Warranty cost analysis for products protected by Lemon Laws

Abstract

This paper deals with warranty cost analysis for a warranted product protected by lemon laws during the warranty period. The product is declared a lemon if either of two conditions are met: (i) the product has been returned to the dealer k (e.g. k = 4) times to have the failed product fixed, and the manufacturer was unable to repair the problem satisfactorily, or (ii) the product has been out of service more than the prespecified threshold (e.g. 30 days) due to one or more failures. We study two cases – (i) refund and (ii) replacement cases. For (i), if the product turns out to be a lemon then the manufacturer refund the purchase price, and replace with a new one for (ii). Since the complexity involved in the formulation of the expected warranty cost (EWC), a simulation approach is used to evaluate the EWC for the two cases considered. We give numerical examples to illustrate the EWC for refunding and replacement cases and discuss the impact of a reliability and/or quality improvement to reduce the EWC for the two cases.