Premium for Service Contracts for Damage Protection

Abstract

The service sector is a major segment of the economy and contributes to the gross national product in a significant manner. It complements the manufacturing sector as organizations become global in nature. Sources of raw material may be quite dispersed from the manufacturing site. Further, not all manufacturing may take place in one particular location. Based on the availability of expertise and the required operations to produce the product, components, subassemblies, or assemblies could be produced in different geographical locations. This creates the necessity to transport raw material, components, or assemblies in a timely manner from one location to another based on the needs of the supply chain. All customers prefer not only an efficient delivery system but also one that is damage-free. In this chapter, we consider a model whereby service organizations offer a contract for damage protection based on product value. The objective is to determine the premium to be charged by the service organization so as to at least break even or accomplish a desired profit margin.

Citation

Mitra, A. (2014), "Premium for Service Contracts for Damage Protection", Advances in Business and Management Forecasting (Advances in Business and Management Forecasting, Vol. 10), Emerald Group Publishing Limited, Leeds, pp. 73-87. https://doi.org/10.1108/S1477-407020140000010016