At a Glance
By failing to optimize their warranty management
capability, many companies are leaving money on the table. But by implementing
more sophisticated warranty management tools and processes companies could
reduce costs and improve their profitability.
Companies are Leaving Money on the Table
Where do you Begin?
How Would It Affect the Bottom Line? Posted: February 23, 2004
During the 2003 holiday season, consumers were expected to
continue their love affair with electronics. According to a recent survey by
the National Retail Federation, one in four consumers planed to purchase
consumer electronics or computer-related products as part of their annual
year-end shopping. Furthermore, NRF reports that sales at electronics and
appliance outlets in November jumped by 14.3 percent unadjusted for the year—a
move that portended a season much-improved over 2002.
These figures certainly are good news for CE manufacturers
and retailers alike. But they also raise tough questions: What happens when the
products people buy don't perform to expectations? With millions of new
warranties issued in this holiday season alone, are manufacturers and dealers
fully prepared to administer and honor them? And, perhaps most important, how
much profit are companies frittering away because of highly inefficient
warranty management processes?
Companies are Leaving Money
on the Table The fact is that companies are leaving a significant amount
of money on the table because they're 1) spending too much to administer
warranties; 2) missing other important cost-reduction opportunities in the
areas of fraud avoidance, supplier recovery and improved product quality; and
3) not maximizing the revenue they could generate from the sale of extended
warranties that are increasingly popular among consumers.
CE manufacturers could address these shortcomings by doing
a better job managing the eight key warranty processes:
- Warranty purchase and
configuration
- Warranty registration
- Claims submittal and tracking
- Claims verification and detection
- Claims review and payment
- Asset management and logistics
- Warranty analytics
- Warranty program management
Where do you Begin? Improvement begins by understanding warranty management not
as a collection of standalone activities, but as a series of highly integrated
processes that make up a warranty management "lifecycle." In other words, the
activities associated with each of these eight processes both affect and are
influenced by each other in some important way. Once a company makes that
mindset shift, it then can apply a number of crucial technologies that
effectively link the processes, streamline the flow of work through them, and
help relevant parties execute their day-to-day warranty responsibilities.
This approach can have a dramatic impact on the
effectiveness and efficiency of warranty management. For instance, by
implementing a warranty management portal supporting the claims submittal and
tracking process, a company can provide a single entry point through which
dealers can access warranty data and manufacturers can see at any given time
the status of dealers' activities.
Using robust analytics software, decision-makers can
monitor product performance and not only resolve known product issues more
quickly, but also determine ways to improve the quality of future products—thus
minimizing future warranty exposure.
A consolidated warranty information data warehouse can give
a manufacturer access to comprehensive warranty and customer data, which
enables it to tailor marketing campaigns to specific customer segments,
identify new types of warranties and service plans, and manage its warranty
pricing more sharply.
New processes can enable a manufacturer to quickly and more
accurately determine the veracity of a claim and highlight potential fraudulent
activities, as well as help get proper remuneration for claims rooted in
deficiencies in suppliers' components (which is particularly important as more
manufacturers include components from multiple sub-vendors).
Overall, this approach significantly streamlines warranty
management by standardizing and institutionalizing claim resolution and
automating many activities now completed manually.
How Would It Affect the Bottom Line? Consider the case of a hypothetical $10 billion "industry
average" CE manufacturer. Given that the average such company spends
approximately 3 percent of revenue annually on warranties, this manufacturer
would have $300 million in total warranty expense. Because it's an "average"
company, it has limited fraud detection, supplier recovery and product quality
analysis capabilities.
Conservative estimates show that this hypothetical
manufacturer could cut its spending by nearly half if it adopted the approach
just described. This company could reduce administrative expenses by $5
million; save $19 million in fraud reduction and $56 million in supplier
recovery costs; and pocket an additional $60 million in detection and
prevention of future product issues due to a better understanding of past
defects. These savings could be greater if the company outsourced the entire
warranty management lifecycle to a third party—a trend that's beginning to gain
momentum in some circles.
In short, companies must recognize that there's much more
to warranty management than simply registering products and resolving claims.
This is especially true as more complex products, broader and deeper supplier
relationships, and increased customer demand for better coverage through
extended warranties heighten the need for more effective warranty management.
Indeed, a superior warranty management lifecycle is a potent competitive weapon
that can substantially reduce a company's operating costs as well as boost
customer satisfaction and revenue.
About the Author: Grieg Coppe leads
the Strategy & Business Architecture unit for Accenture's
Communications & High Tech group.
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