Editorial from the June 2008 issue of Managing Automation

Built to Last

by Stephanie Neil, MA Editorial Staff

That Mack truck barreling toward you on the highway has been built to last. Behind that big, shiny grill — reflecting off the rearview mirror of your modest SUV or sedan — is an engine that has a 250,000-mile warranty and a half-million-mile major component warranty.

That's a standard service contract for the Mack, owned by Volvo Trucks, says Ken Culver, North American director of warranty, quality, and reliability. In addition, the Volvo Truck cabs have a 1-million-mile corrosion warranty. That's a lot of miles of wear and tear. "So it's always been one of our top priorities to identify warranty risk," Culver says.

However, until about three years ago, the Volvo Trucks North America group, like many manufacturers, could only wait to react to warranty claims. Taking corrective action after the fact is a costly proposition, both financially and in terms of customer loyalty. So Volvo, the parent company, invested in analytical software that could be used globally on top of existing warranty data to identify emerging trends, develop internal key performance indicators, and even identify new revenue streams that could result from expanding the breadth of extended warranty coverage on parts.

Now, Volvo considers warranty management a unique opportunity that can transform aftermarket service into its own profitable business. "We've grown from selling less than 10% of our trucks with some sort of extended [warranty] coverage to over 50%," Culver says.

Like Volvo, many manufacturers, have always considered warranty management important, but not critical, to business. But that's rapidly changing. As manufacturers attempt to rein in warranty-related costs and respond to new consumer protection regulations, many are implementing a new generation of warranty management systems and analytical tools that tightly integrate with existing customer service systems.

New regulations are forcing manufacturers to take warranty management issues more seriously. Automakers, for example, became sensitive to the warranty issue in 2000 as a result of the TREAD Act — legislation enacted following the Firestone crisis involving a recall of 6.5 million tires. The law requires vehicle and equipment manufacturers to report possible safety defects to the National Highway Traffic Safety Administration. More recently, following the WorldCom and Enron scandals, all manufacturers are required to reveal the net amount they spend on warranty claims when filing financial reports to the Securities and Exchange Commission (SEC).

"Those two events changed things for warranty folks and woke them up," says Mike Newkirk, global industry marketing manager, manufacturing supply chain intelligence, at SAS.

The other, more immediate issue is the economic slowdown, which is adding pressure on organizations to respond to consumer demands. "I have found in certain industries, during tough economic times, people are more sensitive to things that break and want to make [warranty] claims," says Andy Binsley, senior director, manufacturing and asset lifecycle management strategy, at Oracle.

Many manufacturers have wrangled with mismanaged warranty data that is scattered among departments and applications, not tracked properly, and not considered mission-critical. But with new warranty management tools emerging, including the use of analytics to improve the "detection to correction" cycle, corporations are realizing that warranty management, if done right and approached as a corporate discipline, can have a positive impact on both the top and bottom lines.

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