Optimised warranty processes are the gift that keeps on giving
Ron Ezasak, Practice Head, Manufacturing and Warranty
Practice, Tavent Technologies, emphasises the need for warranty management solutions
in a conversation with Dominic K.
How would you define warranty management? Why is it important
and what are the basic premises behind the concept?
There are two basic categories of warranty, the revenue side
of warranty and the liability side of warranty. The revenue side is most commonly
expressed as extended warranty. This functions much like an insurance policy
and can generate significant cash. The liability side of warranty is the OEM
or product warranty that is generally offered by the manufacturer when a product
Warranty could be defined in a number of ways. For the consumer, warranty fulfils
the brand promise. To the OEM it is a liability, the consequence of a negative
customer experience, a quality issue and an added expense. Marketing sees a
warranty as something that creates a competitive advantage. For example, contemporary
automobile advertisements are incomplete if they do not prominently feature
the standard OEM warranty.
Warranty represents the financial side of customer service. Typically 1 percent
to as much as 17 percent of top-line revenues can be consumed by warranty and
How much is the OEM and ODM industry losing on account
of warranty claims?
$30 billion is the projected warranty expense for the United States in 2006.
Could you elaborate on how the entire warranty management
process functions? For example, how do aspects like warranty claims and adjudication
The majority of companies have defined warranty management
as a transaction. The inherent limitations of this approach encumber warranty
managements footprint to claim validation. Essentially, a claim is either
accepted for payment or rejected.
Best practices in warranty management function differently. Like most optimised
processes, improvement is not limited to the task but rather to the impact of
the task. This requires connecting the dots and incorporating the interests
of a broad variety of constituents and stakeholders.
When properly approached, claims processing becomes the final area of focus
and is thus optimised. Warranty submissions become a service communication that
is then exploited by various interests in a bi-directional way. Trade relationships,
production, quality, service, design engineering, marketing and finance all
participate in the knowledge generated, and therefore have much greater insight
to support their decisions. Ultimately, this approach transforms a claims processing
transaction into a problem processing process which in turn supports problem
With respect to claims and adjudication, most companies are focussed upon validation
i.e. to justify whether or not to pay a claim as opposed to adjudication. Tremendous
value and opportunity is lost when this approach is employed.
Adjudication is the ability to make a judgement based on
discrete criteria. For example, is this customer of greater value to my business
and therefore worthy of good will? Or perhaps this dealer has demonstrated very
good citizenship and could benefit from some relief?
Conversely, there are circumstances where fraud may be an issue and discretion
may need to be tightened down. This is how true automated adjudication functions.
However, most firms simply create a manual step where a labour-intensive review
is conducted, which unfortunately is not truly extensible in value.
What are the possible challenges that organisations face
when it comes to warranty management?
The fundamental challenge is knowledge. It is difficult to see further than
you have been. It is equally difficult for management and staff to view this
challenge as an opportunity.
Those familiar with help-desk operations understand that
for most part people describe their encounter with a problem, not the problem
itself. Then there is the selection of priority prior to discovery. Any Six
Sigma Black Belt will share what a slippery slope this approach truly is. Again,
there is the IT compromise, where what is required is limited to the expertise
of those who are tasked with process design. Companies often fail to make the
distinction between home-grown and home-designed.
Essentially, companies do not understand what optimised warranty
processes look like. Consequently, they are destined to achieve something else
or lengthen the time and expense to achieve warranty optimisation. Given that
a great deal of money and customers are affected, its a wonder why companies
choose to approach something so strategic in such an informal manner.
What is the need for a warranty management solution as
opposed to using tools like Excel spreadsheets, which are simpler and less expensive
Excel has become the duct tape of operations. It seems to be employed wherever
process and / or systems are absent or inadequate. The very notion that issues
as strategic as customers, finance, quality, production, supply and marketing
could be managed together on a static manually-administered spreadsheet itself
proves the need.
Do these systems offer benefits that are not available
from asset management tools?
The difference is profound. These systems are designed to manage the lifecycle
of something you have as an asset, as opposed to managing something you do not
want to have, a liability.
What would be the expected ROI post-implementation of
warranty management software solutions? What are the different heads from where
these returns will come?
These returns would vary somewhat from industry to industry. Generally
though this depends on the scale and scope of an organisationROI is usually
achieved within a year of initial deployment. The good part is that optimised
warranty processes are the gift that keeps on giving. Claim overpayment is the
first to go, typically around 10-15 percent of claims. Omission and commission
are abated, creating reduced cycle times.
The supplier recovery kicks in, and for many companies this is the big payoff.
The ability to syndicate financial risk into the supply chain creates the opportunity
to drive the remedy into the supply chain. This can have an enormous and positive
impact financially. All stakeholders could benefit from process-driven exposure
to the service communication that properly managed warranty achieves.