Article ID: | iaor19982678 |
Country: | United States |
Volume: | 43 |
Issue: | 7 |
Start Page Number: | 966 |
End Page Number: | 975 |
Publication Date: | Jul 1997 |
Journal: | Management Science |
Authors: | Singpurwalla Nozer D., Eliashberg Jehoshua, Wilson Simon P. |
Keywords: | decision theory |
Many products carry a warranty that offers protection for the consumer against low quality. These warranties are often two dimensional, such as an automobile warranty that guarantees repair up to a certain time and mileage after sale. This paper considers the problem of assessing the size of a reserve needed by the manufacturer to meet future claims for such a two-dimensional warranty. To do this, a class of failure models that describe failure by two scales – time and mileage, for example – must be developed. The first half of the paper is devoted to this development. Then the warranty reserve problem is considered in more detail. The problem is described and a decision-theoretic solution, making use of the newly developed reliability model, is proposed.