To consider the problem of outsourcing warranty repairs to outside vendors when items have priorities in service.
The repair allocation problem is formulated as a convex minimum‐cost network flow problem and solve it by the successive shortest path algorithm. The computation issues involved with the problem are also discussed.
Examples are provided to illustrate the cost benefits achieved due to the priority structure.
The research uses a closed static allocation model. Future research efforts can expand our model by considering a dynamic allocation method or an open population model.
The paper can be a valuable resource to warranty managers who make decisions regarding the negotiations of warranty contracts and the allocation of items to outside repair vendors.
A warranty manager can apply our results to receive insight on the value of giving priority in service to special customers. In addition, resource allocation problems with an objective structure similar to our application can be efficiently solved using our algorithm.
