Estimating warranty costs for the manufacturer and buyer based on a new Pro-Rata Warranty policy

Currently, a large number of products are being sold with warranty policies. Pro-rata warranties are relatively a complex concept. This paper focuses on developing a new Pro-rata warranty policy. In this model components of the product are grouped into two disjointed sets, failures of components belonging to set one are covered by PRW warranty and those components that belonging to set two are not covered under warranty. In order to design the new policy, two different approaches were designed that in any approach the product failure rates are estimated separately. The proposed model helps manufacturer to have a precise estimate of the expected costs and determine the warranty price based on this estimation. As a result of reduction of expected warranty costs and consequently the price, the customer will also benefit. Finally, the sensitivity of warranty model is analyzed with a numerical example.