Warranty Management and the Path to Better Quality

According to Ford CEO Jim Farley, “Fixing quality is my No. 1 priority. It is the most important initiative in the whole company. And it’s going to take several years until we fix quality, nothing else matters.” A big, clear, and bold message, but the action didn’t stop there. After many years of high warranty costs and recalls, Ford named a new Chief Transformation and Quality Officer, Jim Baumbick.

This is a strategic move from Farley and not surprising — especially after the company spent $3.92 billion on warranty costs in 2020 with $127 billion in revenue. This is well over the 2.5% industry average cost as a percentage of sales and is clearly an area of focus for many auto manufacturers.

Across numerous industries, warranties are the vital assurances manufacturers provide customers. They are a driving force to help identify quality issues early and reduce unplanned downtime, maintenance problems, and safety issues. Warranties are essentially insurance —     and a critical solution needed to provide checks and balances between manufacturers and end customers.

But what happens when a product registration or warranty card isn’t completed? What if you don’t have a simple way to identify and process claims? In the case of Ford, what if you had to manually review, approve, or reject every claim submission? What about the suppliers? An OEM shouldn’t have to pay for all the costs, right? Questions about who is responsible and how the issue can be fixed quickly drive many of the headaches in the warranty space.

Warranty operations can be complex with numerous players, and many organizations still rely on manual processes and outdated systems to process claims. Considering the main warranty touchpoints for an industrial equipment manufacturer with a dealer network, it is easy to see how the process can be broken, leading to significantly increased costs and missed revenue opportunities.

Here’s what it looks like:

An end customer identifies an equipment issue and a technician from the dealership is assigned to work on this job. The technician removes a faulty component and installs a new one to get the equipment back up and running, satisfying the customer. What happens to the faulty component, and how are you supposed to determine if it’s covered under an OEM warranty?

The dealer submits a claim to the manufacturer to get credit for the faulty component. The manufacturer must review the claim in detail to see if it can be approved. If any information is missing, this starts a potentially never-ending back-and-forth and can hurt business relationships between dealers and manufacturers.

Now comes the return. Sometimes a manufacturer will request a part to be returned for failure analysis or repair, so they need to determine who pays for shipping and where to return the part. Can they dynamically manage this process and ship it directly to the final destination? This would save some of the logistics costs.

Once the manufacturer has the returned part, they can approve the claim. However, the complexity continues to grow, as the OEM’s warranty team thinks through similar claims from the last month, which prompts them to wonder if there’s a quality issue and if engineering needs to be notified. After entering the notes and talking with accounting about providing the dealer with a credit memo, the warranty team wonders why their warranty system isn’t integrated with their financial system. This claim might take a little while to be paid.

But wait, we’re not done yet. After providing a credit to the dealer, the warranty team realizes they didn’t manufacture the component in question. It’s from one of their suppliers and is covered under their warranty. What’s the process for submitting a claim to this supplier? After finding out each supplier has a different process, the warranty team considers throwing this one in the scrap pile and submitting the next one for a claim.

If any of these issues sound familiar, the good news is you’re not alone. Connecting customers, dealers, manufacturers, engineering, and suppliers on one solution with a single source of truth for processing warranty claims is no easy task. It requires a dedicated, focused approach leveraging the right purpose-built solutions. When you think about the high costs, loss of revenue, satisfaction issues, and brand damage across the business, it makes sense to take the Ford approach.

So how do you navigate the world of warranty operations?

Automating the claims process and managing by exception is a path to reduce manual effort and errors. Tracking product registrations and detailed warranty entitlements is the best way to easily determine what repairs are covered. It also helps track when warranties expire, allowing organizations to proactively connect with customers and discuss additional service plans. Seamlessly connecting with your supplier network is one of the best ways to recoup warranty costs, and it provides the ability to identify quality issues and measure performance.

In a time when many manufacturers are dealing with slowing revenue growth due to economic headwinds and reduction in demand, increased costs as a result of inflation and supply chain bottlenecks, increasing customer expectations for immediate solutions, and increasing competition can you afford to not prioritize your service and warranty business?

While warranties are not new, intelligently streamlining the operations is an untouched area for many manufacturers. It can support cost reduction initiatives while creating a closed feedback loop to engineering around quality issues.

Learn more about how Syncron Warranty can help streamline your operations.