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Industry Insights
Unlimited warranty
Claims data holds key to actionable intelligence.
by Lori Janies
Historically, collecting and processing warranty claims information has been seen as a necessary—and costly—evil for manufacturers. But these days, that mind-set is shifting as more leaders in manufacturing discover that, with the right tools, they can transform their basic warranty data into strategic intelligence for the enterprise.
According to a July 2, 2009, Warranty Week article, warranty-related spending for all manufacturing industries in 2008 reached about $72 billion. This amount includes direct costs worldwide, with the automotive industry spending the most.
Manufacturers are unlikely to be surprised by that figure, as they deal with the growing complexity and expense of warranty issues every day. For example, a company incurs direct warranty costs whenever it fixes or replaces a defective part or resolves the production problem that caused it. That organization may also be subject to indirect costs in the form of lawsuit settlements or lost sales revenue. Intangible costs include increased customer dissatisfaction, decreased brand loyalty and a tarnished company image.
Increased regulations, higher costs
Most experts agree that warranty costs have nowhere to go but up, especially since many government entities are imposing new warranty-related laws and regulations that require manufacturers to expend additional resources on compliance and tracking.
For example, FASB FIN 45 requires publicly traded U.S. companies to detail warranty costs in their quarterly statements and annual reports. The Transportation Recall, Enhancement, Accountability and Documentation (TREAD) Act mandates that manufacturers of motor vehicles and automotive equipment sold in the United States submit quarterly reports to the National Highway Traffic Safety Administration. The reports summarize all claims made against the companies for incidents that involve death or serious injuries, among other criteria. Organizations are also required to maintain a specific amount of cash in a reserve fund to ensure adequate coverage for future warranty services or refunds.
Beyond the added cost of complying with these regulations, the information revealed in the various compliance reports will likely play a role—for better or worse—in shaping customer and stockholder opinions.
From bad news to good results
This trend of increasing warranty costs is being mirrored across industries, from automotive and appliance manufacturers to the electronics and industrial machinery sectors. But the news isn't all bad. Many firms have found they can combat spiraling costs, take better control of warranty issues and get a positive return from their data. Using a warranty-analysis system, these organizations can turn basic warranty data into a powerful early-warning and failure-analysis resource that reduces costs and protects brand reputation.
Using a warranty-analysis system, organizations can turn basic warranty data into a powerful early-warning and failure-analysis resource.
A robust warranty-analysis system enables companies to automatically and quickly integrate enormous volumes of warranty data from across the enterprise. Information from customer and call center records, production data, build data, sales data, and service technician notes stored in the data warehouse gives manufacturing leaders and warranty providers unprecedented access to timely, highly actionable analytics. With this insight, they can accomplish tasks that would otherwise be out of reach, such as:
- Detect emerging issues months earlier than before
- Predict the scope of these issues and prioritize them
- Isolate precisely which units are affected to ensure that only the appropriate items are requested for teardown by engineering teams or, if necessary, recalled
- Identify and resolve problems before they escalate
Such capabilities can offer multiple benefits, including increased product quality, yield and reliability; brand protection; higher customer and stakeholder satisfaction; increased revenue; and up to a 20% reduction in warranty costs.
Getting there
To ensure optimal outcomes and the fastest time to value, manufacturers should consider teaming with a technology partner to help implement an effective warranty analysis solution. A good partner should offer:
- A proven track record of working with specific industries
- Robust, out-of-the-box capabilities that are highly configurable to companies' individual requirements
- Best-practices knowledge gained from real-world implementation experience
A warranty-analysis system can go a long way to help manufacturers save money, improve processes and gain valuable strategic insight for the entire organization.
Lori Janies writes about business and technology for various publications.