Question

Gustav Hamel manufactures pumps for the health care industry under the operating name “Hamel

Pumps”. Gustav has gained his reputation over the years for the reliability of his pumps and free

replacement of any pump that fails within the warranty period – two years for most of the pumps he

sells. However, over the past three years, an up and coming competitor has been trying to undercut the

Hamel brand in terms of price. The warranty period offered by the competitor is one year, however, an

extended warranty can be purchased for up to an additional two years. The full extended warranty

brings the total price of the competitive pump to a price point that is 5% higher than the Hamel pump.

Gustav’s newly‐hired reliability engineer has just completed an extensive study of field and life testing

records. The data shows that failures of his most popular pump follow a normal distribution with an

average life of ten years and standard deviation of two years. Working with Gustav, it is estimated that

if a maximum of three percent of failed pumps are replaced under warranty, they can still offer the

pumps at a competitive price.

(a) Determine the warranty period that should be offered for Hamel pumps.

(b) How could the reliability engineer quickly build track record in his new job, given that there has

never been anyone hired before in the role of reliability engineer?

Answer 1