Dragan Stamenković

Warranty optimisation based on the prediction of costs to the manufacturer using neural network model and Monte Carlo simulation

Warranty is a powerful marketing tool, but it always involves additional costs to the manufacturer. In order to reduce these costs and make use of warrantys marketing potential, the manufacturer needs to master the techniques for warranty cost prediction according to the reliability characteristics of the product. In this paper a combination free replacement and pro rata warranty policy is analysed as warranty model for one type of light bulbs. Since operating conditions have a great impact on product reliability, they need to be considered in such analysis. A neural network model is used to predict light bulb reliability characteristics based on the data from the tests of light bulbs in various operating conditions. Compared with a linear regression model used in the literature for similar tasks, the neural network model proved to be a more accurate method for such prediction. Reliability parameters obtained in this way are later used in Monte Carlo simulation for the prediction of times to failure needed for warranty cost calculation. The results of the analysis make possible for the manufacturer to choose the optimal warranty policy based on expected product operating conditions. In such a way, the manufacturer can lower the costs and increase the profit.

Choosing the Right Warranty Policy - from the Customer's to the Manufacturer's Point of View

Product warranty is a powerful marketing tool, but it always involves additional costs to the manufacturer. This paper deals with the warranty cost analysis for one type of passenger car batteries. Costs were calculated for three variants of fully renewing combination free replacement and pro-rata policy and for different warranty parameters. After choosing the price range for the product, a market research was performed to determine which warranty policy customers recognize as most favourable to them. Obtained results are guideline for the manufacturer to choose the warranty that minimizes the costs and maximizes the profit.