Optimal Unlimited Free-Replacement Warranty Strategy using Reconditioned Products

The long-term sustainability of our resources is dependent on reducing the consumption of virgin resources, and one method of achieving this goal is product remanufacturing. It is already established that the production of remanufactured products costs less than that of creating a new one, however the effects of this on warranty costs are now considered. Due to consumer perceptions of the quality of remanufactured products, it cannot be sold for the same price as a new product. In addition, the warranty costs the manufacturer incurs will also be higher. This paper proposes a mathematical model for the optimal one-dimensional unlimited free-replacement warranty policy with replacements carried out with reconditioned products. Numerical optimization is used to compute the optimal warranty and production parameters which maximize the total profit.