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Journal of Management Science and Engineering, Volume 2, Issue 1: 69-94(2017) https://doi.org/10.3724/SP.J.1383.201004

Warranty and Preventive Maintenance Analysis for Sustainable Reverse Supply Chains

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  • ReceivedFeb 22, 2017
  • AcceptedMay 23, 2017
  • PublishedJun 15, 2017

Abstract

In addition to being environmentally friendly, remanufactured products are popular with consumers because they offer the latest technology at a lower price, in comparison to brand new products. However, some consumers hesitate to buy remanufactured products because they are skeptical about their quality. Thus, they are unsure of the extent to which the product will render services when compared to a new product. A promotional marketing strategy employed by remanufacturers is to offer warranties for these products. To that end, this study scrutinizes the impact of offering non-renewing warranties on remanufactured products. Specifically, in this paper, a methodology is suggested, which simultaneously minimizes the cost incurred by the remanufacturers and maximizes consumer confidence toward buying remanufactured products. This study uses a discrete-event simulation to optimize the implementation of a two-dimensional non-renewing warranty policy for remanufactured products. The implementation is illustrated using a specific product recovery system called the Advanced Remanufacturing-To-Order system. The experiments in the study were designed using Taguchi’s Orthogonal Arrays to represent the entire domain of the recovery system to observe system behavior under various experimental conditions.


Acknowledgment

The authors would like to thank the reviewers for their highly constructive comments and suggestions in improving this article.


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  • Fig.1

    ARTO System Components

  • Table 1.   DW Components and Precedence Relationship

    Component Name

    Station

    Code

    Preceding Component

    Metal cover

    1

    A

    -----

    Control panel

    2

    B

    -----

    Blower

    3

    C

    A, B

    Spray arm

    3

    D

    A, B, C

    Motor

    4

    E

    A, B, C, D

    Heating element

    5

    F

    E

    Valve

    5

    G

    F

    Hose

    6

    H

    -----

    Pump

    6

    I

    H

  • Table 2.   Parameters Used in the ARTO System

    Parameters

    Unit

    Value

    Parameters

    Unit

    Value

    Backorder cost rate

    %

    40

    Price for 3 Years Spray arm

    $

    15

    Holding cost rate

    $/hour

    10

    Price for 3 Years Motor

    $

    60

    Remanufacturing cost

    $

    1.5

    Price for 3 Years Heating element

    $

    25

    Disassembly cost per minute

    $

    1

    Price for 3 Years Valve

    $

    20

    Price for 1 Year Metal cover

    $

    10

    Price for 3 Years Hose

    $

    20

    Price for 1 Year Control panel

    $

    20

    Price for 3 Years Pump

    $

    65

    Price for 1 Year Blower

    $

    5

    Weight for Metal cover

    lbs.

    8

    Price for 1 Year Spray arm

    $

    5

    Weight for Control panel

    lbs.

    4

    Price for 1 Year Motor

    $

    45

    Weight for Blower

    lbs.

    2

    Price for 1 Year Heating element

    $

    15

    Weight for Spray arm

    lbs.

    2

    Price for 1 Year Valve

    $

    15

    Weight for Motor

    lbs.

    6

    Price for 1 Year Hose

    $

    15

    Weight for Heating element

    lbs.

    12

    Price for 1 Year Pump

    $

    50

    Weight for Valve

    lbs.

    3

    Price for 2 Years Metal cover

    $

    15

    Weight for Hose

    lbs.

    3

    Price for 2 Years Control panel

    $

    30

    Weight for Pump

    lbs.

    6

    Price for 2 Years Blower

    $

    12

    Unit copper scrap revenue

    $/lbs

    0.6

    Price for 2 Years Spray arm

    $

    12

    Unit Fiberglass scrap revenue

    $/lbs

    0.9

    Price for 2 Years Motor

    $

    55

    Unit steel scrap revenue

    $/lbs

    0.2

    Price for 2 Years Heating element

    $

    18

    Unit disposal cost

    $/lbs

    0.3

    Price for 2 Years Valve

    $

    18

    Unit copper scrap Cost

    $/lbs

    0.3

    Price for 2 Years Hose

    $

    20

    Unit Fiberglass Scrap Cost

    $/lbs

    0.45

    Price for 2 Years Pump

    $

    60

    Unit steel scrap Cost

    $/lbs

    0.1

    Price for 3 Years Metal cover

    $

    20

    Price of 1 Year DW

    $

    180

    Price for 3 Years Control panel

    $

    35

    Price of 2 Years DW

    $

    240

    Price for 3 Years Blower

    $

    15

    Price of 3 Years DW

    $

    275

    Operation costs for Metal cover

    $

    4

    Operation costs for Heating element

    $

    1.66

    Operation costs for Control panel

    $

    4

    Operation costs for Valve

    $

    2.34

    Operation costs for Blower

    $

    2.8

    Operation costs for Hose

    $

    0.6

    Operation costs for Spray arm

    $

    1.2

    Operation costs for Pump

    $

    3.4

    Operation costs for Motor

    $

    4

    Operation costs for DW

    $

    55

    level of PM effort for 1 Year item

    #

    5

    level of PM effort for 2 Year item

    #

    10

    level of PM effort for 3 Year item

    #

    15

  • Table 3.   Expected Number of Failures and Cost for Remanufactured DW and Components for Non-Renewable FRW, PRW and Combined Policies

    Components

    W

    Non-Renewable Free Replacement Warranty (FRW)

    Non-Renewable Pro-Rata Warranty (PRW)

    Non-Renewable Combination FRW/PRW

    Expected probability of Failures

    Expected Cost

    Expected Probability of Failures

    Expected Cost

    Expected probability of Failures

    Expected Cost

    RL = 1

    RL = 2

    RL = 3

    RL = 1

    RL = 2

    RL = 3

    RL = 1

    RL = 2

    RL = 3

    RL = 1

    RL = 2

    RL = 3

    RL = 1

    RL = 2

    RL = 3

    RL = 1

    RL = 2

    RL = 3

    Metal cover

    0.5

    0.5771

    0.0037

    0.0008

    $3.79

    $4.34

    $3.47

    0.7261

    0.0048

    0.0010

    $5.46

    $6.26

    $4.99

    0.4905

    0.0031

    0.0007

    $4.15

    $4.76

    $3.80

    1

    0.1157

    0.0151

    0.0070

    $4.20

    $4.76

    $3.53

    0.1456

    0.0189

    0.0087

    $6.06

    $6.85

    $5.08

    0.0983

    0.0128

    0.0059

    $4.62

    $5.21

    $3.88

    2

    0.1733

    0.0335

    0.0233

    $6.31

    $6.27

    $3.63

    0.2179

    0.0420

    0.0293

    $9.08

    $9.03

    $5.24

    0.1472

    0.0284

    0.0198

    $6.92

    $6.88

    $4.00

    Control panel

    0.5

    0.5703

    0.0035

    0.0045

    $3.72

    $4.31

    $3.46

    0.7173

    0.0045

    0.0057

    $5.36

    $6.22

    $4.98

    0.4846

    0.0030

    0.0038

    $4.08

    $4.74

    $3.80

    1

    0.1227

    0.0147

    0.0370

    $4.38

    $4.63

    $3.51

    0.1543

    0.0185

    0.0465

    $6.32

    $6.67

    $5.05

    0.1042

    0.0126

    0.0314

    $4.81

    $5.08

    $3.85

    2

    0.1663

    0.0332

    0.1245

    $6.24

    $6.16

    $3.61

    0.2092

    0.0419

    0.1566

    $8.98

    $8.86

    $5.21

    0.1413

    0.0283

    0.1058

    $6.84

    $6.75

    $3.97

    Blower

    0.5

    0.5634

    0.0034

    0.0240

    $1.86

    $1.74

    $1.78

    0.7086

    0.0044

    0.0302

    $2.68

    $2.51

    $2.56

    0.4786

    0.0029

    0.0204

    $2.04

    $1.91

    $1.95

    1

    0.1088

    0.0152

    0.1979

    $2.45

    $3.09

    $1.82

    0.1369

    0.0190

    0.2488

    $3.52

    $4.45

    $2.61

    0.0924

    0.0129

    0.1682

    $2.69

    $3.38

    $1.99

    2

    0.1594

    0.0338

    0.6655

    $3.38

    $3.80

    $1.88

    0.2004

    0.0425

    0.8372

    $4.87

    $5.48

    $2.72

    0.1355

    0.0288

    0.5656

    $3.71

    $4.17

    $2.08

    Spray arm

    0.5

    0.5634

    0.0015

    0.1282

    $1.02

    $1.00

    $0.85

    0.7086

    0.0019

    0.1613

    $1.48

    $1.44

    $1.24

    0.4786

    0.0013

    0.1089

    $1.12

    $1.10

    $0.94

    1

    0.0811

    0.0153

    1.0577

    $1.48

    $1.37

    $0.94

    0.1020

    0.0192

    1.3304

    $2.14

    $1.96

    $1.36

    0.0689

    0.0131

    0.8988

    $1.63

    $1.50

    $1.03

    2

    0.1455

    0.0293

    0.4334

    $1.96

    $1.94

    $1.00

    0.1830

    0.0368

    0.5451

    $2.82

    $2.80

    $1.44

    0.1236

    0.0249

    0.3683

    $2.16

    $2.14

    $1.10

    Motor

    0.5

    0.5468

    0.0035

    0.6854

    $3.88

    $3.72

    $3.63

    0.6877

    0.0045

    0.8621

    $5.59

    $5.36

    $5.23

    0.4646

    0.0030

    0.5824

    $4.25

    $4.08

    $3.99

    1

    0.1185

    0.0147

    0.8890

    $4.26

    $3.98

    $3.70

    0.1490

    0.0184

    1.1182

    $6.14

    $5.73

    $5.34

    0.1006

    0.0126

    0.7554

    $4.68

    $4.36

    $4.06

    2

    0.1670

    0.0338

    0.0185

    $5.99

    $5.14

    $3.74

    0.2101

    0.0425

    0.0233

    $8.63

    $7.42

    $5.39

    0.1419

    0.0288

    0.0158

    $6.58

    $5.65

    $4.10

    Heating element

    0.5

    0.5695

    0.0038

    0.8520

    $1.21

    $1.03

    $1.00

    0.7164

    0.0049

    1.0717

    $1.74

    $1.49

    $1.46

    0.4840

    0.0032

    0.7239

    $1.34

    $1.13

    $1.11

    1

    0.1109

    0.0150

    0.8964

    $1.76

    $1.48

    $1.10

    0.1394

    0.0188

    1.1276

    $2.53

    $2.14

    $1.60

    0.0941

    0.0128

    0.7618

    $1.93

    $1.63

    $1.22

    2

    0.1746

    0.0337

    0.0990

    $2.03

    $1.71

    $1.16

    0.2197

    0.0424

    0.1245

    $2.94

    $2.46

    $1.69

    0.1484

    0.0288

    0.0841

    $2.24

    $1.87

    $1.29

    Valve

    0.5

    0.5834

    0.0034

    0.8890

    $2.32

    $1.96

    $1.88

    0.7338

    0.0044

    1.1182

    $3.34

    $2.82

    $2.72

    0.4957

    0.0029

    0.7554

    $2.55

    $2.16

    $2.08

    1

    0.1275

    0.0148

    0.1808

    $3.21

    $2.29

    $1.93

    0.1604

    0.0186

    0.2274

    $4.62

    $3.31

    $2.78

    0.1083

    0.0127

    0.1537

    $3.51

    $2.52

    $2.13

    2

    0.1676

    0.0335

    0.5293

    $3.99

    $3.19

    $2.03

    0.2110

    0.0421

    0.6657

    $5.74

    $4.60

    $2.94

    0.1425

    0.0285

    0.4498

    $4.37

    $3.49

    $2.24

    Hose

    0.5

    0.5890

    0.0037

    0.6334

    $0.62

    $0.49

    $0.34

    0.7408

    0.0048

    0.7968

    $0.88

    $0.69

    $0.50

    0.5005

    0.0031

    0.5382

    $0.68

    $0.53

    $0.37

    1

    0.1088

    0.0149

    0.9663

    $0.95

    $0.77

    $0.42

    0.1369

    0.0187

    1.2154

    $1.38

    $1.11

    $0.60

    0.0924

    0.0127

    0.8211

    $1.04

    $0.85

    $0.46

    2

    0.1656

    0.0338

    0.8927

    $1.67

    $1.11

    $0.45

    0.2083

    0.0425

    1.1229

    $2.40

    $1.61

    $0.65

    0.1407

    0.0288

    0.7586

    $1.83

    $1.24

    $0.49

    Pump

    0.5

    0.5689

    0.0037

    0.0188

    $2.69

    $2.52

    $2.41

    0.7156

    0.0048

    0.0238

    $3.88

    $3.63

    $3.47

    0.4834

    0.0031

    0.0161

    $2.96

    $2.77

    $2.65

    1

    0.1151

    0.0150

    0.0990

    $3.47

    $3.26

    $2.61

    0.1447

    0.0188

    0.1245

    $4.99

    $4.69

    $3.77

    0.0977

    0.0128

    0.0841

    $3.80

    $3.57

    $2.88

    2

    0.1670

    0.0336

    0.8964

    $4.72

    $4.26

    $2.70

    0.2101

    0.0422

    1.1276

    $6.80

    $6.14

    $3.90

    0.1419

    0.0286

    0.7618

    $5.18

    $4.68

    $2.97

    DW

    0.5

    0.6766

    0.0049

    0.0004

    $57.07

    $54.56

    $54.08

    0.8510

    0.0063

    0.0006

    $66.64

    $63.35

    $80.86

    0.3381

    0.0022

    0.0002

    $55.69

    $53.60

    $53.14

    1

    0.1739

    0.0199

    0.0031

    $58.98

    $59.58

    $56.42

    0.2189

    0.0251

    0.0038

    $69.54

    $69.66

    $84.64

    0.0683

    0.0089

    0.0013

    $57.93

    $58.49

    $55.43

    2

    0.2280

    0.0444

    0.0100

    $68.60

    $67.63

    $58.36

    0.2867

    0.0559

    0.0127

    $81.71

    $79.77

    $87.79

    0.0992

    0.0200

    0.0046

    $67.28

    $66.34

    $77.33

  • Table 4.   Results of Pairwise T Tests

    Performance Measure

    Mean Value without Warranty

    95% Confidence Interval

    P-Value

    Conventional Model (µ1)

    Sensor Embedded Model (µ2)

    Holding Cost

    $180,339.54

    $122,706.89

    57580.62<µ1-µ2<57684.68

    0.000

    Backorder Cost

    $32,727.61

    $24,681.63

    7983.98< µ1-µ2<8107.978

    0.000

    Disassembly Cost

    $396,868.99

    $261,689.65

    135117.34< µ1-µ2<135241.34

    0.000

    Disposal Cost

    $61,105.71

    $49,550.28

    11493.43< µ1-µ2 <11617.43

    0.000

    Testing Cost

    $122,471.66

    N/A

    122427.821< µ1-µ2<122515.499

    0.000

    Remanufacturing Cost

    $1,292,649.61

    $731,620.47

    560967.14< µ1-µ2<561091.14

    0.000

    Transportation Cost

    $33,211.40

    $25,722.77

    7426.632< µ1-µ2<7550.63

    0.000

    Warranty Cost

    $76,431.21

    $13,247.76

    63121.452< µ1-µ2<63245.448

    0.000

    Number of Claims

    36,134

    10,587

    25485.00< µ1-µ2<25609.00

    0.000

    Total Cost

    $2,195,805.74

    $1,229,219.46

    966524.28< µ1-µ2< 966648.28

    0.000

    Total Revenue

    $3,002,246.31

    $3,854,781.35

    -852597.04< µ1-µ2<-852473.04

    0.000

    Profit

    $806,440.56

    $2,475,695.57

    -1669317.01< µ1-µ2<-1669193.01

    0.000

  • Table 5.   Results of Performance Measures for Different Models with Warranty

    Performance Measure

    Mean Value with Warranty

    Conventional Model

    Sensor Embedded Model with FRW

    Sensor Embedded Model with PRW

    Sensor Embedded Model FRW/PRW

    Holding Cost

    $162,503.76

    $109,636.21

    $136,010.32

    $122,474.14

    Backorder Cost

    $29,490.81

    $22,052.56

    $27,357.53

    $24,634.82

    Disassembly Cost

    $357,618.21

    $233,814.60

    $290,061.08

    $261,193.27

    Disposal Cost

    $55,062.29

    $44,272.21

    $54,922.34

    $49,456.30

    Testing Cost

    $110,359.08

    $0.00

    $0.00

    $0.00

    Remanufacturing Cost

    $1,164,805.14

    $653,688.62

    $810,940.07

    $730,232.72

    Transportation Cost

    $29,926.76

    $22,982.79

    $28,511.54

    $25,673.98

    Warranty Cost

    $68,872.08

    $11,836.62

    $14,684.04

    $13,222.63

    Number of Claims

    32,560

    9,460

    11,735

    10,567

    Total Cost

    $1,978,638.14

    $1,098,283.61

    $1,362,486.91

    $1,226,887.85

    Total Revenue

    $3,372,894.00

    $4,330,680.28

    $4,246,417.63

    $4,315,961.72

    Profit

    $1,394,255.85

    $3,232,396.67

    $2,883,930.72

    $3,089,073.87

  • Table 6.   Results of Performance Measures for Different Models with Warranty and PM

    Performance Measure

    Mean Value with Warranty and PM

    Conventional Model

    Sensor Embedded Model with FRW

    Sensor Embedded Model with PRW

    Sensor Embedded Model FRW/PRW

    Holding Cost

    $150,079.83

    $90,290.55

    $119,585.10

    $97,042.96

    Backorder Cost

    $27,236.15

    $18,161.31

    $24,053.71

    $19,519.51

    Disassembly Cost

    $330,277.14

    $192,557.26

    $255,031.99

    $206,957.71

    Disposal Cost

    $50,852.60

    $36,460.24

    $48,289.67

    $39,186.93

    Testing Cost

    $101,921.78

    $0.00

    $0.00

    $0.00

    Remanufacturing Cost

    $1,075,752.04

    $538,343.16

    $713,007.27

    $578,603.31

    Transportation Cost

    $27,638.76

    $18,927.40

    $25,068.35

    $20,342.90

    Warranty Cost

    $63,606.59

    $9,748.01

    $12,910.73

    $10,477.02

    Number of Claims

    25799

    6455

    8008

    7211

    Total Cost

    $1,827,364.89

    $904,487.93

    $1,197,946.81

    $972,130.33

    Total Revenue

    $3,775,062.59

    $4,847,050.97

    $4,752,741.22

    $4,830,577.43

    Profit

    $1,947,697.70

    $3,942,563.04

    $3,554,794.40

    $3,858,447.11

  • Table 7.   ANOVA Table and Tukey Test for Different Models

    ANOVA: Profit

    Null hypothesis All means are equal

    Alternative hypothesis At least one mean is different

    Significance level α = 0.05

    SUMMARY

    Models

    Count

    Sum

    Average

    StDev

    95% CI

    Conventional Model

    2000

    1,612,881,130

    806,440.56

    1958.12

    (806355 , 806526)

    Conventional Model with Warranty

    2000

    2,788,511,706

    1,394,255.85

    2847.37

    (1394130.99 , 1394380.72)

    Conventional Model with Warranty & PM

    2000

    3,895,395,407

    1,947,697.70

    2044.81

    (1947608.03 , 1947787.37)

    SEP Model FRW

    2000

    6,464,793,337

    3,232,396.67

    4800.19

    (3232186.17 , 3232607.17)

    SEP Model PRW

    2000

    5,767,861,437

    2,883,930.72

    3270.55

    (2883787.29 , 2884074.14)

    SEP Model FRW/PRW

    2000

    6,178,147,737

    3,089,073.87

    2301.48

    (3088972.94 , 3089174.79)

    SEP Model FRW with PM

    2000

    7,885,126,075

    3,942,563.04

    3862.63

    (3942393.65 , 3942732.43)

    SEP Model PRW with PM

    2000

    7,109,588,809

    3,554,794.40

    1956.01

    (3554708.62 , 3554880.18)

    SEP Model FRW/PRW with PM

    2000

    7,716,894,211

    3,858,447.11

    3465.74

    (3858295.13 , 3858599.09)

    ANOVA

    Source of Variation

    SS

    df

    MS

    F-Value

    P-Value

    Model

    1.98E+13

    8

    2.48E+12

    2.60E+11

    0.000

    Error

    1.72E+08

    17991

    9546

     

    Total

    1.98E+13

    17999

     

     

     

    Tukey Pairwise Comparisons

    Grouping Information Using the Tukey Method and 95% Confidence

    Model

    N

    Mean

    Grouping

     

    Conventional Model

    2000

    806,440.56

    A

    Conventional Model with Warranty

    2000

    1,394,255.85

    B

    Conventional Model with Warranty & PM

    2000

    1,947,697.70

    C

    SEP Model PRW

    2000

    2,883,930.72

    D

    SEP Model FRW/PRW

    2000

    3,089,073.87

    E

    SEP Model FRW

    2000

    3,232,396.67

    F

    SEP Model PRW with PM

    2000

    3,554,794.40

    G

    SEP Model FRW/PRW with PM

    2000

    3,858,447.11

    H

    SEP Model FRW with PM

    2000

    3,942,563.04

    I

    Means that do not share a letter are significantly different.

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