A Closer Look

Warranty data is one of a very few sources that provides manufacturers access to information regarding product operation and failures. It can also serve as an indicator into the customers' level of satisfaction, or dissatisfaction. When actively utilized throughout the product quality lifecycle, it becomes a powerful weapon for reducing RMA. But what is driving the intense focus on warranty management and the use of warranty data to reduce RMA and warranty cost? These factors include:

• The Disparate Views Across Multiple Organizations

Within most companies today there exists multiple organizations - such as engineering, quality assurance, manufacturing and field service - each typically operating independently of one another. The engineers don't talk to manufacturing who, in turn, doesn't talk to the field service who just talked to the end customer. This lack of communication means that when a product is returned, the company is generally at a loss as to the problem.

Consider the example of an Internet service provider (ISP) like Comcast which provides high-speed Internet access to end customers via set-top boxes obtained from third-party vendors. While it does not have direct access to the end customer, per se, it does reap the financial rewards when its customers are satisfied. When customers are unhappy, it reflects poorly on the company and its profit margin.

Unfortunately for Comcast, when the customer is dissatisfied and a set-top box is returned it often doesn't know why. Did the customer know how to use the set-top box properly? Did the set-top box experience a problem or have a design flaw? Without being able to answer these questions, Comcast or any other ISP for that matter, has little hope of reducing the rate of returns and therefore costs, or ensuring customer satisfaction.

• The Outsourcing Trend

These days it is increasingly common for a company to outsource manufacturing and support operations. While in many cases, this approach offers a number of significant benefits it can also create some challenges - one of which is the ability for a company to identify the root cause of a problem.

The automotive industry offers a prime example of this challenge. Today roughly 50% of a car's value resides in its electronics. Because the car's environment is so harsh, in terms of temperature and vibrations, the electronics is perhaps the single hardest thing for the automotive industry to deal with; especially considering that cars are mission critical and the cost of an automobile recall is extremely expensive. As a result, many have simply opted to outsource the car's electronics. But what happens when a car has a problem. Is the problem the result of a specific piece of electronics and if so, which one? If quality information and warranty data are not somehow tied together from all of the organizations involved in manufacturing the car's electronics, then how can the root cause of the problem ever be quickly and easily identified?

• Inability To Locate A Problem's Source

Dealing with product returns is an extremely costly proposition - made even more so when the source of a problem can't be properly identified. Consider, for example, a technician sent on a product service call that is unable to find the source of a product's problem. In this case, the technician must ship the product back to the factory at a cost of $500. For one typical hi-tech company the cost of such "no trouble found" products equates to approximately two million dollars per quarter.

In situations where even the factory is unable to find the problem, the product may be put back into inventory and eventually shipped to a new customer; only to be shipped back to the factory at a later date when the original problem resurfaces. Occurrences like this can have a significant impact on customer satisfaction as well as on a company's brand image.

• Compliance Initiatives

Over the last few years, compliance initiatives have begun to play a critical role in the way large and mid-size manufactures manage warranty costs. The Sarbanes-Oxley Act of 2002, for example, established new and enhanced standards for all U.S. public company boards, management, and public accounting firms. As part of this legislation, public companies must now make their warranty reserves public. The problem, of course, is that matching warranty claims and accruals to reserves has always been a balancing act. Because it must now be done in public, it is harder for companies to conceal spikes in claims.

Another compliance example stems from the enactment of the Restriction of Hazardous Substances (RoHS) directive which went into effect in July of 2006. RoHS is part of a growing wave of environmental regulations, or green initiatives, and requires that six hazardous substances, including lead, be removed from all electrical and electronic equipment. Unfortunately, as companies transition their products from leaded to unleaded, they really have no way of knowing what, if any, impact there will be on the end product.

Companies like Comcast and others are now more desperate than ever before to gain access to end product warranty data. In all instances cited above, its effective use can play a crucial role in solving the challenges manufacturing organizations now face. In situations where a company is dealing with multiple organizations or has a high rate of returns, many of which are "no trouble found," access to the data provides them with the ability to quickly dig down to the source of a problem. Warranty data also can be instrumental in a company's quality improvements and claims reductions, which ultimately translate to bottom-line gains by reducing the need for warranty reserves.

A Better Way

Key to enhancing product quality, while reducing returns and warranty costs, is adoption of a software solution that utilizes warranty data as a central component in driving the product quality lifecycle of current and future products (see Figure 2). Utilizing this approach, manufacturing organizations can quickly and more efficiently detect and respond to product problems. They can even gain better insight into predicting and avoiding future problems. In addition to achieving higher quality products and minimizing service and warranty costs, proper use of warranty data ensures organizations maintain an excellent reputation with their customer base.

Figure 2
SigmaSure RMA Insight