Warranty used to be overlooked; taken for granted as a back office paper shuffling process. Then came the concept of the warranty chain and the practice of warranty claims management. Now comes the idea of warranty as a subject worthy of multi-client surveys and research reports.

It's about time. Back in the old days, in the 1990s during the early days of the Internet boom, your editor worked at a New England-based publishing company that produced thick and expensive research reports with incredibly specific titles such as "Nine-pin Dot Matrix Printer Heads." Now, mind you, it wasn't a report about printers. It wasn't even restricted to just dot matrix models, or to just their printer heads. No, it was about just one type of technology, the nine-pin dot matrix printer head.

Now, in the early years of this new century, several research companies that have published extensively on service-related and aftermarket-oriented subjects are finally discovering a topic that's been there all along: warranty. No, it doesn't yet have a buzzword-worthy acronym, despite the continuing efforts of the Warranty Chain Management practitioners to advance the cause of WCM. And it doesn't yet have any extremely specific research titles. But it does have at least one general title, in the form of AberdeenGroup's new report "Winning with Integrated Warranty Management," and at least one promising survey effort under way, in the form of APQC's new "Service After Sales Benchmarking Study."

A Winning Strategy

Mark Vigoroso, chief research officer and senior vice president of service chain management at AberdeenGroup Inc., said he chose to begin the title of his report with the word winning because that's what his company is all about: helping end users make the best choices and educating technology buyers with the facts they need to make their business and technology decisions.

"One of the things I do at the very end, after I'm done with these things, is to come up with a title," Vigoroso said. "But really, the notion of integration is thinking about warranty as an opportunity to better integrate the product lifecycle. So if you think about what has traditionally been product lifecycle management, which has been focused on the design phase of the product cycle, where I see warranty coming in is as an opportunity to create a much-needed linkage between the last third of a product lifecycle with the first third. So I see it becoming a design to service, full cradle to grave product lifecycle that allows OEMs to better manage product quality and performance, which gets to the sub-header [Managing the Pulse of Product Quality and Performance], but also to control costs from a warranty process point of view, and even to uncover opportunities for additional revenue."

Vigoroso said that while past AberdeenGroup research reports has come awfully close to the topic of warranty in the past, this is the first time warranty made it into the top-line title. "In the context of our practice, which is service chain management, we have spent a lot of time focused on some of the core processes around field service, repair operations, and reverse logistics, and we hadn't spent a lot of time on the financial implications of warranty, and just the pure governance and contract management components of warranty. So literally, it was a white space in our coverage area that we had not treated, other than a few side pieces, but not to the depth we needed. So this is a long overdue, dedicated benchmark study in the area," he said.

How did the company decide upon warranty? Simple: it asked its customers. "We spend some time vetting our topics before we dive into doing them," he said. "And we vet them in two ways: We asked our end user contacts -- the folks that are primarily service, logistics, supply chain, and finance executives at OEMs across multiple industries -- what is it you want us to be researching? And, with some degree of variance across industry, warranty was somewhere near the top echelon of interest, not only from a cost point of view, but also how do I mitigate some of the risk? How do I leverage it as a strategic activity, not just a cost consideration, but also potentially as a revenue generator?"

The Glue That Binds

Warranty, Vigoroso said, is like a kind of glue that "makes those linkages and builds those bridges between and among what have been very separate and siloed business units within the product value chain. You have quality, finance, service, marketing, sales, and design. In many cases you may have some collaboration going on between those groups, but at the end of the day there's a degree of disconnect that exists across all of those areas."

That seems to be a theme that runs throughout the report's 34 pages: warranty is a process that can easily be improved. And it's not just the process of paying valid claims and detecting fraudulent claims that can do with some improvement. The whole realm of warranty data communications, of enhanced collaboration between claims managers, quality control, design, production, engineering, finance, purchasing, and service, is a process that needs some improvement.

Warranty data can be fed back to these groups, telling them how their products are holding up after sale. "Things like percentage of new products returned within the initial warranty period," he suggested, a metric that ranges from a low of 3.2% within the aerospace and defense industry to a high of 12.1% in the high-tech manufacturing industry (Table 4, Page 9). "That's a fairly good indicator that perhaps there's a design flaw, or perhaps there's a supplier issue there. So we see it as one of the areas that's been sitting in front a few people's faces, but has not been leveraged as a kind of glue that can bring all of these disparate business units together."

The complete study is available online for download as a PDF file. In the next few weeks, Vigoroso said AberdeenGroup plans to publish a few additional derivative reports based on the data it amassed during this study. Some will be built around specific industries, while others will compare small and large businesses.

Follow-up Studies Planned

Early next year, Vigoroso said he's thinking about following up this heavily quantitative warranty study with something more qualitative and interview driven. He also may contact the participants in this round, "to do a deeper dive, and get the story behind the story," he said.

For instance, Vigoroso said that in other AberdeenGroup studies, medical equipment manufacturers have always shown up near the top of the list in terms of the adoption of service as a revenue contributor, or in the use of new technologies to benefit service. "So it was fairly surprising to us to see them towards the bottom of this list," he said, ranking in the lowest of the four tiers outlined in Table 4.

In addition, Vigoroso pointed out that high-tech manufacturers had the highest percentage of products returned for service (12.1%). But they also had the fastest per-claim processing time (2.0 days). What could the correlation be? "It's almost as though by necessity, they have developed an operation that allows them to very quickly adjudicate and process the claims, so that a backlog doesn't develop," he said. But that's just a hunch that needs some follow-up study.

Meanwhile, aerospace and defense manufacturing along with industrial manufacturing, ranked in the top of the four tiers, based upon a combination of low return rates, low warranty costs, and fast processing times. "Aerospace and defense, from a performance management point of view around service and post-sale support, has consistently been towards the top of the list" in other studies, he said. "A lot of these products are deployed in very mission-critical environments, where lives are at stake. In order for them to gain the trust and approval of their customers, they need to maintain near-100% asset uptime. So it's really not surprising for me to see them in the top echelon" in this study, he said.

Small Companies Do Best?

Another puzzle was the wide gap between the comparative efficiency of small, medium, and large companies, detailed in Table 3 on Page 8. Small companies, with revenues under $50 million, were processing claims in an average of five days, while spending an average of 12.8% of product revenue on those claims. Large companies with annual revenues over $1 billion averaged 2.6% of revenue, and took an average of 10 days to process a claim. What can explain this difference?

It may be nothing more than the ability of different people in different departments to communicate easily. In a small company, Vigoroso said, "these disparate units are either co-located or very centrally located, so the prospect of collaboration and actually taking data from the service environment and doing something intelligent with it in the design environment does not require a logistical Act of God, if you will."

In some large companies that want to act small, design engineers are actually assigned to the warranty team, or all departments assign a person or persons to an inter-departmental warranty council. "What they lack in personnel intimacy, they can more than make up for in more seamless integration of their IT systems," he said. "And obviously, that's easier said than done. If you think about the existing footprint that is already in place at a lot of these OEMs, where you have manufacturing systems, manufacturing execution systems, PLM, ERP, and CRM systems, field service, inventory -- you name it. As you think about warranty, a lot of the data that is valuable and actionable in the warranty chain may already be captured in one of these systems."

"What needs to happen at these large organizations is some sort of a linchpin, whether it's an individual whose task is warranty -- I'm arguing for more of a Chief Service Officer -- someone to take ownership and provide the glue to maximize the data that's already being captured."

Need for Better Communications

Warranty software suppliers who co-sponsored the AberdeenGroup report also echoed this theme about the need for better collaboration and better approaches to warranty data communications. Ron Ezsak, senior director at Tavant Technologies Inc., pointed to Figure 2 on Page 3, which detailed the top five warranty management challenges, a list which included:

1. Identifying root causes of product failures,
   
2. Feeding product fault information to design organization,
   
3. Recovering costs from suppliers,
   
4. Processing claims effectively/efficiently, and
   
5. Effective technology deployment/integration.

Ezsak said that he was happy to see that claims processing wasn't ranked at the very top of the list of challenges and priorities. "It's a common mistake that too many companies make," he said. They think that if they can just fix claims processing, everything else will fall into place. Instead, what he suggests is fixing everything else first, and then claims processing will fall into place.

But he said he was a bit disappointed to see that while supplier recovery made this list, it wasn't a bigger part of the report as a whole. And there's very little mention in the report of the concept of reverse logistics, or the need to strengthen the links between suppliers and service departments. But he doesn't blame AberdeenGroup. "I think the fact that supplier recovery and reverse logistics weren't a bigger part of it," he said, "is because companies really don't do it well."

Connect the Dots

"If you don't connect these dots, if you don't turn warranty from a claims processing transaction into a process that includes all the stakeholders, and exploits the service communication, and disseminates the knowledge that can be gleaned out of that, you don't get the short-term, near-term, and long-term benefits of what warranty can be," he said. "All of this translates into relationships. It's the relationship between quality and finance, between supplier and production, and between OEM and dealer or distributor."

A better place to start, he said, is to find out from all these departments what they need to know about a product failure, and then to find a way for the claims process to collect and communicate that information. "There's that old saying that when you're a hammer, everything looks like a nail. But what warranty should really be is the whole toolbox," he said.

"If you said to quality, what do you want to learn most out of the service communication, they're going to talk about things like the causal part that failed, or the primary part that failed," he added. "They're going to want to see the relationship between failures. They're going to want to see how these various failure events interacted to create this service situation. And of course, finance will want to know about that too, because that is a big part of the expense they incur." And so on, as production, design, suppliers and others become involved.

"Each of these functions are going about it somewhat independently," Ezsak said. But warranty should have a more holistic approach, where the emphasis is on collecting and communicating the right data for everyone. "What we do at Tavant is basically go backwards. We do the inverse of what most companies do. Most companies tend to look at claims submission as the first thing on their plate. We look at that as the last thing that needs to be attended to."

Ashok Kartham, president of 4CS Inc., said his company also is emphasizing the importance of the whole warranty process and the interdependence of its parts. "This study confirms growing awareness of importance of managing the warranty chain within the manufacturing companies," he said. "The dissatisfaction with current warranty management by majority of the companies represents a huge opportunity and growth potential for the Warranty software industry."

"We feel further validated about our strategy of addressing the whole warranty lifecycle including supplier collaboration and warranty analysis using the 4CS iWarranty software in addition to claims processing," Kartham added. "Instead of separating the warranty solution into multiple applications like claims processing, reporting, analysis, text analysis and return systems, etc., the customers are looking for the integration of the warranty chain and intelligence to provide early warning. And that's what 4CS as a leading warranty software provider is ready to deliver."

New Warranty Benchmarking Effort

Meanwhile, at the company that was once known as the American Productivity & Quality Center, a new effort is under way to widen the scope of its Open Standards Benchmarking Collaborative to encompass warranty and after-sales service.

Cathy Hill, director of global alliances at APQC, said that when the non-profit company began the whole OSBC effort in 2004, its initial focus wasn't very far away from warranty, although it did drift a little in the years since. "When we started the Open Standards Benchmarking Collaborative, we actually started with supply chain," she said. "And then we branched off into financial management and later human capital management."

Hill said the supply chain area in general has always been the strongest for APQC. "We get the most participation in that area and the most requests," she said. "So we were looking for some new topics within that broader group. And some of our member feedback and our client feedback has been 'why don't you do something on warranty or service after sales?'"

So last month, APQC approached Warranty Week with a proposal for the newsletter to help introduce APQC to its readers, and to invite warranty professionals to participate in the benchmarking study. Participation is open and is free of charge. Visitors to the Web site can preview the survey and see all the questions ahead of time. Visitors also can see a list of the measures to be reported out at the study's initial conclusion next year, and they can see a sample report that contains mock data to illustrate what the finished product will look like.

Those who participate in the benchmarking study and who complete at least half the survey questions will get a blinded compilation of the results, again free of charge. Multiple people can split up the sections any way they like, and people can complete different sections in more than one sitting. Warranty Week receives no money, and pays no money, but we will get a copy of the blinded results next year, so we can write about them.

"What we've been told is the types of reports we've been providing complimentary for submitting your data are similar to what organizations are paying benchmarking consultants anywhere from $35,000 to $70,000," Hill said. APQC has already completed around 23 or 24 surveys, she said, with a total of 3,000 participants, many of them repeat contributors. In this instance, Hill said APQC needs about 30 or 40 participants to make the data in the surveys useful.

What's the Catch?

So what's the catch? Why would a research company do a free benchmarking study that some companies would gladly pay for? The answer is, simply, somebody with the resources and the track record to do the warranty industry a great favor decided to focus on warranty.

"We wanted to make it open," Hill said. "We wanted to say that if you share, you get something back complimentary, because you did share. We put our measures out there, and put our surveys out there, and all our tools, so everybody knows what we're calculating and what we're providing back. There's no big black box."

As for who should think about participating, Hill said the target list is very broad. First of all, it's global in scope, although she said she expects that three-quarters of the participants will be from American companies. "We have some basic questions that everybody will respond to, and then we have some industry-specific questionnaires: for aerospace and defense, automotive, electronics, retail, and then a general section for everybody else," she added. "The key points we're focusing on are interacting with the customers, managing product returns, performing product service, managing service repair parts, pursuing value-added service offerings, and recovering value through product refurbishments."

Hill said that many times, two or three people within the same company split up the task of filling out the survey. Or one person does a little bit each time over the course of several visits. "That's why we give out the preview version [in a Word document format], so you can print off a copy, look through it, and figure out who needs to answer what." Hill said some companies also forward around the Word document internally, soliciting everybody's input and a list of the possible ways to answer each question. Then it's somebody's job to look through the submissions and decide which will become the company's final answer.

Click Here for Details

For the next few months, Warranty Week will provide links to both the AberdeenGroup's report and APQC's survey. Display ads for both can be found in the right-hand column. For those of you who use email systems that disable Web links as a safety measure, or who read the plain text version of this newsletter, the link to the Aberdeen report is http://www.aberdeen.com/link/sponsor.asp?cid=3181 and the APQC link is http://www.apqc.org/warrantyweek.