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Distributions of manufacturer's and user's replacement costs under warranty

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  • Izzet Sahin
  • Hakan Polatoglu

Abstract

We derive and compute time‐dependent distributions of replacement costs under warranty over the product life cycle, both for the manufacturer and the user, under conditional pro‐rata and nonrenewing free‐replacement warranty policies. For pro‐rata warranties, the analysis is based on the joint distribution of the number of replacements and the user's cost over time. For free‐replacement warranties, distribution of the user's cost follows from the observation that replacement points outside warranty periods form a renewal process. This property is also exploited to determine the distribution of the manufacturer's cost. We apply our findings to measure the impact of product conformance quality on warranty cost distributions and find that manufacturer's cost measures are more sensitive to changes in quality than user's cost measures. © 1995 John Wiley & Sons, Inc.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:navres:v:42:y:1995:i:8:p:1233-1250
    DOI: 10.1002/1520-6750(199512)42:83.0.CO;2-X
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    References listed on IDEAS

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    1. John W. Mamer, 1982. "Cost analysis of pro rata and free‐replacement warranties," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 29(2), pages 345-356, June.
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