The Use of Warranties for Defense Avionics Procurement

Abstract

The potential benefit of using warranty agreements as part of military avionics procurements was investigated. Interviews were conducted with airlines, vendors, and military agencies that had made use of warranties. A life-cycle cost model was formulated to permit comparisons between warranty and no-warranty procurements. The model makes it possible to compute the optimum warranty time period and the break-even cost to identify the minimum additional funds that may be spent on warranty coverage.The major conclujion of the investigation is that a properly constituted and applied warranty can yield significant reliability and life-cycle cost benefits and that broader use of warranties is advisable.iii ■ Maintainability Incentive and GrowthThe maintainability characteristics of the equipment will benefit from a warranty provision for the same reasons that warranty yields reliability benefits. 5 Minimal Initial-Support InvesMnentIf the supplier is to provide repair services over the warranty period, savings in repair facilities and equipment, handbooks, training, and spare parts inventory will accrue. Life-Cycle Cost ControlWith a warranty provision that applies over a significant time period and with options for renewal, the military user can be much more confident in controlling costs for a significant number of life-cycle cost elements. Contractor BenefitsIf warranties bwiefitted only the user, there would be little likelihood of their acceptance by manufacturers. In pricing the warranty-cost increment, the contractor estimates all costs associated with the warranty clause, and to these he adds his normal profit factor, perhaps a igmented by a risk factor dependent on the length of the warranty period. If the product exhibits better R/M than anticipated, contractor profits are increased.In addition, a warranty provision offers the contractor a longterm, stabilized work flow plus the opportunity to acquire in-depth knowledge of hib product's performance in the use environment. Economic and Military Manpower ImpactIf warranties are applied on a large scale, a significant portion of the dollar expenditure for equipment maintenance will transfer directly to the civilian economy. In the same vein, extensive warranty use will tend to reduce greatly the requirements for military maii."enance personnel. With ti.e recent elimination of the draft, an approach that reduces the need for skilled military personnel offers attractive possibilities. Design to CostIt is believed that a warranty provision not only complements "design to cost" but provides, finally, a streng rationale for the low-bidder approach to source selection, since the purchase price plus thi warranty increment would actually represent a significant portion of lif*-cycle costs over the warranty period. Warranty ApplicationTo achieve a more workable warranty, it is important that the agreement be established with as few exclusions as possible. vi ^xa^awr-TT" Pipeline TimeAn often expressed concern of contractor repair with warranty is the greater pipe...

Warranty Economic Decision Models: A Summary and Some Suggested Directions for Future Research

“…This includes managing to ensure that proper production processes, materials, and workmanship are in place for manufactured products (see Patterson 1987, Djamaludin 1993, Djamaludin et al 1994, Sahin 1993. Balaban (1976) and Balaban and Meth (1978) describe methods to control risk for RIW policies.…”