Determination of the optimal warranty policy and period that provides the lowest warranty cost from the manufacturer's/ seller's perspective: A simulation study

Together with advancing technology, individual and social needs are increasing and as a result of this, global competition, which has started to increase, offers opportunities to make consumption more attractive. As the consumption started to increase, the factors that could affect the product choice increased considerably; the warranty service offered along with the manufactured / sold product has started to be one of them. For a product that customers want to buy, the durability and lifetime of the product are the main features that affect the product choice. The customer desires that the product he / she has bought remains intact for a long time or that it is guaranteed against deterioration for a certain period of time. This has led to the fact that the warranty service provided with the products has become important and as a result, the variety of warranty services has led to the emergence of different policies. Providing the warranty service that directly affects customer preference with satisfaction with minimum cost has started to become an important decision-making problem for manufacturers / sellers. For this reason, each manufacturer / seller endeavors to determine the warranty period under a warranty policy that will result in minimal cost to it. The aim of this study is to determine the most appropriate warranty period and policy with the lowest warranty cost from the manufacturer / seller point of view. The warranty policy to be introduced and the warranty period to be provided under this policy should result in minimum cost to the manufacturer / seller while ensuring customer satisfaction. For this reason, we have tried to determine the optimum warranty period within the scope of Free-Replacement Warranty (FRW) policy, Pro-Rata Warranty (PRW) policy and the combined FRW / PRW policy, which consists of a combination of these two policies. In the study, in order to determine the optimal warranty period, the benefit function obtained from the economic benefit, warranty cost and dissatisfaction cost functions were utilized. The exponential distribution commonly used in life tests as probability density function in obtaining the required formulas and the gamma and inverse gamma distributions were used as the prior distribution of this distribution. In order to test the research by simulation method, the revenue (sales) and the cost of sales were used in the 2017 and 2018 annual activity report submitted to Arçelik in Public Disclosure Platform (KAP). According to the information here, it is seen that the cost of the product on average corresponds to approximately 68% of the selling price of the product. As for the product price to be used in the study, 10 different refrigerator prices for the year 2019 in the white goods category and whose price ranges between 3000-5000 ₺ which were shown at Arçelik A.Ş's official website have been. The cost of the selected products is also provided by Arçelik A.Ş. is based on the above-mentioned sales-cost ratio (Product Cost = Product Price * 0.68). The elapsed time at the time of product deterioration was determined by generating random numbers. Since the specified periods and warranty periods are calculated as the number of revolutions, they are limited in the range of 0 to 1. The objective function, which is obtained in order to determine the period in which the warranty periods (the number of revolutions) should be limited, is plotted under different sales and cost prices and the optimum warranty values giving optimum results are found to be between 0 and 0.3. For this reason, all the values of the warranty periods in this range have been tried one by one in the simulation study and tried to find the optimum results. In the simulation study, it is aimed to replicate the randomly generated numbers with 5000 cycles to get the obtained values closer to the real values. When all the results are taken together, after testing all the models that were obtained, it is seen that the combined FRW / PRW policy has the most appropriate warranty cost and the warranty cost corresponds to approximately 3% of the product sales price. Within the framework of these results, the manufacturer / seller was advised to prefer the combined FRW / PRW policy for the warranty service to be provided to the customer with the product. Under this policy, if the warranty period revolutions are selected around g_1=0.054.., g_2=0.120.. the warranty cost will be at the lowest level and will constitute approximately 3% of the product sales price. The manufacturer / seller will both provide customer satisfaction and offer a minimum cost warranty policy and period with the product.