Optimal maintenance policy for equipment leased with base and extended warranty

In this paper, we consider an equipment leased with a warranty contract with the possibility to extend the warranty at a given price that depends on its duration. During the warranty period, the lessor (who possesses the equipment) performs and pays for repairs at failure and for preventive maintenance (PM) actions whenever the equipment reliability reaches a specific limit. After the warranty ends, repairs and PM actions are still performed by the lessor, but they are billed to the lessee (who rents the equipment). Furthermore, in case the total average equipment downtime due to repair and PM actions during the lease period surpasses a certain pre-specified limit agreed on in the lease contract, a penalty is supported by the lessor. A mathematical model and numerical procedure are proposed to determine the PM intervals durations that maximise the lessor’s expected total profit during the lease period. The optimal solution is obtained by determining the combination between the optimal equipment reliability threshold that triggers a PM action and the optimal extended warranty period. A numerical example is given to illustrate the use of the proposed model and a sensitivity analysis is performed.