In May 2006, IEN participated with noted research organization The Aberdeen Group in a survey of warranty management practices. The resulting report, Winning with Integrated Warranty Management, identifies best practices and provides a framework companies can use to assess their own practices.
The study looked at warranty management procedures of more than 150 companies in industries that included high-tech, industrial and medical device manufacturing, consumer goods, and telecommunications.
According to the survey, companies represented by IEN readers outperformed other participating companies in three key indicators:
- Revenues: IEN participants spend 1.4% of revenues on warranty claims, vs 2.8% for all other study participants;
- Claim processing: IEN participants'' average claim processing time is 5.97 business days, compared to 6.23 for other participants;
- Returns within warranty period: IEN participants indicated 3.5% of products returned within the first warranty period, compared to 10.7% for all other participants.
Why It Matters
In today''s complex, global manufacturing environment, poor management of the warranty chain can hurt the bottom line in a big way. U.S. businesses spend an estimated $2 billion per month on warranty claims, approximately 15% of which stem from fraudulent or inaccurate claims, according to the AberdeenGroup.
Joe Barkai, program director, Product Life-Cycle Strategies for Manufacturing Insights, says that warranty expenses amount to $27 billion annually. Rather than attributing these expenses to "cost of doing business," he says, the problem must be addressed in terms of improving product quality and creating efficient warranty chains.
Further complicating the issue are industry and government compliance requirements, which challenge manufacturers to improve product quality and product tracking procedures.
Identifying the Issues
A key problem, as the Aberdeen Group study points out, is that claims management involves many different business units. Yet in order to be effective, warranty management requires a holistic approach. Critical links in the warranty chain include finance, contract management, claims processing, product quality, communicating repair incidents to product design/quality teams, upselling to existing customers, and reporting and analytics.
Patrick Byrne, in Logistics Management, points out that OEMs often cover warranty costs that should logically be passed back to their suppliers. Also, warranty policies may be poorly enforced, leading to unnecessary payments. In line with Aberdeen Group estimates, he attributes 10-15% of warranty payments to fraud or invalid claims.
Also, consultant John Thomann reminds us that consumer discontent has a role in encouraging legislation designed to protect the end user, such as "lemon laws" and new reporting requirements.
Best Practices
Returning to the Aberdeen Group''s findings, the survey determined that best-in-class companies spend, on average, 0.9% of annual revenues to support warranty claims, take 1.4 business days to process a claim, and get 2.5% of their products returned during the initial warranty period. Small companies were found to outperform large ones, and the best performing sectors are industrial manufacturing, aerospace and defense, consumer goods, and telecommunications/utilities.
The top three performance indicators used by these companies to monitor warranty chain performance are warranty incidents per product, total warranty expenditures, and product returns while under warranty.
And 52% of best-in-class companies surveyed assign a senior service director or executive to oversee all aspects of warranty management. This centralization is key in view of the widely dispersed functions in the warranty chain.
Recommended Actions
"We found that 60% of best-in-class companies are working hard to integrate their service organizations more seamlessly with design and manufacturing to effect positive change," said the report''s author, Mark Vigoroso, chief research officer and SVP, Service Chain Research at Aberdeen.
Recommendations include:
- Account for cultural nuances when defining warranty terms across multiple geographies.
- Invest time and resources to establish trust among the supplier base.
- Leverage third parties where appropriate for warranty chain execution.
- Maintain custom product configurations through repair operation.
- Do not limit warranty data management to reporting -- full-fledged data analysis is called for.
- Evaluate next-generation technologies such as RFID and remote product service as potential warranty chain facilitators.
A warranty, as John Thomann points out, is in essence a promise. Employing strategies suggested in Winning with Integrated Warranty Management, as some IEN companies apparently are already doing, can help companies keep the promises inherent in their warranties.
Additional Resources
Warranty Management Council: Original Equipment Suppliers Assoc Warranty Management Council provides a forum to identify issues, share best practices, recommend solutions, and support effective implementation of warranty practices.
Accenture: Global management consulting, technology services, outsourcing
Entigo: Warranty chain management solutions
4CS: Warranty management software
Metrix: Service management software and mobile solutions
Tavant Technologies: Custom software applications
TWS: Outsourcing solutions provider