Study On The Coordination Strategies Of Extended Warranty Service With Competing Retailers

Sales of extended warranty service of a product have become an important source of profit and a fast increasing business in today’s competitive environment. Extended warranty service is a kind of optional paid service, which is beyond the normal warranty period of product. Modrn researches at home and broad on extended warranties of enterprise products are more concentrated on the mathematical modelling, strategy combination and guaranteed cost control. However, few studies on the demand, cost and pricing of extended warranties from the point of supply chain are reported. Therefore, this thesis will consider the coorination strategy of extended warranties in supply chain under the retailer competition environment. From the perspective of competitive supply chain, this paper explores how the manufacturer can measure the benefits of the product itself and the benefits from the extension of the competition environment. This thesis focuses on solving the problem of the coordination strategy of the retailer’s competition, and improves the performance of the whole supply chain.For the two specific reatailer competition environments known as the price competition and product shelf inventory competition, a two stage supply chain based on one manufacturer and two retailers is constructed and the extended warranty service is supposed to be provided by the manufacturer. The centralized decision-making model and decentralized decision-making model based on the wholesale price contract of the supply chain which contains two competitive retailers are studied and the coordinability is analyzed. By introducing the revenue sharing contract and the quantity discount contract, supply chain is coordinated to have a maximized profit and the influence of extended warranties parameters on the coordination parameters of the supply chain is analyzed.Firstly, according to the structure of “MRR-M” supply chain in which the manufacturer provides the extended warranty service, the basic asumptions and descriptions of the retailer price competition and retailer shelf inventory competition are given and for a quantitative analysis, the retailers’ and manufacturer’s profit functions are expressed. Then the centralized and wholesale price contract based decentralized decision-making models for the two specific competition environments are analyzed. By comparing the system profits of the two models, the coordinability of supply chain are studied and the variation trends of the loss factor of wholesale price contract efficiency along with the market competition parameters and the extended warranty service parameters are given.Then, according to the price competition and shelf space inventory competition, the revenue sharing contract is introduced. The maximum profit of supply chain in a cooridinated mode is assumed to be the final profit and by setting a factor of total revenue, the manufacturer and the retailer share the proceeds which are greater than the benefits of the manufacturer and the retailers in the decentralized mode. The possible bounds and ranges of the renenue sharing factor are derived. The influence of market competition parameters and extended warranty service parameters on the renenue sharing factor is analyzed.At last, the quantity discount contract is introduced to coordinate the benefit of the whole supply chain. The decision-making analysis of the manufacture and the retailers are studied by setting an initial product wholesale price and a quantity discount rate. By solving the game equilibrium, the retailers’ profit function and the manufacturer’s profit function are calculated and they are sopposed to be greater than the profits of decentralized mode. Then the bounds and ranges of the initial product wholesalce prices are derived. The influence of market competition parameters and extended warranty service parameters on the variable range of initial product wholesale price is analyzed.