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Warranty Wi$e Solutions - Supplier
Warranty
“J. D. Coolcat, President of the National
Association of Service Managers (NASM) is at the
Bristol Golf & Country Club early on July 9th.
After shining up his brand new Badger red Krystal
Kool Kart Kompany golf cart, he taps his glass on
Krystal Kool’s newest golf cart accessory – an ice
dispenser that he is looking forward to
demonstrating to his NASM colleagues this day!!
The worst that could happen, did - no ice! Not to
be dismayed, he confidently calls the local
Bristol Golf Dealership.
On the way to the course, the technician calls
the Krystal Kool Early Alert Call Center and
learns no failures have occurred yet. The Call
Center suggests that he proceed checking first the
dispenser’s wiring harness to assure power is
available to the dispenser and then the dispenser.
Finding incoming power to the harness but none
from the harness to the dispenser, he quickly
takes a digital picture of the installation and
replaces the harness. All is cool and Mr. Coolcat
is ready for the day.
Back at the shop, the service manager submits
the claim with the downloaded digital picture of
the installation noting the wire is broken at the
last bend prior to connection with the dispenser.
The claim passes all Krystal Kool’s electronic
claim processing audits and immediately proceeds
to Krystal Kool’s harness supplier – Wiring
Perfection.
Early the next day, Wiring Perfection’s Claim
Analyst reviews new product claims, sample tests
the stock of this harness to find all is okay,
inspects the digital picture and calls the Krystal
Kool claims analyst. Krystal Kool checks out the
suggestion that the installation routing may have
forced too tight a bend in the harness, verifies
that is true, adjusts the installation
instructions, shares the new instructions with the
assemblers and repairs the in-house carts. The
dealers with the remaining field stock are
contacted, adjustments are made, no further
customer dissatisfaction occurs and costs are held
to a minimum as the defective machine population
is not allowed to build.”
Focus On Reducing Costs
During recent years, there has been increasing
focus on reducing supplier warranty costs.
With the huge amount of outsourcing of
components and whole good products the past two
decades, it has become even more critical to
reduce the cycle time from product failure, dealer
repair, Original Equipment Manufacturer (OEM) call
center/claim notification, and supplier to OEM
product improvement. Same day or next day warranty
life cycle completion is a practical and realistic
expectation today - a must to effectively compete
in today’s market!
Significant trends include:
- Dramatically improved failure data from
dealers and customers.
- Use of digital pictures to illustrate
failure mode.
- Major reduction in the number of failed
parts returned.
- Common data base accessibility to claim data
and pictures by supplier and OEM personnel
(warranty, manufacturing, engineering, etc.)
with appropriate security restrictions.
- Automated claim processing to the terms of
the OEM-supplier agreement with 80% to nearly
100% being sent or adjusted without OEM manual
review while increasing cost control.
- Use of web-based supplier warranty systems
enabling manufacturers and suppliers to
collaborate more effectively in reducing the
corrective action cycle resulting in lower
overall warranty costs and enhanced customer
satisfaction.
The purpose of this article is to discuss these
trends with the expectation that some of our NASM
associates will gain ideas and tools to reduce
their warranty costs and enhance customer
satisfaction.
Improved Failure Data/Less Parts
Returned
Good credible claim data is the key to
effective reliability/warranty analysis, supplier
corrective action and warranty $ recovery. Gaining
good failure data from your customers and dealers/
distributors will enable you to improve your
product quality and recover a greater percentage
of warranty dollars from your suppliers – fairly,
while providing financial incentive to improve
your shared product quality. Consider the
following when looking for ways to improve claim
data credibility:
- Commit to requiring and using causal part!
- Commit to collecting good failure
descriptions to include:
- Complaint (operating condition report or
symptom)
- Cause (root cause or physical description)
- Corrective action (work accomplished)
Simple, yet specific information is
required; a vague description will bring no
value.
- Digital pictures are excellent tools to
provide a visual explanation to assist with the
description.
- Work with your dealers/ distributors/
service centers as well as major customer
accounts that do their own repair work to revise
their repair work order forms. Format these
electronic or paper forms to prompt technicians
to list causal part, complaint, cause, and
corrective action. The technician is the most
knowledgeable person on the claim failure, and
the best failure data is gained right on the
spot. Besides helping drive product improvement,
good failure descriptions help the dealer as
well as they are critical to effective work
order completions and in the preparation of
customer invoices. Effective descriptions result
in perceptions of greater customer service and
lead to less invoice complaints.
- Successful warranty teams develop claim data
education and intensely train dealers,
distributors, service centers, and major
contract customer’s service managers and
technicians in the understanding of the
definition of causal/key part and good failure
description comprised of complaint, cause and
corrective action. This education includes an
understanding of the dealer’s, distributor’s,
service centers, and major contract customer’s
benefits of doing so. Again digital pictures are
encouraged where they provide value.
- Include major suppliers in the development
of your claim data education. This demonstrates
to suppliers your strong dedication to improve
claim data and results in better buy-in to using
claim data vs. parts return as the key to
decisions on warranty $ participation.
- Educate your Call Center and Supplier
Warranty personnel in the same manner as you
train your customers and dealers. Encourage them
to remind customers and dealers to put this
precise information on their claim when they
submit it – educate, educate, educate. This will
help drive product improvement and reduce claim
numbers and dollars. It will also create the
customer perception that quality improvement is
critical to your organization - something they
want to hear and believe has the highest
priority.
There is a trend away from mass part returns by
OEMs and component suppliers. The current emphasis
is on using good credible claim data to drive
corrective action while using parts returns on a
limited basis to identify early new model parts
failures and to further substantiate cause, if
necessary, when a definite trend is identified by
claim data on a current production part. The
justification for this trend is:
- Shipping companies are the only ones gaining
value from mass shipments of returned parts.
Neither OEM nor supplier can cost effectively
manage large quantities of failed parts returns.
- In most cases, complete failure data and
confidence in the validity of it is all that is
needed to take corrective action and pay
appropriate warranty.
Select parts returns based on the specified
criteria noted above (early new model parts
failures and current parts with new failure
trend), is what has real value.
Significant labor cost reductions can
be achieved. Some OEMs expend several resources to
manage their parts returns - half or more of whom
can be removed from the returns goods area or put
on more value added functions.
As you make changes to your parts return
policy, suppliers will need to be educated on the
steps you are taking to improve the claim data you
are getting. In some cases, the OEM will actually
need to demonstrate improved failure descriptions
before supplier agreement can be negotiated. In
rare cases, OEMs will need to make warranty
payment without failed parts (except in the
conditions noted above) a condition of getting new
business.
Dealers and customers’ satisfaction will be
immediately improved, as they will perceive less
demand for returned parts as fewer hassles for
them. It is fair to change your policy to require
a dealer/customer to keep failed parts for a
reasonable period of time. This has been thirty
days with some OEMs moving to two weeks now.
Dealers and customers would rather keep and
dispose of the failed parts two weeks later than
box and ship them today.
OEMs can begin transition on this effort
without significant investment.
Estimates from OEMs range from $100 to
$500 per each occurrence to bring back and analyze
one returned part, hence there is much to be
gained here by managing returned parts.
Eliminating unnecessary parts returns can result
in thousands of dollars per month in cost
reduction.
Automated Supplier Claim
Validation
Just as dealers and customers have been
submitting claims to OEMs electronically for years
and OEMs have automated their validation,
processing and payment to dealers/ customers,
there has been a recent trend toward OEMs finally
automating their supplier claim preparation and
validations.
The reason for this is
threefold:
- Primarily to shorten the corrective action
cycle thereby avoiding continuing development of
defective machine population and the associated
costs plus customer dissatisfaction that goes
with it.
- Fairly recover warranty $ from the supplier
that are caused by defective product while using
this as leverage to shorten the corrective
action cycle.
- Reduce the administrative effort in
processing supplier claims.
Obviously, a claim database with creditable
claim data (discussed above) is essential to
implement an electronic supplier warranty system,
which could:
- Provide all warranty, purchased extended
warranty and even technical goodwill claims to
suppliers (regardless of responsibility) so that
suppliers could use their expertise to spot
failure trends. Suppliers can then use their
expertise to drive product improvement not only
in their factories, but also with OEMs in
assembly or design as well (Just like the Wiring
Perfection example presented previously).You
need both the supplier and OEM team working as
one to better the competition. Shortening the
problem identification and corrective action
cycle is where you avoid the most warranty costs
and customer dissatisfaction. This
is the greatest benefit: warranty cost avoidance
is far more effective than cost
recovery.
- Enable greater supplier warranty
dollar recovery which:
- On component supplier claims,
could amount to 30-40% of total warranty
costs.
- On wholegood supplier claims,
could amount to 90-100% of total warranty
costs.
- Electronically pull all claims from the
claim database, automatically
validate/keep/eliminate/adjust all claims for a
specific supplier in accordance to their
supplier warranty agreement in place.
- As opposed to doing this validation or
processing via paper claims or manually
adjusting electronic claim files, web-based
supplier warranty systems exist today that will
enable a business analyst (a systems
programmer/analyst is not needed) to simply
activate or adjust pre-developed supplier term
validations from a catalog of 150 – 200
predeveloped validations. Processing errors
caused by manually processing are reduced and
data accuracy is protected.
- Automated claim processing to the terms of
the OEM-supplier agreement can result in 80% to
nearly 100% of the supplier claims being sent/
adjusted and sent/removed without OEM manual
review, while increasing cost control.
- Having established flat rates/standard labor
times is one key to enabling this.
- You control and can easily vary the amount
of claims review/auditing you choose to do.
- Supplier warranty agreements and the
interpretation of such agreements are constantly
changing; hence it is much more cost effective
to have a supplier warranty system that can be
easily adjusted without going to the significant
expense of continually reprogramming.
- Cost reduction can obviously be
obtained either:
- By reducing personnel in the
warranty area as a result of this automation
or
- By freeing up personnel time to use
on much greater value added functions such
as
- educating dealers on how to provide
proper causal part identification and good
failure descriptions the first time,
- analyzing high cost warranty
failures and driving corrective actions with
suppliers or in your plant or by
- auditing high cost dealer claims and
charging back incorrectly paid claims.
Presentation/Negotiation of Supplier
Claims
In today’s environment, supplier claims are
submitted via paper or electronically. Obviously
targeting suppliers that represent 80% of the
supplier warranty costs is a starting point.
And many approaches are used in presentation
and negotiation of claims:
- Some OEMs simply send all claims to their
supplier when their parts are involved and let
them select which and how much they pay.
- Some OEMs send all claims to their supplier
identifying which ones they expect their
supplier to pay. Then they allow their supplier
to select which ones to pay and how much to pay.
- Some OEMs send all claims to their supplier,
identifying which ones they expect their
supplier to pay and charge them. Then they hold
a periodic warranty settlement meeting to make
adjustments as negotiated.
- Some OEMs send all claims to their supplier
and based on a past history of warranty
settlement meetings, have negotiated a set
percentage of the claim $ the supplier will pay.
This may or may not be reviewed periodically.
- Some OEMs review and identify claims that
the supplier is responsible for, send the claims
to the supplier and charge immediately.
- Some OEMs have web-based supplier warranty
systems accessible by all their personnel and
suppliers with appropriate security access
restrictions to appropriate claims.
On
claims designated as supplier responsibility,
the OEM releases a claim electronically and is
available to the supplier via the web listing
all costs (labor, parts, freight, other)
incurred by the OEM and listing the costs
(labor, parts, freight, other) it
expects/requires the supplier to pay (according
to previously agreed upon terms). The OEM can
choose to allow the supplier to respond
accepting in total, reject for justification or
adjusting participation amount based on
justification. The OEM controls the number of
electronic negotiation exchanges. Generally,
clear agreement is reached prior to charge-back
to avoid accounting transactions/
reversals.
Claims can be packaged in
groups for easy review and payment negotiations.
Groupings could be by supplier, failure modes,
campaigns, good will claims, etc. These supplier
warranty systems automate the entire claim
recovery management process and provide for full
tracking of supplier claims.
Warranty costs and the status of supplier
relationships result in any one of the above
reference approaches being used. A good web-based
supplier warranty system can accommodate multiple
and various warranty agreements established by
your warranty management team.You then have the
advantage of managing and further developing your
supplier warranty agreements as your supplier
relationships mature – while having a system that
supports your current level of supplier
agreement.You do not allow your system to dictate
how you do business or the amount of resources you
have to use. This saves you $ on an
ongoing basis.
Having one web-based warranty system for all
dealer claim processing, validation, payment,
parts return and supplier warranty helps
facilitate the ease and likelihood of getting
closer to completing the full closed loop warranty
cycle from customer to dealer/distributor to OEM
to supplier and back within the same day.
In summary, investigating the opportunities for
your company in improving failure data, using
digital pictures, appropriately controlling the
return of failed parts, providing claim data
accessibility to supplier/OEM personnel and using
web-based supplier warranty systems for
OEM/supplier collaboration and automated claim
processing can provide significant warranty cost
avoidance/reduction opportunities and help drive
greater market share through improved customer
satisfaction.
Gene A.Weber/4CS © copyright 2003
If you have any questions or would like to
discuss this topic, please contact:
Gene
A.Weber, LCSE CPM
608-348-8693
genew@4CS.com
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Corporate Office 4CS 
