Fully Renewing Combination Free Replacement and Pro-Rata Warranty Cost Assessment Using Monte Carlo Simulation

Abstract

Warranty is a powerful marketing instrument for the manufacturer and a good protection for both the manufacturer and the customer, but it always involves additional costs to the manufacturer. This paper deals with the warranty forecasting by estimating the future warranty returns in order to anticipate associated costs. The warranty prediction model is based on a Weibull analysis and a Monte Carlo simulation. Data gathered through the accelerated life-cycle analysis of 20 light bulb units of the new type were used as an input for the Weibull analysis to obtain the parameters needed for the simulation. MATLAB simulation algorithm was developed especially for this purpose. Warranty analysis was done for three variants of fully renewing combination free replacement and pro-rata policy and for several combinations of warranty period and free replacement period lengths. The results showed the relation between the parameters that define the policy and associated cost to the manufacturer. Presented simulation algorithm proved to be a fast and reliable tool for warranty cost analysis.