On optimal upgrade strategy for second-hand multi-component systems sold with warranty

Reliability improvement strategies such as upgrade, reconditioning and remanufacturing have been extensively adopted by dealers of second-hand systems to improve the system reliability and reduce the warranty servicing cost. However, most existing studies on this topic do not consider the multi-component structures of complex second-hand systems, and either treat them as black-box systems by ignoring their internal structures or simply deal with individual components. In this paper, a new upgrade model is developed for complex second-hand systems sold with a non-renewing free repair/replacement warranty, by explicitly considering their multi-component configurations. Two types of components, i.e. repairable and non-repairable components, are taken into account. During the upgrade process, non-repairable components can be upgraded only by replacement (if necessary), while repairable ones may be imperfectly upgraded with various degrees. The main objective of the dealer is to determine which components to upgrade and the corresponding upgrade degrees, to minimize the expected total servicing cost. In view of the problem structure, a marginal analysis based algorithm is presented. It is shown that the proposed upgrade strategy contains the “no upgrade” strategy and the “component-level perfect upgrade/replacement” strategy as special cases, and outperforms them. Finally, several extensions of the proposed upgrade model are discussed.