Available at www.ElsevierMathematics.com @J COWBRED .I SCICNCC DIRCCT’ MATHEMATICAL COMPUTER MODELLING EISVIER Mathematical and Computer Modelling 38 (2003) 1233-1241 www.elsevier.com/locate/mcm Repair-Replace Strategies for Two-Dimensional Warranty Policies B. P. ISKANDAR Department of Industrial Engineering Institut Teknologi Bandung Jalan Ganesha 10, Bandung 40132, Indonesia D. N. P. MURTHY Department of Mechanical Engineering The University of Queensland Queensland 4072, Australia Abstract-For repairable items sold with free replacement warranty, the actions available to the manufacturer to rectify failures under warranty are to (1) repair the failed item or (2) replace it with a new one. A proper repair-replace strategy can reduce the expected cost of servicing the warranty. In this paper, we study repair-replace strategies for items sold with a two-dimensional free replacement warranty. @ 2003 Elsevier Ltd. All rights reserved. Keywords---Free replacement warranty, Repair-replace strategy, Two-dimensional warranty, Ex- pected warranty cost. 1. INTRODUCTION A warranty is a contractual agreement,, which requires the manufacturer to rectify all item fail- ures either through repair or replacement should failure occur within the period specified in the warranty. Warranty serves a dual role-it protects the buyer from being sold defective items and at the same time, restricts unreasonable claims on the manufacturer by buyers. Over the last few years, manufacturers have used warranty as an effective advertising tool to promote their prod- uct. A taxonomy for the different warranty policies is given in [l]. They can be broadly grouped into one- and two-dimensional policies. A one-dimensional warranty policy is characterised by a one-dimensional time interval called the warranty period. A two-dimensional warranty policy is characterised by a region in a two-dimensional plane with one dimension representing time and the other representing usage. The origin corresponds to the time instant of a sale. A typical example is an automobile warranted for three years or 60,000 kilometers of travel. The literature on warranties is vast. Many different aspects have been studied from many different. perspectives. Blischke and Murthy [2] deal with many of these topics, and a detailed cost analysis of several warranty policies can be found in [I]. The bulk of the literature deals 0895-7177/03/$ - see front matter @ 2003 Elsevier Ltd. All rights reserved. doi: lO.lOlS/SO895-7177(03)00336-4 Typeset by AM-w