Optimising age-replacement and extended non- renewing warranty policies in lifecycle costing

This paper analyses life cycle cost for equipment protected by both base and extended warranty policies from a consumer’s perspective. We assume that the equipment have two types of failures: minor and catastrophic. A minor failure can be corrected by a minimal repair whereas a catastrophic failure can only be removed by a replacement. The equipment is assumed to be maintained at no charge to the consumer during the warranty period, whereas the consumer is fully charged for any maintenance on failures after the extended warranty expires. We formulate the expected life cycle cost of the equipment under a general failure time distribution, and then for special cases we prove that the optimal replacement and extended warranty policies exist to minimise the expected life cycle cost per unit time, which is examined by numerical examples.