A Framework in Determining Extended Warranty by Using Two Dimensional Delay Time Model

Abstract

A framework for determining optimal period and cost in extended warranty is proposed in this paper. The optimal period and cost is derived from two-dimensional delay time model. Two-dimensional delay time model is governed by age and mileage. Age and mileage gives effect for the rate of defect arrival λ. The steps for obtaining the model to estimate the optimal period cost of extended warranty is presented. It starts from modeling the defect arrival rate, the impact of preventive maintenance toward the defect arrival rate; determine the delay time distribution, data analyzing and the last optimal cost and period estimation for extended warranty.