A three-level servicing contract with an integrated maintenance plan, warranty policy, technology level, and pricing model that considers the time value of money

A common way to address customer concerns in the post-warranty period is to provide an extended warranty. Although sometimes the manufacturer is reluctant to offer an extended warranty, an agent takes on this task to maintain market share. In this regard, a three-level-servicing-contract among manufacture, agent and customer is presented in which both warranty period and useful life of the product are considered as function of age and usage. The proposed model considers two approaches to control the number of product failures and reduce cost: (1) the technology level used in manufacturing as an effective factor in product reliability; and (2) non-periodic maintenance activities to maintain the product reliability at an acceptable level. In addition, in this study, to calculate the costs imposed on each side of the contract more accurately, the time-value-of-money is considered in the calculation of financial flows. To illustrate the effectiveness of the proposed approach, three comparative studies are provided. The first comparative study shows the impact of the provision of an extended warranty, while the second comparative study proves the importance of preventive maintenance to reduce costs. The results of the last one show the effect of considering the time-value-of-money in calculating cash flows.