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by Steven Titch, Contributing Editor Posted on Wednesday, October 04, 2006 2:19:00 PM   | Abstract: | Manufacturers are finally innovating the service chain, using new analytical software tools to cut warranty costs and identify product failures faster. |
John Kerr wants to eliminate the service call. The general manager for global quality systems at $14 billion appliance manufacturing giant Whirlpool Corp. (Benton Harbor, MI), Kerr is in charge of the company's sweeping effort to organize the data contained in thousands of warranty reports, field service repair notes, and dealer and retailer feedback forms in a database that can be mined and analyzed. The knowledge gained from such systems, Whirlpool believes, can then be used to pinpoint component problems, identify patterns in quality problems, and set off early warnings of possible product failure. And that can allow Whirlpool and Kerr to reduce -- if not eliminate -- service calls. Automated warranty management and analytic systems like the one Kerr is working on can condense the time between identifying a problem and fixing it in the supply chain. In the past, that process could take six months or longer, Kerr says. The introduction of better tools that can gather and analyze post-sales data means cutting this lag time significantly, to the point where a design change or component replacement can be made before thousands of potentially defective appliances are shipped. And avoiding that kind of mistake can save big money. Just ask Dell Computer, which, analysts say, is spending upwards of $400 million to replace 4.1 million defective laptop batteries. Warranty management has become the latest area of innovation for appliance manufacturers such as Whirlpool, which uses a warranty management solution from SAS Institute Inc. (Cary, NC), as well as for manufacturers of automobiles, heavy trucks, and consumer electronics. In the automotive industry, these initiatives were sparked by the Transportation Recall, Enhancement, Accountability, and Documentation (TREAD) Act, a legislative response in 2000 to a string of fatal tire failures on Ford Motor Co. sports utility vehicles. The law requires auto manufacturers to record and track all data received from warranty reports, dealers, and repair shops, with the aim of identifying and fixing potential manufacturing defects before they become widespread in the market. TREAD was followed in 2004 by the Sarbanes-Oxley Act, which, in addition to forcing companies to document financial controls, required manufacturers to break out the cost of things like warranties and post-sales service. Combined, the two laws have opened manufacturers' eyes to the true cost of warranty management. For example, GM and Ford together spent $8.7 billion on 2005 warranty claims, up from $8.3 billion in 2004 and $8 billion in 2003, according to a study by Warranty Week, an industry newsletter, which looked at data reported to the Securities and Exchange Commission. The top 50 U.S.-based warranty providers together reported $22.2 billion in warranty claims last year, up from $20.4 billion in 2004 and $19.2 billion in 2003, according to the same report. Such numbers have forced managers to revisit their service strategies and explore opportunities for change. Warranty management "is one of the biggest areas of controllable expense," says Thomas Wright, industry principal for automotive at SAP Americas (Newton Square, PA). "Coin-operated process" Warranties are akin to insurance policies. Offered free or for an additional charge, the policy covers the cost of repair should something go wrong with a product. Since repair is either free or discounted to the consumer, when something needs to be fixed, the manufacturer reimburses the repair shop. As with any other claim, the repair shop must document the problem on a form. Generally this is done through coding -- e.g., 0435 might mean "defective belt." In addition, there might be a space on the form for comments, where the repair technician might write, "Belt was worn due to friction." Page : 1 2 3 4 ... NEXT |