Optimization of Extended Warranties - A Model in a Centralized Supply Chain Environment

Abstract

The market of extended warranties is increasing rapidly and as customers’ demand better warranty terms, the need to optimize warranty strategies for manufacturers arises accordingly. This project constructs two different types of extended warranty policies and compares their associated optimal profit. Results are obtained by solving a nonlinear optimization model in MATLAB and a sensitivity analysis is conducted on some of the input parameters. The findings from the results are that, while one of the policies turns out to be the better one, both are still profitable and that there exists potential in today’s market for introducing the evaluated policies on products with certain failure behavior.