Do you know the three generations of Warranty Analysis?

Updated: Oct 16, 2020

Introduction to Warranty Claim Analysis

Complex products come with a manufacturer’s warranty. This gives assurance to customers that the manufacturer stands by what they have built. The flip side of it is that it poses a challenge to the manufacturer. Potentially, it can drain millions of Dollars. At times, warranty claims may necessitate a change in the product design. This could lead to a disruption in the assembly line. This is especially true in the industrial equipment business. A disruption in a production line causes a lot of damage to the company's reputation along with financial losses.

The challenge of warranty claims further increases with the complexity of the product. On one hand, the product manufacturer has to pay for the cost of repair and on the other hand, they have to ensure customer satisfaction. Every warranty claim not only erodes the manufacturer’s profits but also impacts the customer’s perception of the product and the company. This puts in a lot of pressure on manufacturers. They not only have to analyze a large number of claims data to find out what needs to be fixed but they also have to ensure a quick fix.

The Generations

Manufacturing industries all over the world have one or the other method of analyzing warranty claims they receive through service centers spread across countries. Some industries use basic methods such as using a spreadsheet. With spreadsheets as the only tool, the best analysis that is often conducted is to observe and track part defect count, part types that fail, and corrective measures taken. Often the teams are very busy and overloaded with many tasks and thus they have no time left to do anything more. Before one knows the month is over and the next month’s data awaits the same analysis. This is what we call the first generation or 1G model of warranty claims analysis.

In the 1G model, we get a basic warranty analysis. However, to get deeper insights, we turn our focus on the cost of warranty claims in addition to defects. This helps the industry in finding the financial root cause of high warranty claims. Apart from this, features like intra-model and inter-model analysis can also be helpful to dig deeper into the data. Intra model analysis can be used to get a thorough analysis of a single model and an inter-model comparison can help to get a comparative study of the cost or defect fluctuations for all models. Further, finding the best practices in design can help to improve the quality of the product and help to reduce the cost incurred for warranty. Together, we name this advancement as the second generation or 2G model of warranty claims analysis.

Failed parts often need further investigation. This can take the form of quality testing, material testing, or a complete engineering design review. Further, more often than not there are more parts that need investigation than the staff can handle. Thus, just knowing how many parts need attention does not suffice. One also needs to know the priority in which one should work on parts. Recommending this priority for every failed part is one of the major objectives of the 2 G warranty generation.

Providing the list of failed parts along with its failure probabilities and other associated information is important from the New Product Development (NPD) perspective. This is one of the benefits of the 2 G system.

When an organization matures to the 2G level, the next advancement comes from predictions. Can one predict monthly warranty costs? How about predicting the number of parts that would fail in the next few months? Taking this further, would it not be nice to know part-wise failures on a monthly basis?

Having known the current trend of the warranty data and its in-depth analysis, the need of the hour is to predict what happens in the near future. Predictions of what defect is going to occur, which part is going to fail, the total warranty claims cost form the part of the third generation or 3G warranty analysis.

Most of the organizations still use spreadsheets and basic tools for analyzing data. As with any organizational change, moving from 1G to 2G is a tough job. There is also the fear of the unknown and it is especially true with automation. Once that bold step is taken, the benefits become quite evident. Overworked teams get relief to do real quality analysis. Quick pinpointing of part failures and best practices to redesign it helps one reach the market with a new solution lot faster than with the 1 G systems. It is observed that organizations easily save about a month in getting the new solution out in the field.

Moving from a matured 2G organization to 3G is relatively easy. The 3G makes budget allocation a smooth process within an acceptable margin of error. It enables teams to know which parts might fail and how many of them could fail. This results in an overall improved and well-managed warranty claims process. Reaching this level of maturity would clearly lead to reducing warranty costs and improving profitability.

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