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Reliability: Modeling, Prediction, and Optimization by D. N. Prabhakar Murthy, Wallace R. Blischke

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CHAPTER 17

Warranties and Service Contracts

17.1 INTRODUCTION

As mentioned in Chapter 1, because of rapid technological changes, new products and systems are appearing at an ever-increasing rate and at the same time they are becoming more and more complex. With the increase in complexity and the use of new materials and design methodologies, the reliability of such products and systems is of concern to buyers. One way for the manufacturer to assure the buyer that the product will perform satisfactorily is to offer a warranty with the sale of the product. In very simple terms, the warranty assures the buyer that the manufacturer will either repair or replace items that do not perform satisfactorily or refund a fraction or the whole of the sale price. For complex systems that are custom built using cutting-edge technologies, buyers often have complex reliability warranty terms included in their contract with the manufacturer.

Offering a warranty results in additional costs to the manufacturer due to the servicing of any problems that arise during the warranty period. We focus our attention on item failures, since these are related to the reliability of the product and are the most common cause of warranty costs. We examine a variety of warranty policies and develop models to obtain the expected cost of servicing the warranty as a function of the reliability of the product. This type of analysis is very important in terms of pricing the product. Since warranty and price play an important ...

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