Warranty Management

Caused by increasing customer demand, intensified competition through international markets, and an increasing bargaining power of the consolidating automotive industry, cooperations between automotive suppliers and OEMs have come under pressure.

Particularly in the course of processing guarantee and warranty cases, suppliers are clearly sitting at the shorter end of the lever and are thus forced to agree on various concessions. There are several reasons for accepting this negotiating position: Fear of losing follow-up orders, increasing standardization on the OEM side, high sunk costs (irreversible costs through research and development) but above all lacking transparency and insufficient communication.

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What is Warranty Management about?

Especially small and medium-size suppliers with a relatively low bargaining power suffer from this development and consequently report about an increasing number of warranty claims and expenses, even though many warranty cases appear only though customer defaults. However, the burden of proof always lays with the producer/supplier. Due to lacking transparency and insufficient communication, this results in an almost hopeless situation since every responsibility falls to the suppliers, the stake holder with the lowest bargaining power. A representative survey among German suppliers has shown which problems had been crucial for this development:

  • Lacking diagnostic data
  • Insufficient cooperation and missing interfaces with OEMs
  • Lack of resources on the part of the suppliers themselves

These problems identified in the course of the survey result in lacking transparency and insufficient communication between suppliers and OEMs and can be addressed by implementing professional Warranty Management Systems.

 

What characterizes a professional Warranty Management System?

A Warranty Management System is an integrated platform for suppliers and OEMs which provides both parties with all relevant figures, KPI’s, analyses, trends, and reports. Although there are some few innovative and clear-sighted suppliers which use a Warranty Management System with integrated tools and customer interfaces, most suppliers are still exclusively orientated to the needs of the OEMs and are thus forced to work with several customer systems at the same time (Figure 2). Consequently, no process standardization is possible, transparency not achievable and the realization of experience effects on the part of the employees impossible.

Which benefits offer professional Warranty Management Systems?

Standardisation enables mid-term cost savings for overheads, as well as improving warranty handling and reducing the pressure placed on employees. Warranty Management Systems also enable greater efficiency in the supply and use of information, making it available to both the manufacturer and the customer at any time. This enables the subsequent reduction of rework costs and the elimination of unnecessary waiting times. Warranty Management Systems increase warranty process transparency, thus affording suppliers a better negotiating position.

Warranty Management Software enables the standardization of warranty processes, better communication between supplier companies and OEMs and an overall improvement in process transparency.They serve as an integrated platform between the supplier and the OEM. In terms of content, Warranty Management Systems provide both manufacturers and customers alike with all relevant key figures, evaluations, trends and reports. Although a small number of innovative, open-minded supplier companies already use their own Warranty Management Systems with integrated customer interfaces, the majority of companies still focus on the customer, working without an integrated platform and with several customer systems at the same time (see fig. 2). This renders process standardization impossible. Transparency remains equally inachievable and also precludes the use of employee learning effects.

 

Warranty Management describes the warranty case handling process between suppliers, OEMs and end customers. This process often includes the complaint, assessment, reporting and negotiating processes and, where applicable, remuneration of the goods under scrutiny (usually based on a technical factor). Despite being long underestimated, the importance of Warranty Management for the company as a whole is now finally being acknowledged by far-sighted executive managers and directors of OEMs and suppliers. On average, European OEMs accrue warranty reserves to the sum of 2-6% of their turnover – a comparatively large proportion (see fig. 1). The resulting high volumes reflect the financial means that could be released by a relocation of warranty obligations.

 

The development of warranty provisions of European OEMs relative to their annual revenue

Figure 1: „The development of warranty provisions of European OEMs relative to their annual revenue.”; Source: Warranty Week 07/2011

 

Share of the underlying communication platform within the warranty management process

Siemens_IBS-QMS_share-of-underlying-communication-platform-warranty-management-process_ENG

Figure2: „Share of the underlying communication platform within the warranty management process.”; Source: Study confluentes e.V.

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