Dynamic Routing of Prioritized Warranty Repairs

Recent years have seen a strong trend toward outsourcing warranty repair services to outside vendors. In this paper we consider the problem of dynamically routing warranty repairs to service vendors when warranties have priority levels. Each time an item under warranty fails, it is sent to one of many service vendors for repair. Items covered by higher priority warranty receive higher priority in repair service. The manufacturer pays a fixed fee per repair and incurs a linear holding cost while an item is undergoing or waiting for repair. The objective is to minimize the manufacturer’s long-run cost. Due to the complexity of the problem, it is very unlikely that there exist tractable ways to find the optimal solutions. Therefore, we propose four heuristic routing procedures that are applicable to real-life problems. We evaluate the heuristics using simulation. The simulation results show that the index-based “generalized join the shortest queue” policy, which applies a sinlge policy improvement step to an inital state-independent policy, perfoms the best among all four heuristics.