March 7, 2006

Warranty Chain Management:

After another successful conference, the warranty community has asked for an industry association in addition to the groups already operating. Warranty community builders said positive things. But now the hard work is just beginning.


Last week over 280 warranty industry professionals gathered at the second annual Warranty Chain Management Conference held at the Excalibur Hotel & Casino in Las Vegas. It was an incremental expansion from the inaugural even in 2005 in almost every way imaginable, most notably from the perspective of community-building.

Conference director Alison Griffiths wisely set aside a considerable amount of time for people to mill around and meet one another during meals and so-called networking events. At times, it seemed like the continuous food and drink sessions taking place in one room were being briefly interrupted by the panel discussions in the two adjacent rooms. And while those panel discussions themselves were incrementally more mature, in-depth, and specific than last year, perhaps the most valuable information many attendees left town with were the names and business cards of people they met from other companies, in other industries, who like them were identifying themselves to be part of the warranty community.

Early on the second day of the conference, Glen Griffiths of Hewlett-Packard Co. asked representatives of the warranty industry the rhetorical question, "where do we go from here?" In regards to a suggestion made to form an industry association of some kind, his listed choices were to 1) do nothing, 2) good idea, let someone else do something, or 3) good idea, we should do something.

Clearly, he was pulling for choice 3), and now it seems so were many of the attendees. But as he told Warranty Week after the conference, even he was somewhat surprised by the definitive nature of the answer. He said he expected most people to say that starting an association was a good idea, "but I thought it would be more of a mix of 2) and 3), and not predominantly all of them number 3)."

Warranty Survey Results

He included a ten-question survey printed on pink paper in all attendees' registration packets, asking them whether they would join some kind of industry association. The first question was a simple yes or no: "Do you support the formation of a Warranty Institute or Association?"

Of the 60 survey responses collected and tabulated over the weekend by Alison Griffiths, 59 said yes and one did not respond. In the comment field that followed, people wrote comments such as "industries across the board need an organization that's focused purely on warranty management," "the time is right," "we need this cross-functional involvement of all of the industries," and "we need to embrace everybody as much as we can." One respondent suggested looking for ways to deepen the involvement of European companies.

The survey's second question asked whether the warranty association should be independent or aligned with another association. Again, the results were overwhelming: 47 responses or 78% of the total said independent, and 10 or 17% said aligned with another. Another 5% did not respond. Among those mentioned as possible alignment candidates were the Computing Technology Industry Association Inc., the National Electronics Service Dealers Association, the Automotive Industry Action Group, as well as more generic advice to align with manufacturing, industrial, insurance, and quality-focused associations.

Griffiths said during his March 2 presentation that he didn't think there was an existing group that would be able to align itself with a warranty industry association. The American Society for Quality, for instance, is focused on quality issues, and quality isn't the same as warranty, he said. First of all, everything from food to pharmaceuticals have quality issues, but not warranties. And second of all, what are major issues for warranty professionals (fraud, for instance) are non-issues for quality professionals.

Questions 3 and 4 asked respondents if they'd be interested in joining an industry association, and whether they'd be interested in serving on a work group and/or committee. Again, the response was overwhelming, with 55 out of 60 saying yes to joining and 34 said yes to serving.

When asked how they wanted to serve, 18 respondents said they'd like to be subject matter experts. Another 13 said they would like to serve as a member of the board. Five said they'd like to act as service providers to the group, and nine said they'd like to serve in some other capacity (several checked off multiple boxes).

Questions 6, 7, and 8 asked what functions, services, and subjects the warranty association should address, in a fill in the blank or a check box format. Overall, standards-setting, benchmarking, and metrics garnered the most responses. Also notable was the number of respondents who selected "access to warranty networks," "warranty education," "warranty tools and processes," "warranty metrics and measurement," and "curriculum development," Griffiths said. Online warranty training course development, the impact of recalls on warranty costs, extended warranties, forensic accounting, and warranty financial reporting were among the suggested topics listed as write-ins.

For community-builders, the only discouraging word in the results came on question 9, which asked whether the respondent thought his or her company would be interested in sponsoring the formation of a warranty institute. Only 11 said yes, 27 said no, and 22 had no response.

Glen Griffiths, as both HP's director of global engineering and technology services and as husband of WCM conference director Alison Griffiths, has served for the past several years in a behind-the-scenes capacity as a warranty community builder. It was he who began talking about the need for an industry conference way back in 2004, and it was he who recruited his wife to do all the legwork when everyone else (including him) went for option 2). And now he's the one calling for the emerging community to make the jump from an informal once-a-year gathering into a formal trade association.

Warranty Community Builders

Now, however, there are other warranty community builders. Joe Barkai of Manufacturing Insights is building a community of warranty-aware senior executives at manufacturing companies. Eric Maerker of Warranty Risk Services is building a community of automotive extended warranty administrators. The AIAG has one committee working on warranty standards for trucks and buses, and another working on communications standards for warranty-centric early warning systems. Thanks to the efforts of service contract administrators, insurance underwriters, retailers, and attorney Tim Meenan, the extended warranty community already has a strong lobbying and regulatory compliance group in the form of the Service Contract Industry Council.

All of these groups are stakeholders within the warranty community, and all of these community builders might have reasons to join a wider association. And although individuals might join multiple groups, none of these existing groups would seem to have a ready-made home within a more general-purpose and broadly-based warranty industry association. Maerker's and Barkai's communities are very tightly focused on narrow job descriptions: administrators and senior executives, respectively. The AIAG and SCIC are focused on single industries: automotive and retail, respectively. And the AIAG is a thriving industry association in its own right, for which warranty is just one of numerous topics of interest. The SCIC has done a remarkable job of affecting state laws governing the sale of extended warranties. So why roll their special interests into a more generally-focused group?

When asked to join, the impression these groups left is "we're excited, and we're happy for you, but we'll think about it, and we'll get back to you." The sole exception seems to be the warranty metrics and benchmarking forum, whose members jumped at the opportunity to form the nucleus of this new industry group. Their forum would theoretically become the benchmarking work group or the warranty metrics committee of a wider industry association. It already has a rather broad-based membership, though it has been heavily weighted towards computer manufacturers. And rather than a narrow constituency, it's focused on a narrow task: to define warranty.

The Benchmarking Forum

Even a year later, after two face-to-face meetings and at least six conference calls, the forum has no official name. It has no formal leaders, and those who lead it informally have no official titles. And so it was left up to Thomas Bellinger of IBM to speak for the group and to detail its activities over the past year. "Why warranty benchmarking? I think it's pretty obvious," he said. "The challenge for a lot of our executives is they want to know if they're competitive." They see the warranty claims figures for their own company and for others, he said, but they don't know if the percentages are comparable. Different companies might measure the cost of warranty differently, including many cost components but leaving some key cost components out.

One of the key steps Bellinger said the benchmarking group took was to create a lengthy description of around 20 of the possible components of warranty cost, both direct and indirect. That spreadsheet of warranty cost definitions was distributed to group members late last summer, so they could rate each of the components as definitely belonging or definitely not belonging in a realistic list of warranty costs.

The benchmarking group briefly considered whether to ask the U.S. Securities and Exchange Commission or perhaps the Financial Accounting Standards Board for their formal definition of warranty cost. A draft query was created and circulated among people within the accounting and finance departments of member companies, but none of them was willing to send it to either FASB or the SEC in their name. The main reason was that most of the accounting and finance people were content with the current "principles-based" approach to warranty accounting, and preferred it to something more concrete. They also thought there might be too much overlap with separate efforts to revamp revenue recognition rules. So the metrics group decided to postpone that effort to engage FASB.

Earlier Benchmarking Efforts

Bellinger also described how a 2001 multi-client study of warranty best practices undertaken by Accenture found that the components of warranty cost were defined differently by different companies. "We looked at the quality side, the annual failure rate of products," he said of the study. It also took a look at call center costs, which are usually partially counted as a warranty expense by most computer manufacturers. And it looked at the effect that declining product costs had upon warranty costs, and the differences in terms and conditions between different companies' warranties.

Computer manufacturers funded the Accenture study, which concluded that warranty costs from different companies would not be comparable unless common definitions were used. This incomparability of data was somewhat confirmed after the merger of Compaq and Hewlett-Packard, when the formerly separate warranty teams each got a close look at how the other counted warranty costs. And that, more or less, is where the issue came to a rest for several years.

Then last March, at the first annual Warranty Chain Management Conference in San Francisco, Tom Washburn of HP and others called for a breakfast meeting of interested parties to discuss how a warranty metrics group could draft common definitions. "Out of that call to action at that conference, sixteen participants stepped forward and expressed an interest in moving forward," Bellinger recounted, "standardizing definitions, looking at warranty measures, and benchmarking best practices."

Going forward, Bellinger said the group hopes to write a white paper that details considerations for warranty accounting, where standardized definitions for warranty costs will be suggested. At this point, the group remains ad hoc and informal, and is not sponsored by any particular company, although individuals have contributed resources such as the use of company teleconferencing services.

Bellinger invited all WCM attendees to a networking event that took place on the evening of March 2 at the Luxor Las Vegas. Roughly 25 people did attend the event, held in the Luxor's Egyptian Ballroom. After enjoying some SAS Institute-sponsored hors d'oeuvres and drinks, attendees were asked if they wanted to move forward with the idea of forming a warranty industry association.

The answer, unsurprisingly, was overwhelmingly yes, and Bellinger and Griffiths asked for the names of people to volunteer for a committee that would then take the next step and begin writing a charter for the association. Work on that effort is expected to produce results within six months, during which it's likely that the group will meet several more times by way of teleconference calls.

Auto Extended Warranty Group

Eric Maerker shared what he called "a view from the front lines," relating to the recently-announced launch of the Vehicle Service Contract Administrator's Association. "We're not as far down the road," he said, as the benchmarking group described by Bellinger, but like that other grass roots effort, the idea for the VSCAA first came together at a meeting off to the side of a more widely-focused conference -- in Maerker's case, a gathering of automotive dealership finance and insurance managers.

He was able to draw 85 people to his one-day pre-show event last year, and out of that gathering came the idea to form a community of service contract administrators. To serve their needs, the VSCAA is likely to begin certifying independent auto inspectors, and to begin maintaining a list of independent repair facilities willing to perform warranty work for administrators. "Folks have indicated a willingness to be involved," he said.

Maerker described how the auto extended warranty is now seeing the entrance of several new and well-financed players even as some of the veteran underwriters and administrators are about change owners. It's a time, he said, of both great opportunity and great risk. "Easy to open shop, hard to keep shop open," he said, quoting what he said was an ancient Chinese proverb.

Senior Executive Focus

Joe Barkai, program director of IDC's Manufacturing Insights told how the first in-person meeting of his Warranty Council came together last month in Chicago. "What warranty needs is to mobilize the enterprise, and to get management awareness and support," he said, so the necessary changes can be made. "So our Warranty Council is trying to improve awareness at the upper management level, and to share best practices and experiences, so we can improve not only our warranty costs, but also our product lifecycle costs."

Though this was the council's first face-to-face meeting, it was preceded by several conference calls. And there will be more to follow. "We envision quarterly conference calls and one annual meeting," he said. In between conference calls, the group plans to do committee work related to benchmarking, best practices, and surveys.

Toward that goal, Manufacturing Insights is tonight launching yet another online survey, which includes six questions related to warranty management. Click on the link on the right side of this page, or go to this Web page: http://216.235.248.162/survey/99180/1af1/. To sweeten the deal, Manufacturing Insights is giving away Amazon.com gift certificates worth $100, $150, and $250 to three of the lucky people who complete the survey by March 24.

In detailing the results of another survey, Barkai related how Manufacturing Insights recently asked warranty professionals to respond to a single statement, "My company is doing a good job of managing warranty costs." As of presstime on the evening of March 7, nearly 39% of some 57 respondents disagreed with that statement, saying their companies were not doing a good job of managing warranty costs. Only 33% agreed, and 28% were neutral, saying they neither agreed nor disagreed with the statement.

Next Steps

Glen Griffiths said that during the meeting at the Luxor, ten people offered to help with the drafting of a charter for a warranty association. They're expected to finish within six months, meaning by October there could very well be a formal group launched, with bylaws, officers, committees, and dues-paying members.

And although a formal name has yet to be chosen for the group, he said he's reserved a PlaceHolder Web site at http://www.iwcm.org as a central point "where warranty professionals and business executives from across multiple industries can access information on warranty-related events, process developments and improvements, and companies offering their services to the warranty community."

Griffiths said that most of the other possible permutations of WCM and either the letters I or A (for Institute or Association) were already taken. The use of an I in the acronym, he said, was based around the idea that there's a need for standards and a curriculum behind the profession, hence an Institute. "As opposed to an association," he said, "which is more of a cooperative."

More immediately, 23 of the people who wrote on the pink paper that they would like to become involved in the formation of a warranty industry association neglected to include their names. Glen and Alison Griffiths would like to hear from them, as well as others who either went to Las Vegas and didn't fill out a survey, or who didn't go to the conference but still want to participate, at alison@algassociates.com or at the address on the Web site.





AMT Warranty Corp.
Fulcrum Analytics
Warranty Chain Management Conference
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