Product warranty and reliability

Ann Oper Res (2006) 143: 133146DOI 10.1007/s10479-006-7377-yProduct warranty and reliabilityD. N. P. MurthyC

Springer Science + Business Media, Inc. 2006Abstract Product warranty is an important part of new product marketing and sales. Offering

warranty implies additional costs in the form of warranty servicing cost. Product reliability

has a serious impact on the warranty servicing cost. As such, effective management of

product reliability must take into account the link between warranty and reliability. This

paper deals with this topic and develops a framework needed for effective management of

product reliability. It reviews the relevant literature and defines topics for future research.Keywords Warranty . Reliability . Models . Management1. IntroductionIn the purchase decision of a product, buyers typically compare characteristics of comparable

models of competing brands. When competing brands are nearly identical, it is very difficult,

in many instances, to choose a particular product solely on the basis of the product-related

characteristics such as price, special features, perceived product quality and reliability, financing offered by the manufacturer, and so on. In such situations, post-sale factorswarranty,

parts availability and cost, service, maintenance, and so forthtake on added importance in

product choice. Of these, warranty is a factor that is known (or at least potentially known) to

the buyer at the time of purchase.Another feature is that each new generation is more complex than the earlier generation it

replaces. Often customers are uncertain about product performance. Here warranties play an

important role in providing product assurance to customers and different types of warranties

are offered depending on the product and buyer. Protection of consumer interests has become

an important issue in all industrialised societies. In the USA, the Magnuson-Moss Act was

legislated in the early sixties and the European Union has recently passed new legislation

that requires all products sold in the EU (European Union) to have a two-year warranty.D. N. P. MurthyThe University of Queensland, Brisbane, Australia

e-mail: [email protected] Ann Oper Res (2006) 143: 133146A warranty of any type, since it involves an additional service associated with a product,

will lead to potential costs beyond those associated with the design, manufacture and sale of

the product. These costs, in fact, are unpredictable future costs, which typically range from

2% to as much as 15% of net sales (McGuire,...