Optimization of Extended Warranty Cost for Multi-Component Products with Failure Interaction

Abstract

In practice, the assumption of failure independence between components is seldom valid, especially for those complex systems with complicated failure mechanism. Users can decide whether to purchase extended warranty (EW) at the end of basic warranty, and there are many factors that influence this decision, such as product reliability and EW price. In order to solve the problem of EW pricing for multi-component systems with failure interaction reasonably, considering the failure interaction characteristics between components of the multi-component systems, under the condition of type II failure interaction, this paper constructed a dependent failure rate model and developed a EW cost model of two-component systems. Thus, after optimizing the preventive maintenance (PM) strategy, this paper obtained the optimal PM interval when EW cost is the lowest, which is a win-win strategy to reduce the EW price for manufacturers and users under the premise of ensuring the manufacturer's profit demand. Finally, the validity of the model was verified by a numerical example and sensitivity analysis for important parameters was presented.