title: Warranty reserves for nonstationary sales processes
abstract: Estimation of warranty costs, in the event of product failure within the warranty period, is of importance to the manufacturer. Costs associated with replacement or repair of the product are usually drawn from a warranty reserve fund created by the manufacturer. Considering a stochastic sales process, first and second moments (and thereby the variance) are derived for the manufacturer's total discounted warranty cost of a single sale for single-component items under four different warranty policies from a manufacturer's point of view. These servicing strategies represent a renewable free-replacement, nonrenewable free-replacement, renewable pro-rata, and a nonrenewable minimal-repair warranty plans. The results are extended to determine the mean and variance of total discounted warranty costs for the total sales over the life cycle of the product. Furthermore, using a normal approximation, warranty reserves necessary for a certain protection level, so that reserves are not completely depleted, are found. Results and their managerial implications are studied through an extensive example
keyphrases: warranty reserves nonstationary sales processes product failure stochastic sales process second moments variance total discounted warranty cost total discounted warranty cost single-component items servicing strategies renewable free-replacement nonrenewable free-replacement renewable pro-rata nonrenewable minimal-repair warranty plans normal approximation managerial implications warranty costs estimation product replacement product repair first moments total discounted warranty costs product life cycle