Warranty Cost Analysis for Multi-State Products Protected by Lemon Laws

Abstract

The implementation of lemon laws in America has played an important role in improving the quality of after-sales service. Nowadays, many countries, such as China, Canada, Europe, Australia, Singapore, and South Korea, have adopted lemon laws in various industries to protect the interest of consumers. From the perspective of manufacturers, accurate estimation of the cost of the warranty service is of great importance in guiding product pricing, quality control, and design of warranty policies. According to the terms of different lemon laws, two warranty models considering the repair time and numbers for failures are proposed in this paper. Products under these models are multi-state, and Markov processes are used to model the degradation processes of products. In the first model, a product will be replaced by a new one if the time for a repair or the number of failures exceeds their respective thresholds over the warranty period. Under the second model, both catastrophic and minor failures are considered. A product will be replaced if one of the following three conditions is met over the warranty period: the time of one repair action (regardless of failure type) is longer than a time threshold; the number of minor failures is larger than a preset threshold; a catastrophic failure occurs. The expected warranty cost rates under the two proposed warranty models are derived under the assumption of renewable warranty terms. Numerical examples are given to illustrate the results obtained.

Keywords

• warranty
• lemon laws
• multi-state products
• renewable warranty
• Markov process