Decision Models for Adopting Extended Warranty Based on the Cost-Effectiveness Analysis

Extended warranty has a significant effect on manufacturer´s profit and product´s Life Cycle Cost (LCC). In order to make a decision for adopting the extended warranty or not, by balancing the both benefits of consumer and manufacturer, we develop a mathematical decision model to study the opportunity provided by the extended warranty for the buyers as well as for the manufacturer based on the analysis of extended warranty policy. The model allows looking if there is zone of compromise yielding a win-win relationship with respect to the maintenance cost and availability of the product. At last, the model is proved to be practical by the case study.