sold with a maintenance service contract is developed. The model considers situations with one customer and a unique service provider which is the Original Equipment Manufacturer (OEM). The latter intends to offer with each sold product a service contract according to which he commits to perform all maintenance actions over the product lifecycle. Four contract options are to be investigated by the manufacturer depending on the coverage period and the nature of the maintenance activities to be performed. Two scenarios, related to product warranty and price, are considered. The learning effects arising from the impact of the total sales volume on the product price, as well as the impact of the experience gained in the product maintenance on the preventive maintenance cost are also considered. The model allows the manufacturer to set the optimal combination of the product design (reliability), sale price and warranty period which maximizes the discounted profit over the product lifecycle for each option and for the two scenarios of pricing and warranty. The necessary optimality conditions for each scenario are derived.

Suggested Citation

  • Darghouth, M.N. & Ait-kadi, D. & Chelbi, A., 2017. "Joint optimization of design, warranty and price for products sold with maintenance service contracts," Reliability Engineering and System Safety, Elsevier, vol. 165(C), pages 197-208.
    • Handle: RePEc:eee:reensy:v:165:y:2017:i:c:p:197-208
    DOI: 10.1016/j.ress.2017.03.033
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    Cited by:

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    2. Zhu, Ying & Xia, Tangbin & Chen, Zhen & Pan, Ershun & Xi, Lifeng, 2022. "Optimal maintenance service strategy for OEM entering competitive MRO market under opposite patterns," Reliability Engineering and System Safety, Elsevier, vol. 217(C).
    3. Liu, Zhuojun & Diallo, Claver & Chen, Jing & Zhang, Michael, 2020. "Optimal pricing and production strategies for new and remanufactured products under a non-renewing free replacement warranty," International Journal of Production Economics, Elsevier, vol. 226(C).
    4. Rahimi-Ghahroodi, S. & Al Hanbali, A. & Zijm, W.H.M. & Timmer, J.B., 2019. "Emergency supply contracts for a service provider with limited local resources," Reliability Engineering and System Safety, Elsevier, vol. 189(C), pages 445-460.
    5. Hooti, Fatemeh & Ahmadi, Jafar & Longobardi, Maria, 2020. "Optimal extended warranty length with limited number of repairs in the warranty period," Reliability Engineering and System Safety, Elsevier, vol. 203(C).
    6. Wang, Dongfan & He, Zhen & He, Shuguang & Zhang, Zhaomin & Zhang, Yiwen, 2021. "Dynamic pricing of two-dimensional extended warranty considering the impacts of product price fluctuations and repair learning," Reliability Engineering and System Safety, Elsevier, vol. 210(C).
    7. Chun Su & Longfei Cheng, 2019. "Two-dimensional preventive maintenance optimum for equipment sold with availability-based warranty," Journal of Risk and Reliability, , vol. 233(4), pages 648-657, August.
    8. Huang, Hongfu & Liu, Feng & Zhang, Peng, 2021. "To outsource or not to outsource? Warranty service provision strategies considering competition, costs and reliability," International Journal of Production Economics, Elsevier, vol. 242(C).
    9. Zhu, Ying & Xia, Tangbin & Hong, Ge & Chen, Zhen & Pan, Ershun & Xi, Lifeng, 2022. "Collaborative maintenance service and component sales under coopetition patterns for OEMs challenged by booming used-component sales," Reliability Engineering and System Safety, Elsevier, vol. 226(C).
    10. Zhao, Xiujie & Chen, Piao & Lv, Shanshan & He, Zhen, 2023. "Reliability testing for product return prediction," European Journal of Operational Research, Elsevier, vol. 304(3), pages 1349-1363.
    11. Javed, Muhammad Kashif & Wu, Min, 2020. "Effects of online retailer after delivery services on repurchase intention: An empirical analysis of customers’ past experience and future confidence with the retailer," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    12. Zhao, Xiujie & Liu, Bin & Xu, Jianyu & Wang, Xiao-Lin, 2023. "Imperfect maintenance policies for warranted products under stochastic performance degradation," European Journal of Operational Research, Elsevier, vol. 308(1), pages 150-165.
    13. Fang, Chih-Chiang, 2020. "Optimal price and warranty decision for durable products in a competitive duopoly market," Reliability Engineering and System Safety, Elsevier, vol. 203(C).
    14. Lijun Shang & Yongjun Du & Cang Wu & Chengye Ma, 2022. "A Bivariate Optimal Random Replacement Model for the Warranted Product with Job Cycles," Mathematics, MDPI, vol. 10(13), pages 1-16, June.
    15. Yanrong Li & Lai Wei & Wei Jiang, 2021. "A Two-stage Pricing Strategy Considering Learning Effects and Word-of-Mouth," Papers 2110.11581, arXiv.org.
    16. Wang, Yukun & Liu, Yiliu & Liu, Zixian & Li, Xiaopeng, 2017. "On reliability improvement program for second-hand products sold with a two-dimensional warranty," Reliability Engineering and System Safety, Elsevier, vol. 167(C), pages 452-463.
    17. Lijun Shang & Guojun Shang & Yongjun Du & Qingan Qiu & Li Yang & Qinglai Dong, 2022. "Post-Warranty Replacement Models for the Product under a Hybrid Warranty," Mathematics, MDPI, vol. 10(10), pages 1-18, May.
    18. Ali Salmasnia & Ali Talesh-Kazemi & Mohammad Reza Maleki, 2022. "Joint optimization of inventory planning, maintenance policy and pricing for perishable complementary products by considering the product freshness and technology level," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(4), pages 713-746, December.
    19. Li, Ting & He, Shuguang & Zhao, Xiujie & Liu, Bin, 2023. "Warranty service contracts design for deteriorating products with maintenance duration commitments," International Journal of Production Economics, Elsevier, vol. 264(C).

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