QUALITY-CONTROL THROUGH LOT-SIZING FOR ITEMS SOLD WITH WARRANTY

Due to manufacturing variability, a fraction of the items produced are non-conforming - i.e. they do not meet the design specifications. The performance of a non-conforming item is inferior to that of a conforming item which meets the design specification. When items are sold with warranty, the warranty cost to service non-conforming items is much bigger than that for conforming items. The production of non-conforming items can be controlled through lot sizing. Smaller lot size results in a reduction in the warranty cost per item but this is achieved at the expense of increased manufacturing cost per unit. In this paper, we discuss the optimal lot sizing which achieves a proper trade-off between the two costs for repairable items sold with free replacement warranty (FRW) policy.