Warranty Containment and Reduction

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WarrantyContainment and Reduction
4 August, 1998
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The warranty landscape

• OEMs overwhelmed by warranty costs
• Supplier sharing of warranty seen as logical
  extension of engineering and design
  responsibility

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The warranty landscape

• Suppliers captive to dysfunctions of OEMs
  warranty systems
• Suppliers need tools to address increasing
  responsibility to contain warranty costs

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Business as usual Rising, unidentifiable,
 warranty costs

• Warranty accounting as a percentage of
  manufacturing costs
• Failure to account for catastrophic chargebacks
  beyond their control

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Cost of conflict

• 5 of the price of everything you purchase can be
  attributed to the cost of conflict
• We believe that its higher in automotive

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What do customers want?

• New product features
• No service (event)
• Decreased Frequency
• Less Time
• Lower Cost

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KanoModel of customer satisfaction
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What causes warranty claims?

• Failures in designed functions
• Customers wrong expectation of function
• Logistics or process weaken function
• Different stakeholders agendas

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How much could we save?

• 50 of total warranty cost is labor
• Improved serviceability process reduces warranty
  costs
• Extended Service Plan (ESP) warranty costs are
  often twice the basic vehicle warranty

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Warranty triage

• Reduce warranty costs beyond Robust Design tools
  at component level
• Define warranty exposure of systems and component
  suppliers

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Once the patient is stable

• Define warranty exposure of next generation
  products
• Design better systems via better holistic needs
  definition

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The payoff

• Supply chain partnering without animosity over
  misconstrued data
• Reinforce OEM partnering with its Tier Ones
• Reinforce Tier One partnering with its Sub-tiers

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Solutions require holistic view of component
life cycle

• Data tells you only how you spent the money
• Data is misinterpreted or insufficient, or both
• Input needed from all stakeholders
• Predicting exposure requires warranty process
  FMEA

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If its so costly, why havent we solved the
problem?

• Business Systems are the invisible fourth leg
  of the solution tripod of Design, Materials, and
  Manufacturing

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If its so costly, why havent we solved the
problem?

• Open loops in Business Systems drive intractable
  warranty costs in the face of zero defects
• Business Systems solutions generate effective,
  often immediate, cost savings

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The scope of warranty analysis
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AT WHAT POINT IS DATA COLLECTED?WHERE IS DATA
MAINTAINED?
EXTERNAL SUPPLIER 1. Trim cover inspection -
Site 1 2. Marriage inspection - Site 2 3.
Post-oven inspection - Site 2 4. Final
inspection prior to shipping to Assembly.
INTERNAL SUPPLIER 1. Raw stock inspection 2.
Operator inspection 3. Finish process inspection
No inspection in shipping.
No inspection in shipping.
ASSEMBLY 1. Random incoming inspection
(spotty). No official inspection -
DISCRETIONARY 2. Installation Final Area
Inspection - 100 3. Random daily inspection 4.
Special Audit.
TRANSPORTATION RAIL - Eastbound 1. Origin
Inspection on location prior to load.
Vehicle Loss and Damage passes to database. 2.
Destination inspection walk through prior to
unload RAIL - Westbound 1. Destination
inspection prior to unload 2. Off-rail
inspection (full inspection) (No Origin
Inspection prior to load!)
SHIPPING YARD
TRUCK HAULER 1. Trucker Walk around pre-loading
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DEALER 1.Dealer Final Delivery (95 on spot 5
night deliveries, 24 hrs. to inspect. 2.
48-hour rule to find further defects. 3. Dealer
Standard Inspection Stand-alone reports to
OEM 4. Dealer Prep (100) 1st Corp.
database input Dealer information 5. Customer
Delivery Inspection (100) Corp.
database 6. Dealer Standard Report (90-Day
Service Fix) List of priorities for Plant,
Supplier and Engineering.
CUSTOMER 1. Customer Delivery Inspection
(100) 2. 30-Day Customer Survey (100)
Corp. database 3. Warranty Claims 4. Customer
New Vehicle Quality

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Product family planning An Integrative Model of
Product and Process
Market Applications
Best
Better
Market Tiers
Good
Economy
Technical and Commercial Leverage of Platforms in
the Form of Derivative Products Quickly Made and
Successfully Introduced
Product Platforms
Successive Generations of the Product Platform
Discover and Integration
Common Building Blocks
Consumer Insights
Product Technologies
Manufacturing Processes
Organizational Capabilities
adapted from Meyer and Lehnerd, The Power of
Product Platforms, Simon Schuster, 1997
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Stakeholder identification

• Identify all stakeholders affecting you,
  especially those you detest
• Gravitate to likeable stakeholders at your peril

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Data identification characteristics

• Data tells you only how you spent the money
• Data is an indirect pointer to quality
• Data is insufficient, misinterpreted, or
  mistakenly filtered

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Observed results

• OEMs believe they see spectacular, assignable
  cause in their warranty systems
• Verbatim interpretation often reveals a different
  causal condition

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Unexpected root cause

• Warranty systems are broad, complex, and have
  many variables

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Warranty process successes

• Reduce current, intractable warranty costs
• Predict next generation warranty costs
• Design better, lower cost lifecycle designs
• Constructively define warranty sharing

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Surprise, surprise

• Trust in the supplier-OEM relationship is the
  influencing factor
• Warranty is a tricky, balancing act that may have
  to be outsourced to specialists

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Overriding reasons for failure

• Failure to set and reset mutual expectations
• Failure to build and maintain a sustaining
  relationship
• Floundering on the rocks of convenience

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OEM expectations

• Supplier-led systems integration
• Sequenced modular assembly
• Improved vehicle durability retained value
• Minimal product liability risk
• Increased customer satisfaction
• Reduced warranty costs

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Suppliers expectations

• OEMs and 2nd Tier Suppliers
• Fully inform
• Collaboratively team
• Actively listen
• Rapidly respond

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OEMs and Suppliers should

• Hear Voice of the Customer, not Voice of
  Engineering
• Employ simultaneous engineering
• Perform warranty process FMEA focused on policy
  execution to predict exposure

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Suppliers should

• Know the OEMs warranty policy
• Understand policy implementation
• Examine service time labor standards
• Understand the OEM-dealer and OEM-enduser
  relationships

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Suppliers should

• Proactively approach OEMs with regard to warranty
  implementation and cost sharing
• Get in early to guide policy guidelines,
  standards, and implementation

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Dealing with suppliers

• Maturity of sub-suppliers?
• Relationship with your sub-suppliers?
• Track-record of successful long-term
  relationships?
• Share warranty costs, drive supplier
  restructuring, or both?
• Defray costs or partner?

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Proactively approach suppliers

• Proactive implementation and cost sharing
• Pilot supplier selection?
• Will the process break?
• Why?
• Sharing implementation?
• Structure of pilots?
• View from the supply base?

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How do the Japanese do it?

• Demanding domestic customers
• Bureaucracy, with Trade Associations, set
  standards and licensing
• OEMs are platform-centric, not part-centric

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Now its your turn

• Whats your experience?
• What can you do to reduce your warranty costs and
  exposure?
• How can you involve your suppliers in warranty
  responsibility?