Renewing warranty and preventive maintenance for products with failure penalty post-warranty

For products sold with a warranty, preventive maintenance (PM) by either the manufacturer and/or the buyer has an effect on the total cost for both parties. In this investigation, we use a model to study the effect of PM carried out by the buyer on items sold under a free-replacement renewing warranty. For the manufacturer, if the product fails during the warranty period, it shall either be repaired (minor failure) or replaced completely (catastrophic failure) by a new one with a new warranty and at no cost to the buyer. When the product is out-of-warranty and if the product fails due to a catastrophic failure before its useful life limit, the buyer will incur a penalty cost, the amount of which depends on the failure time. Under such a framework, the cost model is derived and the effects of three PM options on the cost are examined both from the manufacturer's and buyer's perspectives. The results show that a significant cost saving can be obtained by taking the optimal PM action route. Copyright (c) 2007 John Wiley & Sons, Ltd.