Creating Competitive Advantage through Efficient Warranty Management

Transcription

1 White Paper Creating Competitive Advantage through Efficient Warranty Management Author - Abhijit Ghaskadbi, Head Automotive Manufacturing Kannan Marghasahayam, Head Discrete Manufacturing Haripriya V, BPM Consultant Abstract As manufacturing companies cope with pressures of competitive pricing and providing differentiated products with new features and functionalities, warranty excellence has become a key competitive advantage. It is becoming increasingly important for organizations to invest in solutions that help streamline operational warranty and use analytics to improve product quality. This paper emphasizes the importance of streamlining and improving the operational warranty process to provide superior cost benefit and increase customer experience and satisfaction. Automation of Warranty Management through various tools has become vital for discrete and automotive manufacturing companies, having B2C (business to customer) connect. Early warning detection analytics and component traceability are essential for the product improvements and to ensure that inferior products do not reach market.

2 Introduction In the Automobile industry, a warranty claim is created when a vehicle is brought into a workshop or a product is returned to a service center with a defect that is covered under a valid warranty contract. For the company issuing the contract, warranty is a cost and directly impacts the company's bottomline. However, there are significant saving opportunities if the warranty process and operations are managed properly and important information is gleaned from the warranty data. This can help improve product quality as well as reduce warranty outlay for future products. Warranty is a significant cost for most manufacturing companies. For Original Equipment Manufacturers (OEMs) the long term average for warranty costs has reached up to 2-3% of the sales revenue. Warranty costs are thus a significant drain on the company's bottom line. The long term average impact of warranty costs for automotive suppliers has been 0.5-1% of their sales revenue. A reduction in warranty spending directly improves the company's cash flow. The following are the business factors that are making change imperative and important: - Increasing use of complex technologies in the manufacturing of products - Increase in demand for differentiated products by the customers. Regulatory requirement: Escalating regulatory requirement and evolving standards poses another challenge both from a reporting and documentation perspective as well as from managing the cost of warranty administration. The TREAD Act (Transportation Recall Enhancement Accountability and Documentation) is a well known example of a regulatory requirement from the National Highway Traffic Safety Administration (NHTSA) in the US. Traceability requirements: Identification of the root cause of failure, requiring the ability to trace a part and the identification of a supplier and supplier lot is also becoming increasingly important from a regulatory and cost management perspective. Quality of warranty data: Warranty data is often untimely, inaccurate and lacks critical contextual information to eliminate and resolve quality and product related issues. This contributes significantly towards identification of root cause of failure. Absence of integrated approach: There is a need for an integrated approach to Warranty Management for the identification of root cause of failure. A multidisciplinary approach involving the participation of several internal departments including production, quality, services, product development as well external supplier is needed to resolve and fix most warranty issues. It takes several months for this process to run its course during which time defective parts and products continue to be produced impacting attempts to manage/contain warranty costs. Fraudulent Claims Management: Manufacturers lose significant - Customers asking for low cost products revenue to fraudulent claims with more than 10% of warranty - Increase in global product platforms costs attributable to fraudulent claims. - Higher claim volume from emerging markets Supplier cost recovery: OEMs face significant challenges in recovering warranty costs from suppliers. For industries like - Decrease in cost & time to market for enhancements automotive, OEMs end up bearing more than 80% of the Operational Warranty warrant costs with suppliers around 10%. The challenges faced while managing warranty There are several operational challenges that manufacturing companies face while managing warranty issues that significantly impact warranty costs, customer satisfaction and response times. Foremost amongst these are the following: Long processing time of warranty claims: This significantly impacts customer satisfaction with a company's products. Hitech industry have the best response time around 2 days while Automotive companies slack with claims up to 2 weeks. Reverse logistics: For effective root cause analysis, reduction of warranty processing time as well as supplier cost recovery there is need for managing the reverse logistics process, to get the defective parts back from the customer to the manufacturer Increasing Extended Warranty Sales: The sale of extended warranty represents a significant source of services revenue for many manufacturing organizations. Many organizations attribute this to contribute to more than 20% of their services revenues.

3 Warranty Analysis for continuous improvement It is often said that nothing in business can be improved if it cannot be measured and warranty analysis is no exception. The application of performance management techniques and technologies to the monitoring of Key Performance Indicators (KPI) is very critical. Many corporate measures and performance indicators are not tied to the decisions that affect them. For Decision Management to work the business must understand how specific decisions create or destroy value and must link these decisions to the business and individual performance metrics being tracked. Most organizations use KPIs extensively to measure performance at both a corporate and a departmental or individual level. Mapping decisions to KPIs will enable people to focus on the decisions that matter. It is typically clear that decisions will impact one or more KPIs. For example, the effectiveness of the claims adjudication decision in correctly identifying those claims that can be automatically processed makes a material contribution to this KPI. Ensuring that decisions are mapped to a KPI (or to more than one) and that all the KPIs have at least one decision that impacts them is crucial. % claims month of May by model assuming shipment data ABC Truck % claim trend over shipments % claims for Model ABC ABC Trucks Cause % contribution Proactive alarm on threshold of 4% for ABC Trucks- Should have been caught in the month of Sept Early Detect and Alarm. ABC Truck Cause #X % trend over shipments X K T M B S Q D G J 7% 13% 16% 49% X - Drill Down to show Cause # X Accounts for 49% of claim (18.36%) - Absolute value of Cause# X is % Proactive alarm on Threshold of 2% for ABC Trucks against Cause # X - Should have been caught in the month of Sept Figure: A Typical Warranty Analytics Dashboard

4 It is also necessary to monitor the performance, throughput and The data can be monitored for abnormal vehicle parameters basic statistics of decisions. The number of decisions made to identified by pre-defined Diagnostic Trouble Codes (DTC codes). approve, reject or refer, is a measure of decision effectiveness. The driver of the vehicle can subscribe to a service where these High referrals will increase the burden on the staff doing manual DTC codes are monitored by the OEM or his / her designated reviews. Higher Rejections will impact customer service or sales. dealership. The dealer can use the data on the server which Similarly, decisions that take too long or that cost too much may may be ignored if the condition is transient and not indicative of have a negative overall impact. Tracking and reporting this an impending failure or inform the driver to schedule a service information will help the business owners understand and event if the DTC codes indicate there is a need for urgent manage their decisions more effectively. attention. The OEM can run analytics across model / make / platform to serve as an early warning system of problems that To manage change, companies can constantly challenge the way may be indicative of a systemic defect in the vehicle either a decision is made to see if the approach being used remains caused by manufacturing error or an error in design. valid. Improving decisions over time, given changing business constraints, ensures that optimal decision making becomes the The availability of such a service not only helps the OEM alert the norm. driver of potential issues pertaining to the vehicle but also act as a tool for customer experience management and is seen as a Our Warranty Analysis Solutions such as EnterpriseXpert can help continually improve decisions based on warranty major area of investment by car manufacturers. operations. We can build Warranty Analysis frameworks or Tech Mahindra has been successful in developing solutions complete solutions for Warranty Analysis. leveraging M2M capabilities within the organization and the partner ecosystem. Examples of solutions that have been RealTime Analytics developed and successfully used by its customers include the Telematics communication unit and middleware platform for a With the advent of IoT (Internet of Things) it is becoming Vehicle Diagnostics Solution which captures the vehicle data in increasingly possible to monitor products in real time with the real time, a solution for Electric Vehicle Monitoring as well as a intent of providing timely alerts to the user of the product as well M2M solution for Remote Asset Management used for as the product manufacturer. M2M (Machine to Machine) monitoring field equipment like diesel generator sets or communication technologies are leveraged to acquire and equipment in remote areas. analyze data of products being used in the field across numerous industry segments. The adoption of this technology is becoming increasingly evident in the Automotive Industry which is looking to leverage Vehicle Telematics as a way of alerting the driver of potential failures. A telecommunication unit is fitted into the vehicle CAN bus either as an Original Equipment Manufacturer fitted device or an aftermarket device connected to the OBD 2 port. Vehicle performance data as well as any abnormal diagnostic codes captured by the device are uploaded using the network provided by a telecom network provider to a server in the cloud at a predefined interval of time. At the most basic level the device monitors various vehicle level parameters and can be used to alert the driver if certain vehicle conditions are noticed. Examples of such conditions could include: - Alerting the driver of a battery problem for example, the battery can only hold 60% of charge or does not charge fully - Alerting the driver of low tire pressure - Alerting the driver that the next service is due - Alerting the driver of low fluid levels ( Engine oil, Brake fluid, Radiator coolant, Transmission fluid)

5 Tech Mahindra Success story Implementation Snapshot An Integrated Warranty Solution is being implemented successfully, on a global scale for an Auto major that was looking for an approach to standardize its global warranty processes through a flexible solution that could result in substantial reduction in warranty expenditure. Tech Mahindra engaged with the customer right from the gap analysis and product evaluation stage to the successful phased delivery stage, by utilizing an end user experience driven iterative model. The BPM solution has key components such as process automation, complex business rules, integration to downstream systems and dashboard reporting and analytics for seamless processing of claims. The Customer Landscape and Program Drivers The customer had multiple systems to handle end- to- end claims and varied processes across regions that did not provide the required level of flexibility and agility required to achieve high TCO. They were looking for standardized global warranty systems that could handle the complete claims processing to improve the warranty experience for dealers and customers. The supply chain consisted of 11,000 dealers worldwide, a 100+ dealer service providers, 20+ parts return centers and millions of end consumers, with processes and policy complexities across 11+ core systems, 26 downstream applications, integration with 50 interfaces, using 29 languages. Tech Mahindra Approach and Solution Tech Mahindra's BPM and domain consultants helped the customer compose their vision in a phased manner to achieve a quick ROI. Comprehensive rules harvesting exercise from the legacy mainframe applications was completed to progressively build a structured, cross referenced rules catalogue that formed the foundation of the process improvements for the transformation exercise. A case management based global system is being implemented to standardize the common global processes on disparate legacy platforms, while providing for regional specialization for compliance and other geo-specific requirements. The unified set of warranty data to create and track compliance to programs like pre-approvals, recalls, parts return, root cause analysis of the failure, corrective action and integrated dashboards for reporting and monitoring, contributed to improvements in customer service and product quality. Key Benefits - $53M saved in annual operating costs - 400% improvement in speed of execution - Global consolidation of warranty cost - Reduced warranty spend (reduction in fraudulent claims/incorrect claims) - Reduced IT infrastructure costs - Vehicle design improvement - Dealers can provide real time feedback during processing of claim - Ensuring the right amount is paid for a claim Conclusion The business case for warranty improvement is persuasive. If companies having above billion dollar revenue can save on warranty spend even by % of sales through the techniques and tools discussed in this paper, they should be able to significantly improve margins and drive higher customer satisfaction. Both operational warranty and early detection analytics are key areas companies should look into so as to impact spend on warranty. Additionally, warranty management and data collection with ability to drill down is imperative to close the feedback loop on product quality. Operational warranty systems should be able to get real time data from different sources (dealers, OEM repair centers etc), transform the data into information and provide a platform for analytics driving efficiencies and product quality. Additionally this information should be used in feedback loops for root cause analysis, APQP (Advanced Product Quality Planning), DFM (Design for Manufacturing) as well as in PLM (Product Life Cycle Management) systems. A cohesive backbone of near real-time information driving analytics and decision making will help product companies transform to be best in class and create shareholder value.

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