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 conform ing item which meets the design specification. When items are sold wit h warranty, the warranty cost to service non-conforming items is much bigger than that for conforming items. The production of non-conformin g 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, w e discuss the optimal lot sizing which achieves a proper trade-off bet ween the two costs for repairable items sold with free replacement war ranty (FRW) policy.