Effects of warranty execution on warranty reserve costs

Previous research has usually assumed full execution of warranty if a product fails within the warranty time. This paper investigates the effect of warranty execution on the expected warranty reserves of a linear pro rate rebate plan. The failure distribution investigated includes the Weibull distribution with different parameter values. A weight function is used that depicts the effect of warranty execution. Several forms of this warranty execution function modeling consumer behavior, which is influenced by factors such as the rebate plan, warranty time, product class, and warranty attrition, are studied. Expected present value of warranty reserves, by using a factor that includes the firm’s discount rate and the general inflation rate, are found for the different warranty execution functions. The impact of the warranty execution function on the warranty reserves per unit is explored. The paper also investigates the effects of the model parameters, such as the failure distribution parameters and differences in consumer behavior in claiming warranties on warranty costs per unit.