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Calculation of the cost of warranty policies as a function of estimated life distributions

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  • Wallace R. Blischke
  • Ernest M. Scheuer

Abstract

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 buyer's and seller's points of view are considered. The basis of the analysis is a comparison of warranted and unwarranted (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 times of an aircraft component.

Suggested Citation

  • Wallace R. Blischke & Ernest M. Scheuer, 1975. "Calculation of the cost of warranty policies as a function of estimated life distributions," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 22(4), pages 681-696, December.
    • Handle: RePEc:wly:navlog:v:22:y:1975:i:4:p:681-696
    DOI: 10.1002/nav.3800220405
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    Cited by:

    1. Evan E. Anderson & Yu‐Min Chen, 1988. "A decision support system for the procurement of military equipment," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(4), pages 619-632, August.
    2. Mitra, Amitava, 2021. "Warranty parameters for extended two-dimensional warranties incorporating consumer preferences," European Journal of Operational Research, Elsevier, vol. 291(2), pages 525-535.
    3. Izzet Sahin & Hakan Polatoglu, 1995. "Distributions of manufacturer's and user's replacement costs under warranty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 42(8), pages 1233-1250, December.
    4. Herbert Moskowitz & Young Hak Chun, 1994. "A poisson regression model for two‐attribute warranty policies," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(3), pages 355-376, April.
    5. Nicholas Zaino & Toby Berke, 1994. "Some renewal theory results with application to fleet warranties," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(4), pages 465-482, June.

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