The Impacts Of Product Failure Rate Characteristics On Extended Warranty Service Supply Chain Coordination

We study the impacts of product failure rate characteristics on an extended warranty supply chain and assume that there are a manufacturer,a retailer and many consumers in this supply chain.Then we utilize the Stackelberg game model to analyze the extended warranty sales channels and pricing decisions of the retailer and the manufacturer and study the coordination strategy of the extended warranty supply chain.The results of this study make both retailers and manufacturers gain some suggestions of the operation and management.Meanwhile,decision makers could design more reasonable extended warranties according to the product failure rate characteristics.This article first study the impacts of three product failure rates on the strategies of the extended warranty,including the constant failure rate,increasing failure rate and decreasing failure rate,and we compare two extended warranty sales channels:the retailer or the manufacturer directly offers the extended warranty.Analysis shows that constant,increasing,and decreasing failure rates have completely different effects on the coordination of an extended warranty service supply chain.For a product with an increasing failure rate or a constant failure rate,the optimal length of the extended warranty when the retailer offers the extended warranty is longer than that when the manufacturer offers the extended warranty,while it is shorter for a product with a decreasing failure rate.We also find that if the product has an increasing or constant failure rate,then increasing the length of the extended warranty will increase the number of consumers who only buy the product,whereas this number will decrease for a product with a decreasing failure rate.Given that the manufacturer and retailer have the same warranty service cost,the total supply chain profit is higher when the manufacturer offers the extended warranty.From the perspective of the participants'profit,we find that the participant will get more if it is the one which sells the extended warranty.