Managing Inventory Of Items with Replacement Warranty

1
Managing Inventory Of Items with Replacement
Warranty

• Vidyadhar Kulkarni
• Joint Work with Wei Huang, Jayashankar
  Swaminathan
• University of North Carolina at Chapel Hill
• SAS Inc. Cary, NC

2
Warranty?!
3
Motivation

• Digital projector company electrical, mechanical
  and optical parts.

• The demand for warranty repairs is significant
  compared to the new demand. (More than 15 in
  some periods.)

4
Current Policy

• The inventory replenishment strategy of the
  digital projector company make inventory control
  policy depending on the new demand alone, and
  satisfy the warranty repair demand by inventory
  left on hand.
• Suffers the high penalty cost for unsatisfied
  demand of warranty repair, which directly causes
  shortage of inventory for new product demand as
  well.
• Manage the complex service parts challenges with
  a costly, just order more parts strategy.

5
Research Questions

• Develop an integrated inventory policy to
  simultaneously account for new and warranty parts
• Discounted cost and long-run average cost
• Backlogging and emergency supply
• Benefits of tracking the age of items under
  warranty
• Evaluate the cost benefits of such approaches

6
Model Settings
age-independent failure
age-dependent failure
warranty expiration ratio
warranty duration K
backlogs
emergency supply
backlogs
emergency supply
finite discounted
finite discounted
finite discounted
finite discounted
infinite discounted
infinite discounted
long-run average
long-run average
7
Problem Structure
? how much to order
Manufacturer (w,x)
demand for new product
demand for warranty repair
failed product
product warranty expires
Customer
Customer
new product
Customer
Customer
Customer
product out of warranty
Out of warranty
8
Model Parameters
9
Model Description and Assumptions
10
Proportional Model with Discounting (Finite
Horizon)
11
Proportional Model with Discounting (Finite
Horizon)
12
Proportional Model with Discounting (Finite
Horizon)
13
Proportional Model with Discounting (Finite
Horizon)
14
Proportional Model with Discounting (Finite
Horizon)

• Special Case i.i.d Demand

15
Proportional Model with Discounting (Infinite
Horizon)
16
Proportional Model Average Cost
17
Proportional Model with Emergency Supply
18
Proportional Model with Emergency Supply
19
Extensions Pro-rata Policy
20
Extensions Warranty Expiration Model
21
Extensions Warranty Expiration Model
22
Computational Study Cost Improvement
c2, h0.05, N100, N1000
23
Computational Study Cost Improvement
24
Computational Study Value of Information

• Integrated policy VS. Approximate policy
• Approximate policy base stock policy with base
  stock level
• Maximum improvement 12.3 Average improvement
  3

25
Computational Study Value of Information
26
Computational Study Value of Information
27
Computational Study Value of Information
28
Computational Study Value of Information