Controlling Warranty Costs with a Closed Loop Quality Management System

THE PRODUCTIVITY ADVANTAGEIBS 2011

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Controlling Warranty

CostsStephen Cummings

Controlling Warranty Costs with Closed Loop Quality Management

Quality Management System Overview


How much is Warranty costing us?

According to Warranty Week, in 2010, the total amount of warranty accruals reported by all U.S.-based

warranty providers was…

$14.8 Billion

$22.8 Billion

$28.8 Billion


Warranty Cost Pressures

Highly competitive markets lower priced products lower profit margins

Increase in product complexity leads to increased numbers of problems

Increased customer expectations for high quality

Decreased product life-cycles (i.e. re-design frequency)

Corporate governance (SEC requirements)


Some actual numbers:

Caterpil-lar

Ford TRW Cummins Eaton GE0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Percent of Sales

2009

2010

Caterpillar Ford TRW Cummins Eaton GE$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Warranty Accruals (in $ millions)

2009

2010

*(Warranty Week posted numbers)


Warranty Costs

Requirements

Design

Prototype

Production

O/G Inspection

Warranty

Shipping

costs

New Part

Costs(Zero Mileage)

Used Part

Costs

• Returns

• Recalls

Rew

ork

Scr

ap

SupplierMgt

Chargebacks


Warranty Cost Element

Warranty RepairsParts & MaterialsClaim ValidityProblem Re-occurrence ef-fortsProblem detectionProblem Prevention


1) Management Warranty Decisions

Customer Analytics

Competitor Analytics

Product Life Cycle

How do these numbers come together

Total Warranty

Cost

3)Service Delivery

2) Product Reliability & Responsibility

1) Warranty Terms &

Conditions

Costs Analytics-Driven

Quality-Driven Warranty Costs Level 1 Cost

DETECTIONRESPONSE

&PREPERATION

Quality Control&

Inspection

Corrective Action

• 8-D• 7 Steps

FMEA&

Control Plan

APQP

Level 2 Cost Elements

Level 3 Cost Elements


How do these numbers come together

Warranty Service Delivery Costs

*Source: PRTM group


Long term impacts:

Loss of Reputation

Higher Warranty Accruals

Higher Inventory Costs

Lower Sales Reduced Market Share


How can warranty software help to reduce those numbers?

Align inter-departmental and cross-functional communications

Streamline the IT landscape by using an common, single data repository

Automate warranty management and claims processes

Access to warranty related data & KPI’s anywhere and anytime

Reduce the cost of quality improvement efforts

Tie Warranty Management to the QMS to improve product quality to prevent repeated defects


Example: Automotive Supplier

Identify systemic problems: multiple repairs, parts of other manufactures

Quick search for specific defects, defect location, root cause, parts numbers etc.

Automate plausibility checks to identify invalid claims for long term cost reductions

Cost reduction and transparency by elimination of heterogeneous systems

Simplified ad hoc reporting with integrated data

Identify “accepted” and “rejected” claims for further customer negotiations

Lessons Learned data base: share problem resolutions and experiences

Reduction of cycle times per issue

Add. Reports are possible, e.g. 3 Panel (R/1000), Pareto, Time-in-Service (TIS; MOP; MIS)

Ability to easily interface with ERP, e.g. SAP to automatically pull information to reduce administrative burden

Elimination of duplicate entries


Warranty Decision-making

E(Reworked)

– E(Scrapped)

+ E(Chargebacks)

_________________

Shipping & Admin Cost to Return Potential Value of a Return


Sample Warranty Management Claims Management Process: Automotive Supplier

Sample sizeof parts to be inspected

Global Warranty cases

Various means of acquiring warranty data

- Offline (Excel & Email)- Online

- Field services (Web Portal)

Log on to the central

ManagementSystem

IBS

Quality

Management

Data replication

X number of cases

*Cyclical information provided by customers

e.g. in form of excel

documents

Portal CompanyE-Mail Company

Import

Reporting: by Industry by country Costs Product related

KPI’s

1

2

3

4


CA/PA Process supporting Lessons Learned & Elimination of repeated defects

Customer Claim

data

(Excel)

OEM 1

OEM 2

OEM n

8D

IBS: Converter tool


Typical Questions

Typical sample questions that can be answered:

Cost analysis: Warranty per customer (Field)

Failures per month/year

Failures by industry or market segment – commercial vehicles, passenger cars, etc.

ppm per customer (based on deliveries)

Where did the parts fail (Countries, Plants, etc.)

Estimates based on statistical sampling of how many parts are really at fault (basis for the

negotiations with a customer – especially surrounding the technical factor calculations)

IBS

QSYS

Evaluations: by Market by Country Costs KPIs accepted vs. rejected claims

4


Sample Reports: Drill-Down Reporting

Top 5 Customers

Claims by year

2. Drill Down FORD

Top 10 returns from this Customer

1. Drill Down 2008

Top 5 defects on this Item

3. Drill Down Lock Asy

Highest ranked failing part and defects causing

disruptions in 2008


IBS reporting tool

PPM Defective by Month Manufactured

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

Build date

R/1

000 D

efe

cti

ve

Mo

nth

ly

Vo

lum

e

0 0 276

296

635

799

1235

1764

1483

828

862

816

594

308

606

672

1044

492

Co

nta

ined

Ro

ot

Cau

se

PC

A

Brief Problem Description

To

tal

Pro

ble

m

Lo

ca

tio

n

Ja

n-0

5

Fe

b-0

5

Ma

r-0

5

Ap

r-0

5

Ma

y-0

5

Ju

n-0

5

Ju

l-0

5

Au

g-0

5

Se

p-0

5

Oc

t-0

5

No

v-0

5

De

c-0

5

Ja

n-0

6

Fe

b-0

6

Ma

r-0

6

Ap

r-0

6

Ma

y-0

6

Ju

n-0

6

8D # D3

D4

D6 Open /

Closed

Serial Number or

Date for PCA

Permanent Corrective Action Taken

No Fault Found 79 Field 2 7 12 10 9 6 9 3 2 3 3 2 3 2 6 - - - - - - -

Customer Damage 8 Field 3 2 1 1 1 - - - - - - -

Shaft & Wheel brokem 15 Field 2 8 3 2 4751 E E E closed 8/8/2006 Re-validate the weld process

WG Arm Broked 5 Field 1 4 - - - - - - -

Pinched O-ring 4 Field 1 1 2 2208 E E E closed 10/5/2006Increase stock material in the casting to avoid

component misalignSnap Ring Out of Position Comp.Wheel rubbing

2 Field 1 1 5278 E E E Open 05/29/2006All K-16 and K-27 must pass through the balancing

machine

WG Corroded 1 Field 1 - - - - - - -

WG Arm Frozen 1 Field 1 - - - - - - -

Broken Fin 1 Field 1 - - - - - - -

Missing the mounting flang 1 Field 1 - - - - - - -

Oil Inlet pipeline leaking 0 Field 5675 Open

BW

ITE

C

Pareto of Defects

25

36

6

7

1

1

6

5

5

1

4

0 5 10 15 20 25 30 35 40

TW broken 1/2

Oil Leaking by the compressor side

TW broken Blade

Customer Damage

FOD

Blow By

Noise

BW Incorrect Assembly

Nut torque

No Fault Found

TW broken in balancing area

Daim

lerBW


Alternative entry points via Web Portal

Customer Claim

data

(Web Portal)

IBS: Reporting Tool

RMA


• Claim Reporting• Claim Validation• Better accrual forecasting• Centralized database

Warranty Cost Management

• Integrated Feedback• 8D, 7-Step, etc.• Lessons Learned

• Engineering Change• Supplier Management

Warranty Cost Prevention

Summary of Integrated Warranty Management


IBS America, Inc.

IBS AGIBS SINIC GmbH

IBS Baltic UAB

IBS Shanghai, Ltd.

Founded 1982

Employees 200

Customers > 4.000 in 18 countries

Industries Automotive (OEM and supplier)Plastics and metal industriesElectronics/medical technology industries

Headquarters:

About IBS


Key Competences and PositioningOverview

Services

Implementation

Training

Solution-oriented integration

Industry-independent Process consulting

IBS‘s key competences:

Innovative software solutions

ComplianceManagement

QualityManagement

Production Management

MIS

MaintenanceOperationImplementation

Machinecontrol

ERP

Process control

MESCompany mgmt.

Production

Directors

Dat

a fl

ow

Integration with enterprise IT systems


IBS Customers:Automobile and Construction Industry


Customer Examples:Electronics and Semiconductors


IBS Customers:Industrial Suppliers


IBS AG/BAK 2009

®2008/IBS AG BAK

OEMs

Broad Customer Base in Segments like:

Plastics, Metal, Electronics, Medical devices, Process industry

Automotive Suppliers(40% of Top 100 are customers)

Successful Projects and Satisfied Customers


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Questions?

Stephen Cummings

Next Step: Contact IBS For a

Complimentary Gap-Analysis

P:781.862.9002

E: [email protected]

W: www.ibs-us.com

mailto:[email protected]

http://www.ibs-us.com/

Controlling Warranty Costs with a Closed Loop Quality Management System

Business

productivity advantage

warranty week

warranty costscostsused

costs costs

parts numbers

rejected claims ibs

cost analysis

steps ibs